Returns fail to justify cost of borrowed funds
KOCHI: Kerala’s investments in the last five years seemed to have misfired with the average return on investments made by the State Government having yielded only 1.35 per cent even as it had paid an average interest rate of 7.18 per cent on its borrowed funds.
Worse, the CAG in its report on State finances for 2016-17, notes that during 2016-17, the interest receipt on loans and advances given by State Government was 0.22 per cent against its average cost of borrowing at 6.92 per cent.
It’s a fact in the public domain that the scores of public sector undertakings (PSUs) owned by the state have become a thorn in the flesh handing out losses year after year to the exchequer, barring a minority, with the net (combined) losses almost doubling to Rs3855 crore and accumulated losses tally having surged to Rs19,648 crore as of 2016-17 (data provided by Bureau of Public Enterprises).
The state’s debt has now started rearing its ugly head. Almost 68 per cent of the loans raised during 2016-17 is sufficient only to service the debt. Debt maturity profile of the State shows that about 50 per cent of the debt (Rs62,478.65 crore) is to be repaid by March 2024.
As per the recommendations of 14th Finance Commission, Fiscal Debt-GSDP (State GDP) ratio was to be less than 25 per cent, but during the last five years it showed an increasing trend (from 26.31 per cent in 2012-13 to 28.96 per cent in 2016-17) due to increased growth of fiscal liability with respect to GSDP.
The CAG has brought out some other discomforting facts too. Though the Consolidated Sinking Fund (CSF) has been constituted with the aim to amortize the outstanding liabilities of the State, the Government never bothered to contribute to the fund yet (until June, 2018).
Similarly, Government has to constitute a Guarantee Redemption Fund (GDF) for crediting guarantee commission collected for meeting future liability arising out of guarantees given by the Government.
The fact of the matter is that the Fund has not been constituted so far and the guarantee commission of Rs854.08 crore collected during 2003-04 to 2016-17 has not yet been credited to the Fund. “The accumulated balance in State Disaster Response Fund, at the end of March 2017 was Rs115.86 crore,” the CAG stated.
As per the guidelines, Government has to credit interest equal to the amount of interest rate applicable to overdraft under overdraft regulation scheme of Reserve Bank of India (RBI). However, this was not done and also interest payable on the un-invested balances of the earlier years has not been estimated by the Government.
Departmental officers are responsible for arranging prompt re-payment of loans and to maintain the records relating to receipt and repayment of loans raised from financial institutions. The CAG has noticed deficiencies in loan accounting, repayment and monitoring in respect of loans raised from National Cooperative Development Corporation of India (NCDC) and Housing and Urban Development Corporation Limited (HUDCO).
The audit report has faulted KIIFB too – It observed that funding for nine schemes with an outlay of Rs865 crore was to be made from the Special Investment Plan scheme (funds through Kerala Infrastructure Investment Fund Board – KIIFB). “Though the amount was expected to be incurred during 2016-17 for the nine schemes through KIIFB, no amount was incurred in any of these schemes till November 2017,” it added
Though Plan and Non-plan Revenue expenditure were increasing, revenue expenditure as a percentage of total expenditure showed a declining trend during the last two years which indicated shifting of Government’s priority towards capital expenditure.
Though share of capital expenditure in total expenditure increased during last two years, it was on the lower side compared with General Category States in 2016-17.
State’s share of expenditure on health and education sector in total expenditure was more than General Category States, but the share of capital expenditure and development expenditure in total expenditure was less than that of General Category States.
When interest payments showed a reduced growth rate compared with previous year, pension payments showed increased growth rate. Interest payments and pension payments consumed 16 per cent and 20 per cent respectively of revenue receipts and is a matter of concern for the State Government.