CHAPTERI

FINANCESOFTHESTATEGOVERNMENT

1.1

Introduction

ChhattisgarhisoneoftheleadingStatesinthecountryinmineralproduction. The State of Chhattisgarh was formed on 1 November 2000 in terms of the 1 MadhyaPradeshReorganizationAct2000(No.28of2000)with16districts 2 of the erstwhile State of Madhya Pradesh. Two more districts have been formed after the formation of the Chhattisgarh State. The apportionment of assets and liabilities of the composite State of Madhya Pradesh prior to the dateofreorganizationaswellasotherfinancialadjustmentswerecarriedout 3 inaccordancewiththeprovisionsoftheAct .Chhattisgarhhashigherpoverty levels as compared to the allIndia average as indicated in Appendix1.1. Densityofitspopulation(154personspersqkm)asperthe2001censuswas lowerthan theallIndiadensity(325personpersqkm).TheStatehasshowna relatively higher economic growth in the past decade as the Compound Annual GrowthRate(CAGR)ofitsGrossStateDomesticProduct(GSDP)for theperiod200001to200910hasbeen17.70percentascomparedto12.54 4 percentinotherGeneralCategoryStates .Duringthisperiod,itspopulation hasgrownby14.25percentagainst13.42percentinotherGeneralCategory States. The infant mortality rate of the State was 57 (per 1000 live births) whichwas higher than the allIndia average of 53. The inequality ofincome distribution in the case of rural areas of Chhattisgarh was less than the all Indiaaveragebutmorein thecaseof urban areas(Appendix1.1). TheannualaccountsoftheStateGovernmentconsistofFinanceAccountsand Appropriation Accounts. The Finance Accounts of the Government of Chhattisgarh are laid out in 19 statements, the structure and layout of which aredepictedin Appendix1.1(a). This chapter provides a broad perspective of the finances of the State Governmentduringthecurrentyearandanalysescriticalchangesinthemajor fiscal aggregates relative to the previous year, keeping in view the overall trends during the last five years. The analysis is based on the Finance Accounts and the information obtained from the State Government. Appendix1.2ofthechapterbrieflyoutlinesthemethodologyadoptedforthe assessment of the fiscal position of the State and Appendix1.3 presents the timeseriesdataonkeyfiscalvariables/parametersandfiscalratiosrelatingto theStateGovernmentfinancesfortheperiod200510.

2 3 4

Bastar, Bilaspur, Dantewara, Dhamtari, Durg, JanjgirChampa, Jashpur, Kanker, Kawardha,Korba,Koria,Mahasamund,Raigarh,Raipur,RajnandgaonandSurguja. BijapurandNarayanpur. Ibid. Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Haryana, Jharkhand, Karnataka, Kerala,MadhyaPradesh,Maharashtra,Orissa,Punjab,Rajasthan,TamilNadu,Uttar Pradesh,andWestBengal.

AuditReport(StateFinances)fortheyearended31 March2010

1.1.1 Summaryofcurrentyearsfiscaltransactions Table1.1presentsthesummary oftheStateGovernmentsfiscaltransactions during the current year (200910) visvis the previous year while Appendix1.4 provides details of receipts and disbursements as well as the overallfiscalpositionduringthecurrentyear. Table1.1: Summaryofcurrentyearsfiscaloperations
(` incrore) 200809 Receipts SectionA:Revenue 15,662.76 Revenue receipts 6,593.72 Taxrevenue 2,202.21 Nontaxrevenue 4,257.91 ShareofUnion Taxes/Duties 2,608.92 Grantsfrom Governmentof India SectionB:Capital 1.78 Miscellaneous CapitalReceipts 533.42 Recoveriesof Loansand Advances 1.46 InterState Settlement 386.34 PublicDebt receipts* 0.00 Contingency Fund 20,043.95 PublicAccount receipts 2,731.19 OpeningCash Balance 39,360.90 Total 2.31 992.43 2,940.16 CapitalOutlay 490.75 Loansand Advances disbursed 1.47 InterState Settlement 489.36 Repaymentof PublicDebt* 0.50 Contingency Fund 19,585.29 PublicAccount disbursements 2,059.67 ClosingCash Balance 39,360.90 Total 0.11 # 2,744.81 # 2,744.92 896.79 200910 18,153.66 7,123.25 3,043.01 4,380.66 3,606.74 200809 Disbursements 200910 Non Plan Plan 10,447.64 4,305.19 2,874.87 2,823.59 444.00 6,817.80 44.58 5,148.67 1,599.56 24.98 Total 17,265.44 4,349.77 8,023.54 4,423.15 468.98

13,793.70 Revenue expenditure 3,598.75 Generalservices 6,152.75 Socialservices 3,523.24 Economic services 518.96 Grantsinaidand Contributions

3.04 1,287.21 0.50 24,511.62 2,059.67 47,010.44

# # # # #

# # # # #

3.29 651.57 0.00 23,878.77 1,569.66 47,010.44

(Source:FinanceAccountsoftheStateGovernment200910) #FiguresforPlanandNonPlanare notavailableintheFinanceAccounts. *Excludingnettransactionsunderwaysandmeansadvancesandoverdraft.

The following are the significant changes during 200910 over the previous year: Revenue receipts increased by 15.90 per cent (` 2,490.90 crore), mainly due to increase in tax revenue by 8.03 per cent (` 529.53 crore), nontax revenue by 38.18 per cent (` 840.80 crore), State's share ofUnion taxes and duties by 2.8per cent(` 122.75 crore) and grantsinaid from the Government of India by 38.25 per cent (` 997.82crore).
2

Chapter I FinancesoftheStateGovernment

Revenue expenditure increased by 25.17 per cent (` 3,471.74 crore) overthepreviousyearduetoincreasein Plan expenditureby 25.77per cent (` 1,396.85 crore) and NonPlan expenditure by24.78 per cent (` 2,074.89crore). Capital expendituredecreasedby 6.64per cent (` 195.24 crore)over the previous year mainly due to decrease in expenditure under the heads: Major Irrigation and Minor Irrigation, Roads and Bridges, SocialSecurityandUrbanDevelopment. Thecapitalexpenditurewas 33.38percent(` 1,375.12crore)lessthantheassessmentmadebythe State Government in its Medium Term Fiscal Policy Statement (MTFPS). Both the public debt receipts and repayment increased by ` 900.87 croreand`162.21crorerespectivelyduringtheyear.Theincreasein public debt receipts was mainly due to the increase in market loans (` 700.02 crore) and special securities issued to the National Small SavingsFund(NSSF) (`185.05crore). Public Account receipts and disbursements increased by ` 4,467.67 crore and `4,293.48 crorerespectively over the previous year.Thus, theincreaseinnetreceiptsduringtheyearwas` 174.19crore. As a result of inflow/outflow of the funds as stated above, the cash balanceattheendofthe yeardecreasedby`490.01crore(23.79per cent). 1.1.2. Reviewofthefiscalposition InresponsetotheTwelfthFinanceCommissions(TFC)recommendation,the Government of Chhattisgarh enacted its Fiscal Responsibility and Budget ManagementAct,2005,withaviewtoensureprudenceinfiscalmanagement and fiscal stability by progressive elimination of revenue deficit, greater transparency in fiscal operations of the Government and conduct of fiscal policy inamediumtermfiscalframework. An increase of 25.17 per cent in revenue expenditure during 200910 in comparisontothatof15.90percentincreaseinrevenuereceiptsresultedina decrease in the revenue surplus from ` 1,869.06 crore in 200809 to ` 888.22crorein 200910. Thedecreaseof` 980.84croreintherevenuesurplusandincreaseinnondebt capital receipts of ` 461.12 crore accompanied with the decrease in capital expenditure of ` 195.24 crore and increase in disbursement of loans and advances including interState settlement of ` 407.86 crore, resulted in increase of ` 732.35 crore in the fiscal deficit in 200910 over the previous year. Duetoincreaseinfiscaldeficit(` 732.35crore)aswellasinterestpayments (`17.33 crore), the primary surplus of` 50.87 crore in 200809 changed to primarydeficitof `664.14crorein200910. ThefiscalperformanceoftheStatevisvisFRBMtargetsandthoseframed intheMTFPSfortheyear200910ispresentedbelow:

AuditReport(StateFinances)fortheyearended31 March2010

Fiscalforecasts

FRBMTargets

Revenuedeficit()/Surplus(+) Tobewipedoutby (+)888.22 200809 (`incrore) Fiscaldeficit()/Surplus(+) Toreducetonot 2.98 percentof 1.63 percent morethanthreeper GSDP ofGSDP centofGSDPby 200809 (Source:FRBMAct,200910andFinanceAccountsoftherespectiveyear.)

Projectionas perFRBMAct (+)806.16

Actual

The State Government achieved revenue surplus five years ahead of the scheduledperiodof200809.ThefiscaldeficitasapercentageofGSDPwas withinthelimitasprescribedintheFRBMAct/by TFC. The States actual own tax revenue receipts, nontax revenue receipts and NonPlan expenditure were more than the normativelyassessed level of the TFCby` 1,465.07 crore(25.89 per cent),`1,338.35 crore(78.51per cent) and `2,894.03 crore (38.31 per cent) respectivelybut the interest payments werelessby `378.62crore(25.70 percent).
5 Chart1.1 presentsthebudgetestimates andactualsforsomeimportantfiscal parameters.

C hart1.1:Se le cte dfiscalparame ters:Budge testim ate svisavisactuals (` incrore)

20000 18000 16000 14000 12000 10000 8000 6000 4000 2745 2000 0 2000 TaxRevenue 4000 NonTax Revenue Revenue Receipts Revenue Expenditure Interest Payment Capital Expenditure 1759 2564 Revenue FiscalDeficit Surplus 664 1485 Primary Deficit 3569 2745 1079 1096 806 888 7030 7123 18897 18154 18091 17265

3043

B E

A C T UA LS

(Source:FinanceAccountsoftheStateGovernment200910andBudgetEstimate200910of State)

Budgetestimatesdonotincludetherevisedestimates. 4

Chapter I FinancesoftheStateGovernment

ItisevidentfromtheaboveChartthatduring200910,theactualswerefairly equaltothebudgetestimates,barringthe following: Nontax revenue and revenue surplus were more than the budget estimatesby11percentand10percent respectively. Thefiscaldeficitandprimary deficitwereconsiderablylowerthanthe budgetestimatesby31 percentand55 percent respectively. Thecapitalexpenditurewaslowerthanthebudgetestimateby23per cent mainly due to less expenditure under capital outlay on civil aviation,medicalandpublichealth,roadsandbridgesandvillageand smallscaleindustries.

