The CAG report highlights fiscal inconsistencies, debt trends, and transparency issues; emphasizing the need for improved fiscal management to ensure stability and accountability.

Why in the News?

Recently, Comptroller and Auditor General of India (CAG's) report has highlighted several fiscal inconsistencies and transparency issues in the government's compliance with the FRBM Act.

About FRBM Act, 2003

Purpose: The FRBM Act, 2003, was enacted to foster inter-generational equity in fiscal management and ensure long-term macroeconomic stability.
- The Act aims to guide the central government's fiscal policy towards a sustainable path, thereby promoting economic stability and responsible financial governance.
- A key mandate of the Act is that the CAG must conduct an annual compliance review of its provisions.
FRBM Act mandates the following statements to be laid before the Parliament along with the Budget:
- Macro-economic Framework Statement.
- Medium Term Fiscal Policy Statement.
- Fiscal Policy Strategy Statement.

Key Targets under FRBM Act

Parameter	Target	Deadline	Current Ratio as of 2023-24 (CAG Report)
Fiscal deficit (original FRBM)	3% of GDP	31st Mar 2021	5.32%
Debt limits	General Govt (Centre + State) ≤ 60% of GDP; Central Govt ≤ 40% of GDP	End of FY 2024–25	Central Govt: 57% General Govt: 81.3%
Revised fiscal consolidation path	< 4.5% of GDP fiscal deficit	FY 2025–26
Additional guarantees (against Consolidated Fund of India)	≤ 0.5% of GDP in any year	Annual cap
The targets for Revenue and Effective Revenue Deficit were removed by the 2018 Amendment to the FRBM Act.

Key Findings of the CAG Report

Central Government Debt Trends:
- Debt-to-GDP Ratio: The central government debt as a ratio of GDP peaked significantly during the pandemic, reaching 61.38% in FY 2020-21.
  - However, it has since shown a moderating trend, declining to 57% as of March 2024.
  - A high debt-to-GDP ratio is undesirable, as a higher ratio indicates a higher risk of default.
- Debt Sustainability: A positive signal was acknowledged regarding debt sustainability, with the debt sustainability analysis indicator being positive in 2022-23 and FY24, indicating stability.
Interest Payments to Revenue Receipts: This ratio, considered an important indicator of the government's fiscal health and fiscal strain, rose marginally to 35.35% in 2022-23 after declining from a peak of 38.66% in 2020-21.
Compliance with Guarantee Limits: This remained within the legal ceiling of 0.5% of GDP in 2022-23, indicating compliance.
Unrealized Tax Revenues: The report revealed a significant amount of tax revenue raised but not realized, which surged to ₹21.30 trillion by the end of 2022-23.
- A large portion of this unrealized amount was not under dispute, suggesting potential issues in tax enforcement or recovery processes.
Discrepancies in Deficit Figures: Variations have been seen in estimates for fiscal deficit, revenue deficit (currently 2.54%), primary deficit (1.66% currently), and especially in non-tax revenue estimates.
- The fiscal deficit figure in the Union Government Finance Accounts (UGFA) for 2022-23 differed from the figure cited in the Budget at a Glance (BAG) for 2024-25.
- Such discrepancies raise questions about the consistency of key fiscal indicators.

Conclusion

The need of the hour is to enhance transparency, tax recovery and improving fiscal management practices. By working on this, the government can bolster its fiscal credibility, ensure greater accountability, and reinforce the objectives of the FRBM Act to maintain sound fiscal health and macroeconomic stability.

Know the terms

Debt Sustainability Analysis: It is a measure to assess the ability of the Government to service its debt-related financial obligations over a period of time
Fiscal Deficit: Fiscal deficit is the difference between the government's total expenditure and its total receipts excluding borrowing.
Primary Deficit: While fiscal deficit represents the need for additional resources in general, a part of such resources may be needed to finance interest payments. Interest payments represent the expenditure of past obligations and are independent of current allocative priorities.
Revenue Deficit: Revenue deficit is the excess of revenue expenditure of the Government over its revenue receipts. It represents net dissaving of the Government for the sake of present consumption. Revenue deficit leads to increase in borrowings without corresponding capital/asset formation.
Effective Revenue Deficit: It means the difference between the revenue deficit and grants for creation of Capital Assets.