1.2

ResourcesoftheState

1.2.1 ResourcesoftheStateasperAnnualFinanceAccounts Revenue and capital are the two streams of receipts that constitute the resourcesoftheStateGovernment.Revenuereceiptsconsistoftaxrevenues, nontax revenues, States share of Union taxes and duties and grantsinaid fromtheGovernmentofIndia(GOI).Capitalreceiptscomprisemiscellaneous capitalreceiptssuchasproceedsfromdisinvestments,recoveriesofloansand advances,debtreceiptsfrominternalsources(marketloans,borrowingsfrom financialinstitutions/commercialbanks)andloansandadvancesfromGOIas wellasaccrualsfromthePublicAccount.Table1.1presentsthereceiptsand disbursements of the State during the current year as recorded in its Annual Finance Accounts while Chart1.2 depicts the trends in various components ofthereceiptsoftheStateduring200510.Chart1.3depictsthecomposition ofresourcesoftheStateduringthecurrentyear.
Chart1.2TrendsinReceipts
44951

48000 45000 42000 39000 36000 33000

36630 32316 26729 24512 20897 17706 10807 8838 13982 11453 13879 15663 20044 18154

`incrore

30000 27000 24000 21000 18000 15000 12000 9000 6000 3000 0

1252

1294

728

923

2285

200506

200607

200708

200809
CapitalReceipts TotalReceipts

200910

RevenueReceipts PublicAccountReceipts

AuditReport(StateFinances)fortheyearended31 March2010

Chart1.3CompositionofReceiptsduring200910
40%

55% 5% RevenueReceipts CapitalReceipts PublicAccountReceipts

The total receipts of the State for the year 200910 were` 44,950.77 crore. The total receipts rose by 22.72 per cent during 200910 over the previous yearmainlyduetoincreaseinrevenuereceipts(`2,490.90crore),recoveries ofloansandadvances(` 459.01crore),publicdebtreceipts(`900.87 crore) andpublicaccountreceipts(` 4,467.67crore). 1.2.2 FundstransferredtoStateImplementingAgenciesoutsidetheState Budgets The Central Government has been transferring a sizeable quantum of funds 6 directlytotheStateimplementingagencies fortheimplementationofvarious schemes/programmesinsocialandeconomicsectorsrecognizedascritical.As thesefundsarenotroutedthroughtheStateBudget/StateTreasurySystem,the Annual Finance Accounts do not capture the flow of these funds and to that extent, the States receipts and expenditure as well as other fiscal variables/ parametersderivedfromthemareunderestimated.
7 Government of India transferred funds of ` 2,851.01 crore directly to the State implementing agencies. Instances of funds directly transferred to the Stateimplementingagenciesarepresentedin Table1.2.

Sl. NameoftheProgramme No

Nameoftheimplementing AgencyintheState

Totalfundsreleasedbythe GovernmentofIndia (`incrore) 200809 1,632.17 495.97 931.12 200910 827.10 555.94 438.03

1 2 3
6

NationalRuralEmployment GuaranteeScheme(90:10) SarvaShikshaAbhiyaan (60:40) PradhanMantriGram

ChiefExecutiveOfficer, ZilaPanchayat MissionDirector,Rajiv GandhiShikshaMission ChiefExecutiveOfficer,

State implementing agency includes any organization/institution including Non GovernmentalOrganizationwhichisauthorizedbytheStateGovernmenttoreceive thefundsfromtheGovernmentofIndiaforimplementingspecificprogrammesinthe State, e.g. State Implementation Society for SSA and State Health Mission for NRHMetc. As per Central Plan Scheme Monitoring System (CPSMS) portal of the Controller GeneralofAccounts. 6

Chapter I FinancesoftheStateGovernment

SadakYojna(100%) 4 5 6 7 NationalRuralHealth Mission(85:15) IndiraAwasYojna(75:25) SwarnaJayantiGram SwarozgarYojna(75:25) IntegratedWatershed ManagementProgramme (75:25) MemberofParliament LocalAreaDevelopment Scheme(100%) Schemeforsetting6000 ModelSchools(75:25)

ChhattisgarhRural DevelopmentAuthority MissionDirector,National RuralHealthMission ChiefExecutiveOfficer, ZillaPanchayat ChiefExecutiveOfficer, ZillaPanchayat ChiefExecutiveOfficer, ZillaPanchayat Collectors 145.64 156.46 65.78 0.00 180.19 162.60 65.13 51.57

29.00

31.00

MissionDirector,Rajiv GandhiShikshaMission Director,Departmentof Agriculture

0.00 83.74

22.65 21.67

10 NationalFoodSecurity Mission(100%)

Table1.2:

Fundstransferred directly tothe major State ImplementingAgencies

(Source:AppendixVIIofFinanceAccounts200910)

DirecttransferoffundsfromGOItotheimplementingagenciesrantheriskof improper utilisation of funds by these agencies. The aggregate amount of unspent balances in the accounts of the implementing agencies kept outside theGovernmentaccounts(in Bankaccount)is notreadily ascertainable.The Government expenditure as reflected in the accounts to that extent is, therefore,notfinal.

1.3

RevenueReceipts

Statement11 of the Finance Accounts details the revenue receipts of the Government.TherevenuereceiptsconsistoftheStatesowntaxandnontax revenues, Central tax transfers and grantsinaid from GOI. The trends and composition of revenue receipts over the period 200510 are presented in Appendix1.3andalsodepictedin Charts1.4and 1.5respectively.

AuditReport(StateFinances)fortheyearended31 March2010

Chart1.4TrendsinRevenueReceipts
20000 18000 16000 14000 13879 11453 10166 8838 7639 6497 5281 2508 1049 200506 3199 1757 200607 4035 2205 4258 2609 4381 3607 8796 15663 18154

` incrore

12000 10000 8000 6000 4000 2000 0

200708

200809

200910

RevenueReceipts CentralTaxTransfers

State'sownRevenue Grantsinaid

Chart1.5TheCompositionofRevenueReceiptsduring200510
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
200506 200607 200708 200809 200910

1049

1757

2205

2609

3607

2508

3199

4035

4258

4381

1229

1451

2021

2202

3043

4052

5046

5618

6594

7123

OwnTaxRevenue

OwnNonTaxRevenue

CentralTransfers

Grantsinaid

The revenue receipts increased with only marginal changes in their composition during 200510. These receipts increased from `8,838 crore in 200506to`18,154crorein200910andincreasedby15.90percentduring 200910(` 2,490.90crore). While 56 per cent of the revenue receipts during 200910 came from the States own resources comprising tax and nontax revenue, the Central tax transfers and grantsinaid together contributed 44 per cent of the total revenue.The increaseof` 2,490.90croreinthe revenuereceipts in200910 overtheprevious yearwasdueto8.03percent(` 529.53crore)increase in taxrevenue,38.18percent(`840.80crore)increaseinnontaxrevenue,2.88 percent(`122.75crore)increaseinStatesshareof Uniontaxes andduties fromGOIand38.25percent(`997.82crore)increase in grantsinaidfrom GOI.

Chapter I FinancesoftheStateGovernment

ThetrendsinrevenuereceiptsrelativetotheGrossStateDomesticProductare presentedin Table1.3 below: Table1.3:TrendsinRevenueReceiptsrelativetoGSDP

Revenuereceipts(RR)(`incrore) RateofgrowthofRR(percent) RR/GSDP(percent) 8 BuoyancyRatios RevenueBuoyancywith respectto GSDP StatesowntaxBuoyancy with referenceto GSDP 200506 8,838 21.9 17.32 1.29 1.50 200607 11,453 29.6 17.70 1.10 0.91 200708 13,879 21.2 17.48 0.93 0.50 200809 15,663 12.86 16.45 0.65 0.87 200910 18,154 15.90 16.83 1.20 0.60

Revenuebuoyancy withrespecttothegrowthof GSDPdecreased from1.29 in200506to0.65in200809andthenincreasedto1.20during200910due to theriseinthegrowthrateofrevenuereceipts. AstheGSDPgrows,theabilitytoincreasetheStatesown taxrevenueshould alsoincrease.During200510,theStatesowntaxbuoyancywithreferenceto GSDPshowed anoscillatingtrendandrangedbetween0.50and1.50during 200510. Grantsinaid The increase of ` 997.82 crore in grantsinaid receipts i.e. from ` 2,608.92crorein200809to`3,606.74crorein200910,wasmainlydueto increase of ` 820.00 crore in NonPlan grants and ` 398.70 crore in Plan grants for State Plan schemes. However, the receipt of grants for Centrally sponsoredschemesdecreasedby `236.10crore duringtheyear. Centraltaxtransfers Central tax transfers increased by ` 122.75 crore (2.88 per cent) from ` 4,257.91 crore in 200809 to ` 4,380.66 in 200910. The increase was primarily due to increase in corporation tax:`406.59 crore (29.12 per cent) and taxes on income other than corporation tax: ` 127.47 crore (14.54 per cent) offset by decrease in Customs duties: ` 200.82 crore (24.67 per cent) andUnionexciseduties: `216.03crore(30.43 percent). DebtwaiverunderDebtConsolidationandRelieffacilities TheTwelfthFinanceCommission(TFC)had framedaschemeofdebtrelief of Central loans named debt consolidation and relief facilities based on the fiscal performance of the States linked to the reduction of deficits of the States.Underthescheme,therepaymentsdueonCentralloansfrom200506 to200910,afterconsolidationandreschedulementofloans,would beeligible forwriteoff.TheamountsanctionedbyGOIasdebtreliefeachyearwould be adjustedbyshowingrepaymentofCentral loans andcreditingtheamountto the head of account 0075 Miscellaneous Receipts. The States would be eligible for the benefit subject to fulfillment of certain conditions, viz.
8

Buoyancyratioindicatestheelasticityordegreeofresponsivenessofafiscalvariable withrespecttoagivenchangeinthebasevariable.Forinstance,revenuebuoyancyat 0.6 implies that revenue receipts tend to increase by 0.6 percentage points, if the GSDPincreasesbyonepercent. 9

AuditReport(StateFinances)fortheyearended31 March2010

legislating the FRBM Act, gradual abolition of revenue deficit by 200809, bringing annual reduction targets for fiscal deficit, bringing out the annual fiscal policy statement etc. Since the State had already achieved revenue surplus in 200405 and was continuing with it, the State was eligible for availingofthebenefitofdebtrelief. During the period 200510, GOI sanctioned ` 466.30 crore against ` 570.31 crore due as per TFC recommendations, as debt relief for the GovernmentofChhattisgarh,asdetailedbelow:
(` incrore) Debt relief due as per TFC Debt relief sanctioned by the recommendations GovernmentofIndia 200506 114.06 0.00 200607 114.06 0.00 200708 114.06 279.78 200809 114.06 93.26 200910 114.06 93.26 Total 570.31 466.30 (Source:TFCreport) Year

1.3.1 Statesownresources TheStatesshareofCentraltaxesandgrantsinaidisdeterminedonthebasis of recommendations of the Finance Commission, collection of Central tax receiptsandCentralassistanceforPlanschemesetc.TheStatesperformance inmobilizationofadditionalresourcesshouldbeassessedintermsofitsown resourcescomprisingrevenue fromitsowntaxandnontax sources.Thetax administrationcostintheStatewasrelativelylowerthanthenationalaverage during 200910 showing more effectiveness in tax collection as detailed in Appendix1.5. TaxRevenue Tax revenue increased by 8.03 per cent (` 529.53 crore) during 200910 (` 7,123.25 crore) over the previous year (` 6,593.72 crore). The increase in tax revenue was mainly due to increase in taxes on goods and passengers(`275.39crore),Stateexcise(`223.62crore),taxesonsalesand tradesetc.(` 101.22crore) overthepreviousyear. The total estimate of tax revenue of ` 7,029.56 crore made by the State GovernmentinitsMacroEconomicFrameWorkstatement,wasalmostequal to the actual receipts of tax revenue of ` 7,123.25 crore and was more by ` 1,465 crore (25.89 per cent) than the normative assessment made bythe TFC.Thetaxrevenueincreasedby 8.03percentoverthepreviousyearwhich was less than the normative assessment of 11 per cent made by the GovernmentinitsMTFPS. The sectorwise components of tax revenue during the period 200510 are shownin Table1.4.

10

Chapter I FinancesoftheStateGovernment

Table1.4:Sectorwisecomponentsoftaxrevenue
TaxesonSales,Trade,etc. StateExcise TaxesonVehicles StampsandRegistrationFees LandRevenue TaxesonGoodsand Passengers OtherTaxes Total (Source:FinanceAccount) (` incrore) 200506 200607 200708 200809 200910 2,089 2,843 3,024 3,611 3,712 635 707 843 964 1,188 206 253 277 314 352 313 390 463 496 583 27 61 88 359 160 395 302 511 421 696 387 4,052 490 5,046 412 5,618 429 6,594 432 7,123

NonTaxRevenue Nontaxrevenueincreasedby 38.18percent(`840.80crore)during200910 over the previous year, mainly due to increase in receipts from nonferrous mining and metallurgical industries (` 417.63 crore), minor irrigation (` 357.30crore)andpower (` 100.00crore). The actual receipts under the States tax and nontax revenue visvis assessmentmadebyTFCandtheStateGovernmentinitsbudgetestimateare givenbelow:
(`incrore) Assessmentmadeby TFC 5,658.18 1,704.66 Budgetestimates 7,029.56 2,745.34 Actual 7,123.25 3,043.01

StatesTaxRevenue StatesOwnNonTaxRevenue

Thetaxrevenueaswellasthenontaxrevenuereceiptsin200910exceeded thenormativeassessmentsmadebyTFCby25.89percentand78.51percent respectively.Similarly,thetaxaswellasnontaxrevenuereceiptsoftheState during 200910 were also more by ` 93.69 crore and ` 297.67 crore respectivelythantheassessmentsmadebytheStateGovernmentinitsbudget estimates. The higher revenue receipts in respect of nontax receipts were mainly due to excess receipts in nonferrous mining and metallurgical industries(`210.92crore),interestreceipts(`66.27crore),forestryandwild life(`15.85crore),mediumirrigation(`21.19crore)andmedicalandpublic health (` 19.72 crore) over the budget estimates. The nontax revenue increased by38.18 per cent over the previous year which was less than the normativeassessmentof 36 percent madebytheGovernmentinitsMTFPS. 1.3.2 Loss of Revenue due to evasion of taxes, write off/waivers and refunds. Evasionoftax There were 33 cases of evasion of tax pending finalization in respect of commercialtaxandtwocasesinrespectofStateexciseinvolvinganamount of`75.79 croreason 31 March2010. Similarly, 104cases of sales tax and twocasesoftheStateexcisedepartmentinvolving`7.53crorewerepending forrefund.

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AuditReport(StateFinances)fortheyearended31 March2010

1.3.3 RevenueArrears Thearrearsofrevenueason31March2010inrespectofsomeprincipalheads ofrevenueamountedto`1,014.67crore,ofwhich`212.09crore(20.90per cent)wasoutstandingformorethanfiveyears. Arrears were mainly in respect of revenue from taxes/VAT on sales, trades etc., (`131.45 crore), irrigation (`45.49 crore), State excise duty (` 23.00 crore),taxesanddutiesonelectricity(`6.53crore),taxesonvehicles(`1.77 crore), mineral resources (` 2.12 crore) and stamps and registration fees (` 1.73 crore).

1.4

ApplicationofResources

Analysis of the allocation of expenditure at the State Government level assumes significance since major expenditure responsibilities are entrusted withthem.Withintheframeworkoffiscalresponsibilitylegislations,thereare budgetary constraints in raising public expenditure financed by deficit or borrowings. It is, therefore, important to ensure that the ongoing fiscal correction and consolidation process at the State level is not at the cost of expenditure, especially expenditure directed towards development and social sectors. 1.4.1 Growthandcompositionofexpenditure Chart1.6presentsthetrendsintotalexpenditureoveraperiodoffive years (200510)anditscompositionbothintermsofeconomicclassificationand expenditure by activities has been depicted in Charts1.7 and 1.8 respectively.
Chart1.6TotalExpenditure:TrendsandComposition
22000 20000 18000 16000 17226 14473 11773 9291 7457 5449 1497 337 8802 6194 2198 773 7264 3131 502 200708 10840 8373 13794 10448 20910 17265

`incrore

14000 12000 10000 8000 6000 4000 2000 0

2940 491 200809 RevenueExpenditure Loansandadvances

2745 900 200910

200506 200607 TotalExpenditure NonPlanRevenueExpenditure CapitalExpenditure

Thetotalexpenditurecomprisingrevenueexpenditure,capitalexpenditureand loans and advances, including interState settlement, increased by21.39 per cent(`3,684.36crore)overthepreviousyear.

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Chapter I FinancesoftheStateGovernment

Thetotalexpenditureanditscomposition duringtheyears200506to200910 isgivenbelowin Table1.5. Table1.5:Totalexpenditureanditscomposition

TotalExpenditure RevenueExpenditure Ofwhich,Non Plan RevenueExpenditure CapitalExpenditure 1,497 LoansandAdvances* 337 *Includesinterstatesettlements (Source:FinanceAccounts) (`incrore) 200506 200607 200708 200809 200910 9,291 11,773 14,473 17,226 20,910 7,457 8,802 10,840 13,794 17,265 5,449 6,194 7,264 8,373 10,448 2,198 773 3,131 502 2,940 492 2,745 900

The increase of ` 3,684.36 crore (21.39 per cent) in total expenditure in 200910wasmainlyonaccountofanincreaseof`3,471.74croreinrevenue expenditure, ` 407.86 crore in loans and advances including interState settlement,setoffbydecreaseof ` 195.24croreincapital expenditure. Therevenueexpenditurewas82.57percentofthetotalexpenditureofwhich 60.51percentwasonNonPlancomponentsand39.49percentwasonPlan components. The capital expenditure, loans and advances including interState settlement were13.13 percentand 4.30 percent respectively of the totalexpenditure. During the current year, 86.82 per cent of the total expenditure (` 20,910.44 crore) was met from revenue receipts (` 18,153.66 crore) and ` 997.78 crore (4.77 per cent) was met from nondebt capital receipts. The State was left with ` 1,759 crore (8.41 per cent) to be financed out of borrowedfunds. ThebuoyancyoftotalexpendituretoGSDPstoodat1.60in200910whileit was0.55in200506.

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AuditReport(StateFinances)fortheyearended31 March2010

Chart1.7TotalExpenditure:TrendsinS hareofitscomponents
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 200506 Re ve nue Expen diture 200607 200708 200809 200910 80.26 74.76 74.9 80.08 82.57 3.63 16.11 6.57 3.47 2.85 17.07 4.3 13.13

18.67

21.63

CapitalExpe nditure

Expen diture onLoansandAdvance s

Chart1.8TotalExpenditure:TrendsbyActivities
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
3.6 3.6 34.4 6.6 4.04 32.69 3.45 3.75 37.53 2.85 4.3 2.24 30.08 3.01 32.82

34.6

33.66

33.51

39.83

42.21

23.8

23.05

21.74

21.48

21.17

200506

200607

200708

200809

200910
EconomicServices

GeneralServices Grantsinaid

SocialServices LoansandAdvances

TherevenueandcapitalexpenditureonGeneralServices,SocialServicesand EconomicServicesduring200910grewby19.61,28.64 and11.25 percent respectivelyandtheloansandadvancesalongwithinterStatesettlementgrew by82.86 percent duringtheyear. The increase in the expenditure on General Services, Social Services and Economic Services was mainly due to implementation of the Sixth Pay Commissionsrecommendations. Revenue expenditure of the State increased by ` 9,808 crore from ` 7,457 crore in 200506 to ` 17,265 crore in 200910, of which NonPlan Revenue Expenditure (NPRE)increased by 50.97per cent and Plan revenue expenditureby49.03 percent. TheshareofPlanrevenueexpenditurewhichnormallycoveredthe

14

Chapter I FinancesoftheStateGovernment

maintenanceexpenditureincurredonservices,increasedasa percentageof the totalrevenueexpenditure,from27in200506to39in200910.Theshareof NPREintotalrevenueexpendituredeclinedfrom73 percentin200506to61 percentin 200910. The Planrevenue expenditureduring 200910 increased by` 1,396.85 crore (25.76 per cent) relative to200809 mainly due to increase under education, sports and culture (` 584.22 crore), social security and welfare (` 443.96 crore), energy (` 135.75 crore) and health and family welfare (`112.31crore). The NPRE during 200910 increased by ` 2,074.89 crore (24.78 per cent) mainlyonaccountofincreaseintheexpenditureby `591.75crore(53.15per cent)inagricultureandalliedactivities,by ` 352.54crore(34.71percent)in administrative services, by ` 303 crore (32.55 per cent) in pensions and miscellaneous general services, by ` 267.46 crore (31.85 per cent) in education,sportsandculture,by ` 249.12crore(44.06percent)inwelfareof scheduledcastes,scheduledtribesandotherbackwardclassesandby `118.01 crore(34.54percent)intransport. ThetotalNPRE(` 37,228crore)duringtheawardperiodofTFC(200510) exceeded the normative assessment (` 31,283 crore) of TFC, by ` 6,445 crore (20.60 per cent) and during 200910, this exceeded the normativeassessmentof TFCby `2,894.03crore(38.31percent). The share of expenditure on grantsin aid and loans and advances together with interstate settlement in 200809 was 5.87 per cent which increased to 6.55percent ofthetotalexpenditureduringtheyear. 1.4.2 Committedexpenditure The committed expenditure of the State Government on revenue account mainly consists of interest payments, expenditure on salaries and wages, pensions and subsidies. Table1.6 and Chart1.9 present the trends in the expenditureonthesecomponentsduring200510.

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AuditReport(StateFinances)fortheyearended31 March2010

Table1.6:Componentsofcommittedexpenditure
(``incrore)
Componentsofcommitted expenditure Salaries&Wages ,ofwhich NonPlanHead PlanHead** SalarythroughGrantsinaid InterestPayments ExpenditureonPensions Subsidies Total 200506 2,339.01 (26.47) 1,888.50 450.51 NA 962 (10.88) 540.18 (6.11) 502.32 (5.68) 4,343.51 200607 2,534.16 (22.13) 2,030.83 503.33 NA 1,026 (8.96) 546.08 (4.77) 361.07 (3.15) 4,467.31 200708 2,965.01 (21.36) 2,307.68 657.33 NA 1,140 (8.21) 684.58 (4.93) 802.55 (5.78) 5,592.14 200809 3,670.34 (23.43) 2,772.46 897.88 115.60 (0.74) 1,077.53 (6.88) 930.77 (5.94) 1,314.68 (8.39) 7,108.92 200910 BE Actuals 9 6,053.09 5,646.29 (31.10) NA NA NA 1,079.07 919.62 1,972.59 10,024.37 4,016.30 1,629.99 133.71 (0.74) 1,094.86 (6.03) 1,233.76 (6.80) 1,994.30 (10.99) 10,102.92

FiguresinthebracketsindicatepercentagetoRevenueReceipts
**HeadalsoincludesthesalariesandwagespaidunderCentrallySponsoredSchemes.

(Source:FinanceAccountsoftheStateGovernment200910)
Chart1.9ShareofcommittedexpenditureinNonPlanRevenueExpenditure 200510 6000 5500 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0

5780

`incrore

3786 2965 2339 962 540 502

200506 Salary&Wages

2534 1026 546 361

200607

1994 1315 1078 931

200809 Pension 200910 Subsidy

1140 685 803

200708

1234 1095

InterestPayment

The overall committed expenditure increased by ` 5,759.41 crore from ` 4,343.51 crore in 200506 to ` 10,102.92 crore in 200910. Committed expenditureduring200910has constituted97percentoftheNPRE and 56 per cent of the revenue receipts. The componentwise analysis is given as under: (1) Expenditureonsalaryandwages

The expenditure on salaries and wages increased by ` 1,975.95 crore from ` 3,670.34crorein200809to`5,646.29crorein200910andthesalarypaid 10 through Grantsinaid (GIA) increased from ` 115.60 crore in 200809 to ` 133.71 crore in 200910. The increase was due to implementation of the
9 10

ItincludesSalary`5,308.93croreandWages`337.36crore. Salaries paid to various institutions under Education, Sports, Art and Culture, AgricultureandalliedactivitiesandRuralDevelopmentthroughgrants inaid. 16

Chapter I FinancesoftheStateGovernment

recommendationsoftheSixthPayCommissionduringtheconcludingyearof theawardperiod. Theexpenditureonsalariesandwagesincreasedby`3,307.28crore(141.40 per cent) during the TFC period i.e. from ` 2,339.01 crore in 200506 to ` 5,646.29crorein 200910. TheexpenditureonsalaryandwagesinclusiveofsalarypaidthroughGIAwas `5,780.00croreandaccountedfor35.74percent oftherevenueexpenditure (netofinterestpayment),whichwasalmostequaltothelimitof35percent as recommendedby TFC for200910. The expenditureon salary and wages including salary paid through GIA as a percentage of GSDP and revenue receiptsincreasedduring200910from3.98to5.36percentandfrom24.17 to 31.84 per cent respectively with reference to 200809. However, the expenditure on salary and wages in 200910 was less by 6.72 per cent (` 406.80 crore) than the assessments made by the State Government in its budgetestimatesfortheyear200910. (2) Expenditureonpension

Theexpenditureonpensionincreasedby32.55percent(`302.99crore)from `930.77crorein200809to`1,233.76crorein200910andconsumed6.80 percentoftherevenuereceiptsandwas11.81percentofNonPlanrevenue expenditure. TheexpenditureonpensionpaymentexceededtheprojectionsmadebyState Government (` 919.62 crore) in its MTFPS for 200910 by 34.16percent(`314.14crore)andwas7.15percentofrevenueexpenditure, which was within the limit of 10 per cent of revenue expenditure as per MTFPS. As per the projection made in the TFC, the pension payments were to be ` 694.44croreattheendof200910andtotalpensionpayments wereto be ` 2,895.74 crore during 200510. The actual payment on pension during 200910 exceeded the TFC norms by ` 539.32 crore (77.66 per cent) and exceeded the same by ` 1,039.63 crore (35.90 per cent) for the period 200510. TheStategovernmenthasconstitutedapensionfundtoreducethepensionary liabilitiesinfuture.AcontributorypensionschemewaslaunchedbytheState Government in 2004 for Government employees to reduce the burden of pensionontheGovernment. (3) Interestpayment

Interest payment comprising interest charges on internal debts, loans raised from GOI and other obligations, increased by ` 17.33 crore from ` 1,077.53crorein 200809to `1,094.86crorein200910.

17

AuditReport(StateFinances)fortheyearended31 March2010

The components under which the interest payments were made during 200810areshownbelow:
Intereston 200809 200910 (`incrore) Percentage increase(+)/ decrease() ()2.92 (+)18.22 (+)5.67 (+)6.38

Internaldebt SmallSavings,providentfundsetc LoansandadvancesfromCentral Government Otherobligations Total

701.11 126.31 168.13 81.98 1,077.53

680.65 149.33 177.67 87.21 1,094.86

Theinterestpayments(`1,094.86 crore)werewithintheprojectionmadeby theTFC(`1,473.48crore)forthe year200910.Thetotalinterestpayments were (` 5,301 crore) also within the projection made by the TFC (` 6,300 crore) for the period 200510. The interest payment as a ratio of revenue receipts was 6.03 per cent during the year which was within the normsof theTFCof15 percent. (4) Expenditureon subsidies

During the award period of the TFC i.e. 200510, the State Government providedsubsidyof`4,974.92crore.Thedetailsofthesesubsidiesareshown in Table1.7: Table1.7:DetailsofSubsidiesprovidedbyGovernmentduring200510
(`incrore) Head LandRevenue SocialSecurityandWelfare CropHusbandry Fisheries ForestryandWildLife FoodStorageandWarehousing Cooperation MinorIrrigation Power VillageandSmallIndustries Industries Total (Source:FinanceAccounts) 200506 0.01 0.51 49.49 0.00 25.54 311.47 9.68 8.11 93.44 2.88 1.19 502.32 200607 0.01 0.32 35.93 0.00 28.52 157.01 9.24 6.99 112.87 6.98 3.20 361.07 200708 0.00 0.44 39.35 0.55 19.53 606.16 7.50 8.09 110.14 9.66 1.13 200809 0.00 946.28 41.23 0.41 10.09 109.47 40.03 10.49 128.04 24.27 4.37 200910 0.00 1,288.78 41.00 0.47 10.00 406.61 46.00 10.62 150.10 39.26 1.46 1,994.30 Total 0.02 2,236.33 207.00 1.43 93.68 1590.71 112.46 44.30 594.59 83.05 11.35 4,974.92

802.55 1,314.68

The expenditure on subsidies increased by ` 679.62 crore from ` 1,314.68 crorein200809to`1,994.30crorein200910.Itconstituted11.55percent of revenue expenditure. The major recipients of subsidies during 200910 were social welfare and nutrition (` 1,288.78 crore), agriculture and allied activities(`504.08crore)andenergy (`150.10crore).

18

Chapter I FinancesoftheStateGovernment

The substantial increase under the Social Security and Welfare heads in 200809wasduetosupply of riceatsubsidizedrate(`threeperkilogram)and furtherincreasein200910wasduetosupplyofriceatfurthersubsidizedrate (`oneandtwo perkilogram)tobelowpovertyline(BPL)families. Theincreasein subsidiestofoodstorageandwarehousingduring200910was due to payment made to meet the losses incurred by the State Cooperative MarketingFederation. 1.4.3 FinancialAssistancebyStateGovernmenttolocalbodiesandother institutions. Thequantumofassistanceprovidedbywayofgrantsandloanstolocalbodies andothersduringthecurrentyearrelativetothepreviousyearsispresentedin Table1.8. Table1.8:FinancialassistancetoLocalBodiesetc.
Financialassistancetoinstitutions EducationalInstitutions(aidedschools, aidedcolleges,Universities,etc.) Power/energy Agriculture UrbanBodies PanchayatRajInstitutions OtherInstitutions Total AssistanceasperpercentageofRE 200506 143.00 165.67 22.67 411.35 585.57 484.24 1,812.50 24.31 200607 75.91 572.13 25.31 544.84 763.82 219.79 2,201.80 25.01 200708 98.86 135.13 16.81 618.15 955.14 183.17 2,007.26 18.52 200809 83.82 118.00 19.78 (`incrore) 200910 83.90 65.05 26.50

737.26 577.71 1,299.47 1,520.71 304.72 615.58 2,563.05 2,889.45 18.58 16.74

(Source:FinanceandAppropriation Account)

Financial assistance to local bodies and other institutions increased from ` 1,812.50 crore in 200506 to ` 2,889.45 crore in 200910, recording a growth rate of 12.73 per cent over the previous year. During 200910, the financial assistance was given by the Government mainly to urban bodies (19.99 per cent), Panchayat Raj institutions (52.63 per cent) and other institutions(21.30 percent). 1.5 QualityofExpenditure

The availability of better social and physical infrastructure in the State generally reflects the quality of its expenditure. The improvement in the quality of expenditure basically involves three aspects, viz. adequacy of the expenditure(i.e.adequateprovisionsforprovidingpublicservices),efficiency of expenditure use and the effectiveness (assessment of outlayoutcome relationshipsforselectservices). 1.5.1 Adequacyofpublicexpenditure Theexpenditureresponsibilitiesrelatingtothesocialsectorandtheeconomic sector are largely assigned to the State Governments. Enhancing human developmentlevelsrequiresStatestostepuptheirexpenditureonkeysocial serviceslikeeducationandhealthetc.Thelowlevelofspendingonanysector by a particular State may be due to low fiscal priority attached by the State
19

AuditReport(StateFinances)fortheyearended31 March2010

Government. Low fiscal priority (ratio of expenditure category to aggregate expenditure) is attached to a particular sector if it is below the respective generalcategory Statesaverage. Table1.9analysesthefiscalpriorityoftheStateGovernmentwithregardto development expenditure, social sector expenditure and capital expenditure duringthecurrentyear. Table1.9: FiscalPriorityoftheStatein 200506and200910
FiscalPriorityoftheState AE/GSDP DE/AE SSE/AE CE/AE Education/ Health/ AE AE General Category States 17.75 61.76 30.76 13.97 14.95 4.05 Average(Ratio)200506 Chhattisgarh States 18.22 72.37 35.06 16.11 14.22 3.57 Average(Ratio)200506 General Category States 18.24 66.05 35.76 14.85 16.21 4.28 Average(Ratio)200910 Chhattisgarh States 19.39 76.52 42.44 13.13 16.04 3.78 Average(Ratio)200910 AE : Aggregate Expenditure, DE : Development Expenditure (includes Development Capital and Revenue expenditure and loans and advances disbursed), SSE : Social Sector ExpenditureandCE:CapitalExpenditure (Source:ForGSDP,theinformationcollectedfromtheStatesDirectorateofEconomicsand Statistics.)

Table1.9 presents the fiscal priorities given to various categories of expenditureoftheStatein200506and200910(awardperiodoftheTwelfth FinanceCommission). The State Governments aggregate expenditure was more than the general category States average. The Government gave adequate fiscal priority to development expenditure (DE) and social sector expenditure (SSE) since DE/AEandSSE/AEinthecaseofChhattisgarh washigherthantheGeneral CategoryStatesAverage. Thecapitalexpenditure(CE)asaproportionoftheaggregateexpenditurewas higher thanthe general category Statesaverage butdecreased in the current year compared to 200506, indicating low priority being given to capital expenditureduring200910. It was also observed that even though the infant mortality rate (57 per 1000 live births) of the State was more than the allIndia average (53) and the literacy rate was also less than the allIndia average, the expenditure on education and health was lower than the general categoryStates average in thefirstandconcludingyearoftheawardperiodoftheTFCi.e.200506and 200910.Hence,theGovernmentmayconsidergivinggreaterfiscalpriorityto educationandhealth. TheratioofAEtoGSDPin200506(18.32percent)and200910 (19.39per cent) were higher in the State as compared to general category States. This means that compared to other general category States, the State is spending moreasaproportionofitsGSDP.

20

Chapter I FinancesoftheStateGovernment

1.5.2 Efficiencyofexpenditure use In view of the importance ofpublic expenditureondevelopment headsfrom thepointofviewofsocialandeconomicdevelopment,itisimportantforthe State Governments to take appropriate expenditure rationalization measures 11 andlay emphasisonprovisionofcorepublicandmeritgoods .Apartfrom 12 improving the allocation towards development expenditure , particularly in viewofthefiscalspacebeingcreatedonaccountofdeclineindebtservicing inrecent years,theefficiencyofexpenditureuseisalsoreflectedbytheratio of capital expenditure to total expenditure (and/or GSDP) and proportion of revenueexpenditurebeingspentonoperationandmaintenanceoftheexisting socialandeconomicservices.Thehighertheratioofthesecomponentstototal expenditure (and/or GSDP), the better would be the quality of expenditure. While Table1.10presents the trends in development expenditure relative to the aggregate expenditure of the State during the current year visvis budgeted and the previous years, Table1.11 provides the details of capital expenditure and the components of revenue expenditure incurred on the maintenanceoftheselectedsocialandeconomicservices. Table1.10: Developmentexpenditure
(`incrore)
Componentsof 200506 200607 200708 Development Expenditure DevelopmentExpenditure 6,724 8,578 10,773 (atoc) (72) (73) (74) a. DevelopmentRevenue 4,938 5,687 7,257 Expenditure (53) (48) (50) b. DevelopmentCapital 1,469 2,123 3,024 Expenditure (16) (18) (21) c. DevelopmentLoansand 317 768 492 Advances (03) (07) (03) Figuresinbracketsindicatepercentagetoaggregateexpenditure 200809 12,995 (75) 9,676 (56) 2,838 (16) 481 (03) 200910 BE Actuals 17,204 16,002 (77) 13,195 12,447 (60) 2,668 3,468 (13) 887 541 (04)

(Source:FinanceAccounts)

Developmentexpenditure,inrealterms andasa percentageoftheaggregate expenditure of the State, was increasing continuously during 200510. The

11

12

Core public goods are goods which all citizens enjoy in common in the sense that eachindividual'sconsumptionofsuchagoodleadstonosubtractionsfromanyother individual's consumption of that good, e.g. enforcement of law and order, security and protection of our rights pollution free air and other environmental goods and roadinfrastructureetc. Meritgoodsarecommodities thatthepublicsector provides freeoratsubsidizedratesbecauseanindividual orsocietyshouldhavethemonthe basis of some concept of need, rather than ability and willingness to pay the governmentandthereforewishestoencouragetheirconsumption.Examplesofsuch goods include the provision of free or subsidized food for the poor to support nutrition,deliveryofhealthservicestoimprovequalityoflifeandreducemorbidity, providingbasiceducationtoall,drinkingwaterandsanitationetc. The analysis of expenditure data is disaggregated into development and non development expenditure. All expenditure relating to Revenue Account, Capital Outlay and Loans and Advances is categorized into social services, economic services and general services. Broadly, the social and economic services constitute development expenditure, while expenditure on general services is treated as non developmentexpenditure. 21

AuditReport(StateFinances)fortheyearended31 March2010

total development expenditure increased by 23 per cent during 200910 mainly due to increase in development revenue expenditure (28.64 per cent) anddevelopmentloansandadvances(84.41 percent). However, the development capital expenditure as a percentage of aggregate expenditureoftheStatedeclinedmarginallyfrom21percentin200708to13 per cent in 200910. As a percentage of development expenditure, it came downfrom21.84 percent in200809to16.67 percentin200910. Table1.11: EfficiencyofexpenditureuseinselectedSocial andEconomicServices
Social/Economic Infrastructure (inpercent) 200809 200910 Ratioof InRE,theshareof Ratioof InRE,theshareof 13 CEtoTE CEtoTE ME S&W ME S&W SocialServices(SS) 4.11 0.88 0.66 0.85 0.80 0.21 0.52 4.65 32.70 43.17 63.66 7.57 3.84 0.57 0.46 1.69 0.84 0.32 0.55 4.31 39.92 52.85 73.61 10.07

TotalSocialServices Ofwhich GeneralEducation PublicHealthandFamily Welfare WaterSupply,Sanitation andHousingandUrban Development TotalEconomicServices ofwhich AgricultureandAllied Activities IrrigationandFlood Control PowerandEnergy Transport

EconomicServices(ES) 12.36 8.06 21.48 0.45 5.01 0.00 5.85 1.52 10.15 0.00 74.61 29.54 61.98 0.00 13.59

8.92 0.32 4.64 0.00 3.05

7.23 1.08 4.57 0.00 58.85

27.00 30.51 63.28 0.00 19.26

TE:TotalExpenditureintheconcernedsectorCE:CapitalExpenditureintheconcernedsectorRE: RevenueExpenditureintheconcernedsectorS&W:SalariesandWages,ME:Maintenance Expenditure(doesnotincludeoperationalexpenses.) (Source:FinanceAccount)

Table1.11 reveals that the share of capital expenditure on Social Services decreased from 4.11 per cent in 200809 to 3.84 per cent and on Economic Services, the expenditure declined from 12.36 per cent to 8.92 per cent in 200910. ExpenditureonSocialServices The increase inshare ofcapital expenditure was mainly under water supply, sanitationandhousingandurbandevelopmentwherecapitalexpenditureasa percentageofthetotalexpenditureincreasedfrom0.85to1.69percent.The shareofsalariesinrevenueexpenditureunderSocialServicesincreasedfrom 32.70percentin200809to39.92percentin200910mainlyonaccountof increase in the share of salaries due to implementation of the recommendations ofthe Sixth Pay Commission. Inthecase of maintenance, theexpenditureincreasedfrom0.80to0.84 percentin200910.
13

IncludingsalaryGrantsinaid. 22

Chapter I FinancesoftheStateGovernment

Expenditure on Economicservices The share of salaries under revenue expenditure in Economic Services increased from 21.48 to 27 per cent, mainly due to implementation of the Sixth Pay Commissions recommendations. The decrease in capital expenditure to total expenditure in Social Services as well as Economic Servicesindicateslessimprovementinefficiencyofexpenditureduetolower prioritytocapitalexpenditureoneducation,publichealthandfamilywelfare under Social Services, agriculture and irrigation and flood control under Economic Services. In the case of maintenance, the expenditure decreased from8.06to7.23 percentin200910. 1.6 FinancialanalysisofGovernmentexpenditureandinvestments

In the postFRBM framework, the State is expected to keep its fiscaldeficit (and borrowing) not only at low levels but also to meet its capital expenditure/investment (including loans and advances) requirements. In addition, in a transition to complete dependence on market based resources, theStateGovernmentneedstoinitiatemeasurestoearnadequatereturnsonits investments and recover its cost of borrowed funds rather than bearing the sameonitsbudgetintheformofimplicitsubsidy andtakerequisitestepsto infuse transparency in financial operations. This section presents the broad financialanalysisofinvestmentsandothercapitalexpenditureundertakenby theGovernmentduringthecurrentyearvisvispreviousyears. 1.6.1 Incompleteprojects Blockingof fundson incompleteworkswhich includeworks stoppeddueto reasonslikelitigation,etc.,impingingnegativelyonthequalityofexpenditure. At the end of March 2010, there were 159 incomplete projects each costing ` onecroreormoreinvolving `1,114.61croreasgivenin Table1.12. Table1.12: Departmentwiseprofileofincompleteprojects
Department No.of Initial incomplete budgeted projects cost 136 23 159 773.99 78.24 852.23 Revised totalcost ofprojects (`incrore) Cost Cumulative overrun actual expenditureason 31.3.2010 997.00 23.84 362.27 117.61 0.49 59.05 1114.61 24.33 421.32

PublicWorksDepartment WaterResourcesDepartment Total (Source:FinanceAccount200910)

The reasons for noncompletion of projects in the scheduled time were not intimatedbythedepartments. 1.6.2 Investmentandreturns As of 31 March2010, Government had invested `251.67 crore in Statutory Corporations, Rural Banks, Joint Stock Companies and Cooperatives (Table1.13).Theaveragereturnonthisinvestmentwas0.17percentwhile the Government paid an average interest rate of 7.13 per cent on its

23

AuditReport(StateFinances)fortheyearended31 March2010

borrowings during 200910. Continued use of borrowed funds to fund investments which do not have sufficient financial returns will lead to an unsustainable financial position. The Government may ensure proper justificationforinvestmentofhighcostfunds. Table1.13: Returnoninvestment
(` incrore)
Investment/Return/Costof Borrowings Investmentattheendoftheyear* (`incrore) Return(` incrore) Return (percent) AveragerateofinterestonGovt. borrowing(percent) Differencebetweeninterestrateand return (percent) 200506 103.24 0.00 0.00 7.54 7.54 200607 159.64 0.00 0.00 7.49 7.49 200708 400.95 0.10 0.02 7.97 7.95 200809 430.01 0.10 0.02 7.36 7.34 200910
14 251.67

0.44 0.17 7.13 6.96

*Theinvestmentattheendoftheyeardoesnotincludeunapportionedinvestment

Out of` 251.67 crore invested upto 200910, `21.76 crore was invested in two statutory corporations, ` 77 crore in 12 Government companies/boards anddepartments,`2.63croreinjointstockcompaniesand`140.01crorein 26 cooperatives and ` 10.28 crore in rural banks. Further, investment of ` 1,082.58 crore made pertains to the composite State of Madhya Pradesh, pendingallocationbetweenMadhyaPradeshandChhattisgarh. Therewerenosetnormsprescribedformakinginvestmentsinvariouspublic sectors,companies,ruralbanksetc. 1.6.3 LoansandadvancesbyStateGovernment In addition to investments in cooperative societies, corporations and companies,Governmenthasalsobeenprovidingloansandadvancestomany of these institutions/organizations. Table1.14 presents theoutstanding loans and advances as on 31 March 2010 and interest receipts visvis interest paymentsduringthelastthreeyears. Table1.14: AverageinterestreceivedonloansadvancedbytheState Government
QuantumofLoans/InterestReceipts/CostofBorrowings Openingbalance Amountadvancedduringtheyear Amountrepaidduringtheyear ClosingBalance OfwhichOutstandingbalanceforwhichtermsandconditionshave beensettled Netaddition Interestreceipts InterestreceiptsaspercenttooutstandingLoansandadvances Interestpaymentsaspercenttooutstandingfiscalliabilitiesofthe StateGovernment. Differencebetweeninterestpaymentsandinterestreceipts(percent) 200708 1,604.61 500.28 437.52 1,667.38 NA 62.76 69.11 4.22 7.97 ()3.64 200809 1,667.38 490.75 533.42 1,624.71 NA ()42.67 121.89 7.40 7.36 (+)0.04 (` incrore) 200910 15 1,625.53 896.79 992.43 1,529.89 1,517.60 ()95.64 71.63 4.54 7.13 ()2.59

14

15

Decreaseininvestmentwasduetorefundof `200crorebyChhattisgarhPublicWorks Department(asshownintheFinanceAccounts200910). FigurechangedasperFinanceAccounts200910. 24

Chapter I FinancesoftheStateGovernment

At the end of March 2010, the Government had outstanding loans and advances of ` 1,529.89 crore, of which loans for General Services was ` 126.11 crore, loans for Social Services ` 698.65 crore and for Economic Services was ` 715.48 crore. The interest received against these loans and advanceswasonly4.54 percentduring 200910asagainst7.40 percent inthe previousyear.Therewasanincreaseof `459.01croreinrespectofrepayment of loans and advances over the previous year, leading to a net reduction in outstandingloansandadvancesduringtheyear. 1.6.4 Cashbalances andinvestmentofcashbalances Table1.15: depicts the cash balances and investments made by the State Governmentoutof thecashbalancesduringtheyear. Table1.15: Cashbalancesandinvestmentofcashbalances
(` incrore)
Particulars CashBalance General CashBalances InvestmentsfromCashBalances(atod) a. b. c. GOITreasuryBills GOISecurities OtherSecurities,ifanyspecify Ason 1April2009 2059.67 ()348.68 1727.62 ()1121.86 2849.48 0.00 0.00 31.82 648.91 646.94 0.95 0.97 0.05 115.51 Ason 31March2010 1569.66 ()555.06 1364.05 ()363.57 1727.62 0.00 0.00 11.30 749.37 746.94 1.41 0.97 0.05 149.07 Increase(+)/ decrease() ()490.01 ()206.38 ()363.57 758.29 ()1121.86 0.00 0.00 ()20.52 100.46 100.00 0.46 0.00 0.00 33.56

d. OtherInvestments OtherCashBalancesandinvestments (cash withdepartmentalofficers) FundswiseBreakupofInvestmentfrom Earmarkedbalances(atod) a. b. c. SinkingFund FamineReliefFund RevenueReserveFund

d. DevelopmentandWelfareFund Interest realised

The State Governments cash balance of ` 1,569.66 crore at the end of the current year showed a decrease of 23.79 per cent (` 490.01 crore) over the previous year. The investment from cash balances reduced by ` 364 crore whereastheinvestmentfromearmarkedbalancesincreasedby `100crore. Theinterestreceivedagainstinvestmentoncashbalanceswas10.93percent during 200910 while Government paid interest at 7.13 per cent on its borrowingsduringtheyear. UnderanagreementwiththeReserveBankofIndia(Bank),theGovernment ofChhattisgarhhastomaintainwiththeBank,aminimumbalanceof` 0.72 croreon eachdayw.e.f.1November2000.TheBankinformstheGovernment byemailofitsdailybalancewiththeBankatthecloseofeachworkingday. Ifthis balance falls below the agreed minimumon weekly settling days, the deficiency is made good by taking Ways and Means advances (normal and special)fromthe Bank orbysellingGovernmentofIndiatreasurybills.

25

AuditReport(StateFinances)fortheyearended31 March2010

TheStateGovernment hadneitheravailedofWays andMeansadvances nor overdraft during 200510. The State Government also maintained the minimum cash balance with the Bank during the year without taking any advance. 1.7 AssetsandLiabilities

1.7.1 Growthandcompositionofassetsandliabilities IntheexistingGovernmentaccountingsystem,comprehensive accountingof fixed assets like land and buildings owned by the Government is not done. However, the Government accounts do capture the financial liabilities of the Government and the assets created out of the expenditure incurred. Appendix1.4 gives an abstract of such liabilities and the assets as on 31 March 2010, compared with the corresponding position on 31 March 2009. While the liabilities in this Appendix consist mainly of internal borrowings, loans and advances from the GOI, receipts from the Public Account and Reserve Funds, the assets comprise mainly the capital outlay and loans and advancesgivenbytheStateGovernmentandcashbalances. During200910,thegrowthrateoftheliabilitiesincreasedfrom1.80percent in 200809 to 8.98 per cent in 200910 while the growth rate of assets decreasedfrom12.72 percent to 11.99 percent in200910. 1.7.2 Fiscalliabilities The trends in outstanding fiscal liabilities of the State are presented in Appendix1.4.However,the compositionoffiscalliabilitiesduringthecurrent yearvisvisthepreviousyearispresentedin Chart1.10 and 1.11.

Chart1.10CompositionofoutstandingFiscal Liabilitiesason01042009 ( ` incrore) 4404.44, 30%

Chart1.11CompositionofoutstandingFiscal Liabilitiesason01042010 ( ` incrore)

4920.56 31%

8176.07, 55%

8704.88, 55%

2200.68, 15% InternalDebt LoansandAdvancefromGOI PublicAccountLiabilities

2307.51, 14%

InternalDebt LoansandAdvancefromGOI PublicAccountLiabilities

There are two sets of liabilities, namely, public debt and other liabilities. Public debt consists of the internal debt of the State and is reported in the
26

Chapter I FinancesoftheStateGovernment

AnnualFinancialStatementsundertheConsolidatedFundcapitalaccount.It includesmarketloans,specialsecuritiesissuedtoRBIandloansandadvances from GOI. The Constitution of India provides that the State may borrow withintheterritoryofIndiauponthesecurityofitsConsolidatedFund,within such limits,asmay fromtimetotime,befixedby anActofthe Legislature and give guarantees within such limits as may be fixed. Other liabilities or fiscalliabilitieswhichareapartofthePublicAccountincludedepositsunder thesmallsavingsscheme,providentfundsandotherdeposits. Internal debts, at 55 per cent of the fiscal liabilities at the end of 200910, remained the same as that of the previous year. While the Public Account liabilities as a percentage of the fiscal liabilities slightly increased from30percentin200809to31percentin200910,theoutstandingloans andadvancesfromGOIdecreasedfrom15percentto14 percentofthefiscal liabilitiesduringthesameperiod. ThefiscalliabilitiesoftheState,theirrateofgrowth,ratiooftheseliabilities toGSDPandrevenuereceiptsarebroughtoutinthefollowing Table1.16: Table1.16: Fiscalliabilities basicparameters
Fiscalliabilities(`incrore) RateofgrowthofFiscal liabilities(inpercent) Fiscalliabilities/GSDP (inpercent) Fiscalliabilities/Revenue receipts(in percent) (Source:FinanceAccounts) 200506 200607 200708 200809 200910 13,273 14,113 14,512 14,780 15,933 8.43 26.03 150.18 6.33 21.81 123.23 2.83 18.27 104.56 1.85 15.52 94.36 7.79 14.77 87.77

The overall fiscal liabilities of the State increased from ` 13,273 crore in 200506to`15,933crorein200910.Thegrowthrateofliabilitieswas7.79 percentduring200910 asagainstthe1.85percentgrowthratein200809. The higher growth rate in liabilities during the year was due to increase of marketloans(` 700crore)andspecialsecuritiesissuedtotheNationalSmall SavingFund(` 185crore). Thefiscalliabilitiesasattheendof200910represented87.77percentofthe revenue receipts during the year as against 94.36 per cent during 200809. During 200910, the debt to GSDP ratio at 14.77per cent was less than the projection made (28 per cent) in the TFC and was also lower than the projectionmade(19.44percent) in MTFPS. 1.7.3 Statusofguaranteescontingentliabilities GuaranteesarecontingentliabilitiesontheConsolidatedFundoftheStatein casesofdefaultbytheborrowerforwhomtheguaranteehasbeenextended. The maximum amount for which guarantees were given by the State and outstandingguaranteesforthelastthreeyearsisgivenin Table1.17.

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AuditReport(StateFinances)fortheyearended31 March2010

Table1.17: GuaranteesgivenbytheGovernmentofChhattisgarh
Guarantees Maximumamountguaranteed Outstandingamountofguarantees Percentage of maximum amount guaranteed to total revenuereceipts 200708 2,495 481 17.98 200809 3,649.53 895.16 23.30 (` incrore) 200910 4,400.65 3,337.53 24.24

No law under Article 293 of the Constitution has been passed by the State Legislature laying down the limits within which Government may give guarantee on security ofConsolidated Fundof the State. However,the State Government has guaranteed loans raised by various corporations and others which stoodat `3,337.53crore attheendof200910. The outstanding guarantees included 45 institutions/companies, under power (` 429.30crore),statutory corporations(` 3.67crore),cooperativesocieties and banks (` 1,656.31 crore), State Finance and Development Corporation (` 96.23 crore), municipal corporations and urban development (` 148.21 crore),marketingfederations(`1,003.72crore)andothers(`0.09crore). The outstanding amount of guarantees in the nature of contingent liabilities wasabout18.38percentoftotalrevenuereceiptsoftheState. ToprovideforsuddendischargeofStatesobligationsonguarantees,theTFC recommendedthatStatesshouldsetupaGuaranteeRedemptionFundthrough earmarkedguaranteefees.However,theStateGovernmenthadnotyetsetup theGuaranteeRedemptionFund. 1.7.4 Off budgetborrowings

Governmentcompanies/corporationsborrowfundsfromthemarket/financial institutions for implementation of various State Plan programmes projected outside the State budget. The borrowings of many of these concerns may sometimesturnouttobetheliabilitiesoftheStateGovernmenttermedasoff budgetborrowings.During200710,theStateGovernmentdidnotundertake anyoffbudgetborrowings. 1.8 DebtSustainability

ApartfromthemagnitudeofdebtoftheStateGovernment,itisimportantto 16 analyse variousindicatorsthatdeterminethedebtsustainability oftheState. This section assesses the sustainability of debt of the State Government in

16

DebtsustainabilityisdefinedastheabilityoftheStateto maintainaconstantdebt GSDPratiooveraperiodoftimeandalsoembodiestheconcernabouttheabilityto serviceitsdebt. Sustainability ofdebt,therefore, alsoreferstosufficiency of liquid assets to meet current or committed obligations and the capacity to keep balance betweencostsofadditionalborrowingswithreturnsfromsuchborrowings.Itmeans that arise infiscaldeficitshould matchwiththe increase in capacity toservicethe debt. 28

Chapter I FinancesoftheStateGovernment
17 18 termsofdebtstabilization sufficiencyofnondebtreceipts netavailability 19 of borrowed funds burden of interest payments (measured by interest paymentstorevenuereceiptsratio)andmaturityprofileofStateGovernment securities.Table1.18analysesthedebtsustainabilityoftheStateaccordingto theseindicatorsfortheperiodofthreeyearsbeginningfrom200708.

Table1.18: DebtSustainability:IndicatorsandTrends
IndicatorsofDebtSustainability DebtStabilization (QuantumSpread+PrimaryDeficit) Sufficiencyof incrementalNondebtReceipts (ResourceGap) NetAvailabilityofBorrowedFunds BurdenofInterestPayments (IP/RRRatio) (Source:FinanceAccount) 200708 3,102 ()167 ()1,385.13 8.21 200809 1,868 ()898 ()1,106.81 6.88 (`incrore) 200910 245 ()731 57 6.03

The trends in Table1.18 reveal that the quantum spread together with the primarydeficitwaspositiveduringtheperiod200710,leadingtoaconstant decline in fiscal liabilities to GSDP ratio which came down to 14.77 in 20 200910from15.52 in200809. Though the quantum spread and primary deficit was positive during the period,thesame decreasedoverthepreviousyear. The debt redemption ratio increased from 1.12 to 1.28 from 200506 to 200809butdecreased to 0.99 in 200910 mainly due to significant receipts under internal debt. During the current year, internal debt redemption and redemptionofGOIloanswascentpercentoffreshdebtreceiptswhileincase ofotherobligations,repaymentswere90.98percentoffreshreceipts.These trends indicated thatthe debt receipts were mainly utilized for repayment of debt.
21 Apersistentnegativeresourcegap indicatesnonsustainabilityofdebtwhile a positiveresourcegapstrengthensthecapacityoftheStatetosustainthedebt. The sufficiency of incremental nondebt receipts marginally increased from
17

18

19

20 21

A necessary condition for stability states that if the rate of growth of the economy exceedstheinterestrateorcostofpublicborrowings,thedebtGDPratioislikelyto be stable provided primary balances are either zero or positive or are moderately negative. Given the rate spread (GSDP growth rate interest rate) and quantum spread(Debt*ratespread),debtsustainabilityconditionstatesthatifquantumspread together with primary deficit is zero, debtGSDP ratio would be constant or debt would stabilize eventually. On the other hand, if primary deficit together with quantum spread turns out to be negative, debtGSDP ratio would be rising and in caseitispositive,debtGSDPratiowouldeventuallybefalling. Adequacy of incremental nondebt receipts of the State to cover the incremental interestliabilitiesandincrementalprimaryexpenditure.Thedebtsustainabilitycould be significantly facilitated if the incremental nondebt receipts could meet the incrementalinterestburdenandtheincrementalprimaryexpenditure. Defined as the ratio of the debt redemption (Principal + Interest Payments) to total debt receipts and indicates the extent to which the debt receipts are used in debt redemptionindicatingthenetavailabilityofborrowedfunds. ThechangeinfiguresduetochangeinGSDPfigures. Resourcegapisthe adequacy ofincrementalnondebtreceipts oftheStatetocover theincrementalinterestliabilitiesandincrementalprimaryexpenditure. 29

AuditReport(StateFinances)fortheyearended31 March2010

`()898crorein200809to` ()731croreduringthecurrentyear,indicating theincreasingcapacityoftheStatetosustain thedebtinthemediumlongrun. MaturityProfile oftheStateDebt(InYears)

Years 200708 05 3,497.91 610 3,136.69 1115 1,876.53 1620 1,408.79 20andabove 559.85 Total 10,479.77 (Source:FinanceAccount) 200809 200910 Percentagetototaldebt 3,728.29 4,224.98 38 3,022.19 3,333.13 30 1,951.07 1,987.75 18 1,282.04 1,150.28 11 393.16 316.25 3 10,376.75 11,012.39

Asregardsrepaymentofdebt,largeamountsofrepaymentstotheextentof 38 percentoftheStatedebtwouldbetakingplaceinthenextfiveyears.Hence, theStatemayconsiderrestrictingitsshorttermborrowingssothatrepayment obligationsinthenextfiveyearsdonotincreaseunduly. 1.9 FiscalImbalances

Threekeyfiscalparametersrevenue,fiscalandprimarydeficitsindicatethe extent of overall fiscal imbalances in the Finances of the State Government duringaspecifiedperiod.ThedeficitintheGovernmentaccountsrepresents the gap between its receipts and expenditure. The nature of deficit is an indicator of the prudence of fiscal management of the Government. Further, thewaysinwhichthedeficitisfinancedandtheresourcesraisedareapplied areimportantpointerstoitsfiscalhealth.Thissectionpresentstrends,nature, magnitudeandthemanneroffinancingthesedeficitsandalsotheassessment ofactuallevelsofrevenueandfiscaldeficitsvisvistargetssetunderFRBM Act/Rulesforthefinancialyear200910. 1.9.1 TrendsinDeficits Chart1.12 and 1.13 presents the trends in deficitindicators over theperiod 200510.

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Chapter I FinancesoftheStateGovernment

Chart1.12TrendsinDeficitIndicators 3500 3000 2500 2000

1869 1381 1063 527 37 128 200607 200708 200809 1027 200910 664 51 1013 888 2651 3039

`incrore

1500 1000 500 0 500 1000 1500 2000

435 200506

1759

Revenuedeficit

Fiscaldeficit

Primarydeficit

Chart 1.13TrendsinDeficitIndicatorsRelativetoGSDP 5 4 3
Percentage

4.1

3.83

2.71 1.64 1.96 1.27 0.82 0.06

200506 200607

2 1 0 1 2
RD/GSDP FD/GSDP

1.03

0.16
200708

0.05
200809 200910

0.85

0.62 1.63

1.08

PD/GSDP

Table1.19:Trendsindeficit
(` incrore)
Revenuedeficit()/surplus(+) Fiscaldeficit()/surplus(+) Primarydeficit()/surplus(+) 200506 (+)1,381 ()435 (+)527 200607 (+)2,651 (+)37 (+)1,063 200708 (+)3,039 ()128 (+)1,012 200809 (+)1,869 ()1,027 (+)51 200910 (+)888 ()1,759 ()664

The fiscal target of eliminating the revenue deficit by March 2009 as laid downinFRBMActwasachievedbytheStateintheyear200405.Thereafter, theStatemaintainedarevenuesurplus,whichincreasedfrom`1,381crorein 200506to` 3,039crorein200708.Thedecreaseinrevenuesurplusbeganin 200809 and it declined sharply by52.48 per cent from` 1,869.06 crore in 200809to`888.22crorein200910.Thedecreasewasmainlyduetolower increaseof15.90percent(` 2,490.90crore) inrevenuereceiptsincomparison
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AuditReport(StateFinances)fortheyearended31 March2010

to an increase of 25.17 per cent (` 3,471.74 crore) in revenue expenditure during200910. The fiscal deficit, which represents the total borrowings of the Government and its total resource gap, increased from` 435crore in200506 to`1,759 crorein200910andincreasedby`732.09crore(71.31percent)duringthe year. The primary surplusincreased from` 527 crorein 200506 and reached the highestlevelof`1,063crorein200607andturnedintoaprimarydeficitof `664.14crorein200910duetoincreaseinprimaryexpenditureof22.70per centagainstan increaseof18.22percentinnondebtreceipts(Table1.19). TherevenuesurplusasapercentageofGSDPdecreasedfrom1.96in200809 to0.82in200910.ThoughthefiscaldeficitrelativetoGSDPincreasedfrom 1.08percentin200809to1.63percentin200910,itremainedwithinthe threepercent recommendedintheFRBMAct. 1.9.2 Componentsoffiscaldeficitanditsfinancing pattern The fiscal deficit is the total borrowing requirement of the State and is the excess of revenue expenditure and capital expenditure including loans and advancesoverrevenueandnondebtcapitalreceipts.Decompositionoffiscal deficitrevealstheextentofvariousborrowingsresortedtobytheStatetomeet itsrequirementsoffundsoverandaboverevenueandnondebtreceipts.NSSF loans were major players in financing the fiscal deficit during 200506 and 200607. Thefinancingpatternofthefiscaldeficithasundergoneacompositionalshift asreflectedintheTable1. 20. Table1.20: ComponentsofFiscalDeficitanditsFinancingPattern
Particulars DecompositionofFiscalDeficit 1 RevenueDeficit()/Surplus(+) 2 NetCapitalExpenditure 3 200506 1,381.35 ()1,496.91 200607 2,650.80 ()2,198.10 200708 3,038.79 ()3,103.73 ()62.77 ()127.71 ()157.08 ()167.06 37.75 ()10.06 51.50 441.77 ()257.12 ()78.72 184.00 ()82.73 127.71 200809 1,869.06 ()2,938.38 42.67 ()1,026.65 ()153.44 94.93 ()2.78 ()41.73 73.74 30.20 1,024.80 80.65 265.96 345.68 1,026.65 (` incrore) 200910 888.22 ()2,742.61 95.39 ()1,759.00 449.85 106.83 146.33 ()67.36 294.37 ()22.47 512.00 ()111.83 244.91 ()206.38 1,759.00

22 NetLoansandAdvances ()319.56 ()416.18 Total ()435.12 36.52 FinancingPatternofFiscalDeficit* 1 MarketBorrowings ()85.39 ()95.24 2 LoansfromGOI ()108.43 42.04 3 SpecialSecuritiesIssuedtoNSSF 980.64 736.23 4 LoansfromFinancialInstitutions 3.98 34.68 5 SmallSavings,PFetc ()19.27 9.65 6 DepositsandAdvances 115.22 312.77 7 SuspenseandMiscellaneous ()1,067.68 ()1,026.83 8 Remittances ()15.42 26.82 23 9 Others 138.59 ()203.09 10 OverallSurplus(+)/Deficit() ()492.88 ()126.45 Total 435.12 ()36.52 *Allthesefiguresarenetofdisbursements/outflowsduringtheyear (Source:FinanceAccount)

22 23

ItincludesinterStatesettlement. ItincludesContingencyFund,ReserveFund. 32

Chapter I FinancesoftheStateGovernment

During 200506, the deficit was financed mostly from theSpecial Securities issuedtoNSSFbutthetrendhaschangedovertheyearsandduring200910, the fiscal deficit was mainlyfinanced fromtheresources raised frommarket borrowings, loans from GOI, special securities issued to NSSF and small savings,providentfundetc. 1.9.3 Qualityof deficit/surplus Theratioofrevenuedeficittofiscaldeficitandthedecompositionofprimary 24 deficitintoprimaryrevenuedeficit andcapitalexpenditure(includingloans andadvances)wouldindicatethequalityofdeficitintheStatesfinances.The ratioofrevenuedeficittofiscaldeficitindicatestheextenttowhichborrowed funds were used for current consumption. Further, thepersistently high ratio ofrevenuedeficittofiscaldeficitalsoindicatesthattheassetbaseoftheState was continuously shrinking and a part of borrowings (fiscal liabilities) were nothavinganyassetbackup. Theratioofrevenuedeficittofiscaldeficitexhibitsanoscillatingtrendinthe State. The bifurcation of theprimary deficit (Table1.21)would indicate the extent to which the deficit has been on account of enhancement in capital expenditurewhichmaybedesirabletoimprovetheproductivecapacityofthe Stateseconomy. Table1.21: Primarydeficit/surplus Bifurcationoffactors
(`incrore)
Year Non debt receipts 2 8,856 11,810 14,345 16,199 19,151 Primary revenue expenditure 3 6,495 7,776 9,700 12,716 16,170 Capital expenditure Loans and advances 5 337 773 502 492 900 Primary 25 expenditure Primary revenue deficit()/ surplus(+) 7(23) (+)2,361 (+)4,034 (+)4,645 (+)3,481 (+)2,981 Primary deficit()/ surplus(+) 8(26) (+)527 (+)1,063 (+)1,012 (+)51 ()664

1 200506 200607 200708 200809 200910

4 1,497 2,198 3,131 2,940 2,745

6(3+4+5) 8,329 10,747 13,333 16,148 19,815

(Source:FinanceAccount)

The above table shows that there was primary surplus during 200506 to 200809 but showed declining trend from 200708 and turned into primary deficitin 200910. The capital expenditure as a percentage of primary expenditure increased during 200508 but reduced during 200810, indicating higher revenue expenditure. One of the reasons for higher revenue expenditure was the implementation ofrecommendationsof theSixth Pay Commission.

24

25

Primaryrevenuedeficitdefinedas gap betweennoninterestrevenueexpenditureof theStateanditsnondebtreceiptstotheextenttowhichthenondebtreceiptsofthe Stateareabletomeettheprimaryexpenditureincurredunderrevenueaccount. Primary expenditure of the State defined as the total expenditure net of the interest payments indicates the expenditure incurred on the transactions undertaken during theyear. 33

AuditReport(StateFinances)fortheyearended31 March2010

While primary revenue expenditure and loans and advances increased by `3,454crore(27.16percent)and`408 crore(82.93percent)respectively, the capital expenditure decreased by` 195 crore (6.64 per cent) during the year. 1.10 ConclusionsandRecommendations

Fiscalposition The State achieved the targets of zero revenue deficit as laid down in the FRBMActandmaintainedthefiscaldeficitbelowthreepercentofGSDP. However, during 200910, the overall fiscal position of Chhattisgarh as reflected in terms of key parameters: revenue, fiscal and primary deficit, worsened as revenue surplus decreased and primary surplus turned into primary deficit, while the fiscal deficit increased over the previous year. However,therewasnoimminentfiscalcrisisastherewasrevenuesurplusand a manageablelevelofborrowings. The deterioration in fiscal performance during 200910 was primarily on account of a relatively lower growth rate in the States own resources and higherrevenueexpenditureduetoimplementationofrecommendationsofthe SixthPayCommission.Thispositionmay alsocontinueduringthenext year asthepaymentofremainingarrearswillbemadeduring201011. The outstanding fiscal liabilities increased from`13,273 crorein 200506 to ` 15,933 crore at the end of 200910. The outstanding fiscal liabilities in 200910increasedby `1,152croreoverthepreviousyear. TheratiooffiscalliabilitiestoGSDPwasnearly15percentduring200910, whichwaslessthanthenormof28 percentrecommendedbyTFC. RevenueReceipts Revenuereceiptsincreasedby nearly 16 percentoverthepreviousyeardueto increase in nontax revenue by nearly 38 per cent, grantsinaid from the Government of India bynearly38 per cent, tax revenuebynearly eight per centandState'sshareofUniontaxesanddutiesby nearlythreepercent. The States own tax revenue and nontax revenue were higher by ` 1,465 crore and`1,338 crore respectively than the normative assessment madeby the TFC. The total own tax revenue and nontax revenue during the award periodof theTFC(200510)exceededthenormativeprojectionoftheTFCby `6,014crore(27percent)and`2,435crore(32 percent)buttheStatesown taxrevenuebuoyancywithrespecttoGSDPreducedfrom1.50in200506to 0.60in200910. Recommendation AsGSDPgrows,theStatehasthepotentialtoincreaseitsowntaxrevenueas wellas nontaxrevenue.TheStatemayexplorethepossibilitiesofwidening thetaxbasesothatthereisgreaterfiscalspaceforundertakingdevelopmental projects.

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Chapter I FinancesoftheStateGovernment

RevenueArrears Thearrearsofrevenueason31March2010inrespectofsomeprincipalheads ofrevenueamountedto`1,015crore,ofwhich` 212crore(21percent)was outstandingformorethanfiveyears. Recommendation Thetaxrecoverymechanismneedstobestrengthenedtorealizethearrearsof revenue. Revenueexpenditure Revenueexpenditurecontinuedtobeadominant(83percent)partofthetotal expenditureduring200910. NonPlanexpenditureexceededthenormativeprojection of theTFCby38per centduring200910.ThetotalNonPlan expenditure,duringtheawardperiod of theTFC(200510),alsoexceededthenormativeprojection (`31,282crore) of theTFCby `6,445crore(21 percent). The committed expenditure consumed about 56 per cent of the revenue receiptsasagainst45percentduring200809,mainlyduetoimplementation of therecommendationsof theSixth Pay Commission. Recommendation Theexpenditureonsalariesandpensionswitnessedsubstantialincreaseduring this year due to implementation of the recommendations of the Sixth Pay Commission.Astheexpenditureontheseitemsisexpectedtostabilizeinthe coming years,theStateshouldtakeactiontorestricttheothercomponentsof NonPlanrevenueexpenditurebyphasingoutsubsidiesand byensuringthat borrowingsarecontinuedtobe usedforcreationofproductivecapitalassets. Theratioofexpenditureonhealthandfamilywelfareto aggregateexpenditure in 200506 and 200910 was lower than the corresponding ratio for general category States. Considering that the infant mortality ratio is higher in Chhattisgarh than the allIndia average, the State government may consider giving agreaterthrusttothissector. Capitalexpenditure The capital expenditure showed a declining trend since 200809 (seven per cent)anditsproportiontototalexpenditurealsodecreasedfrom200809.The capitalexpenditurewas23percentlessthantheprovisionmadeinthebudget estimate. Recommendation The State Government should step up asset creation through capital expenditure,asthiswouldenhancefuturegrowthprospects. ReturnonInvestment TheaveragereturnonGovernmentsinvestmentswas0.17percentwhilethe Government paid an average interest rateof 7.13per centon itsborrowings during200910.

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AuditReport(StateFinances)fortheyearended31 March2010

Recommendation The State Government should formulate guidelines for quick completion of incompleteprojectsandstrictlymonitortimeandcostoverrunswithaviewto avoidblockingoffundsandtoderivebetter returnsfromtheinvestments. Guarantees Even though no limits within which the State Government may give guarantees on security of Consolidated Fund of the State were fixed, the Government gaveguaranteesfor` 4,400.65crore,ofwhich` 3,337.53crore wereoutstandinguptotheendof200910. Recommendation The State Government should consider laying down limits on Government guarantees on loans raised by State corporation through legislation under Article 293 of the Constitution and also take early steps for setting up a GuaranteeRedemptionFund.

36