Management of Public Finance: CAG Flags Rs 2.3L Crore Unused in Five Years

OPSC Current Affairs GS Paper II & III — Governance & Economy Public Finance

Management of Public Finance: CAG Flags Rs 2.3L Crore Unused in Five Years

About the news:Rs 2.3L crore unused in five years due to weak budget plan: CAG
UNSPENT / SURRENDERED (2020–21 TO 2024–25)
Over ₹2.36 lakh crore
ANNUAL SAVINGS RANGE
17.70% – 25.98% of budget provision
UNSPENT IN FY 2024–25
₹56,156 crore of ₹2.88 lakh crore
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Key Facts

  • Report: CAG Audit Report on State Finances (2024–25).
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Constitutional Framework of CAG

  • Article 148: Appointment, oath, and conditions of service of the CAG.
  • Article 149: Duties and powers of the CAG regarding accounts of the Union and the States.
  • Article 151: Audit reports of the CAG relating to the accounts of a State are submitted to the Governor, who causes them to be laid before the State Legislature (subsequently examined by the Public Accounts Committee – PAC).
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Audit Findings Highlights

  • Total unspent/surrendered funds over the 5-year period (2020–21 to 2024–25): Over ₹2.36 lakh crore.
  • Persistent annual unutilised funds (savings) ranged between 17.70% and 25.98% of the total budget provision.
  • The budget expanded by 71.64% over the period, but absorption capacity lagged significantly.
  • In FY 2024–25 alone, ₹56,156 crore remained unspent out of a total provision of ₹2.88 lakh crore, with ₹2,815.91 crore not even surrendered by departments.
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Systemic Weaknesses in Budget Formulation & Forecasting

  • Unrealistic Budgeting: Substantial gaps between Budget Estimates (BE), Revised Estimates (RE), and Actual Expenditure reflect poor data-driven fiscal planning and an absence of rigorous ground-level needs assessment.
  • Routine Over-Estimation via Supplementary Grants: Despite large structural unspent balances, departments routinely sought supplementary demands (e.g., adding ₹16,800 cr to ₹19,833 cr annually), indicating poor expenditure profiling and non-compliance with budgetary discipline.
  • Lax Surrender Compliance: Failure to surrender unspent funds in a timely manner (e.g., ₹2,815.91 cr not surrendered in 2024–25) prevents the Finance Department from reallocating scarce resources to other needy developmental sectors.
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Macroeconomic & Developmental Opportunity Costs

  • Growth Retardation: In public finance, revenue surplus or high revenue mobilization is counterproductive if matched with low capital absorption. Idle funds restrict economic multiplier effects in critical infrastructure (roads, irrigation, logistics).
  • Social Sector Deficits: Underutilisation in health, education, and social safety nets deprives vulnerable populations of timely benefits, exacerbating regional and socio-economic disparities despite fiscal resources being legally earmarked.
  • Capital vs. Revenue Imbalance: Persistent savings frequently lead to the “March Rush,” wherein departments hastily park funds in civil deposits or off-budget accounts at year-end to avoid lapsing, violating financial propriety.
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Administrative & Implementation Bottlenecks

  • Weak Absorptive Capacity: Procedural delays, land acquisition hurdles, lengthy tendering processes, and bureaucratic clearance delays lead to stalled project execution.
  • Institutional Fragmentations: Line departments frequently lack specialized project monitoring units (PMUs) and capacity for realistic multi-year Medium-Term Expenditure Frameworks (MTEF).
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The Accountability Loop: Role of the CAG and PAC

  • Ex-Post Financial Audit: The CAG functions as the guardian of the public purse, highlighting deviations from legislative authorization under the Appropriation Acts.
  • Legislative Oversight: The Public Accounts Committee (PAC) examines these CAG findings to hold the executive accountable, ensuring executive spending matches legislative intent both quantitatively and qualitatively.
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Suggested Reforms / Policy Interventions

  • Implementation of Outcome Budgeting: Shift evaluation from financial outlay to measurable physical outcomes and qualitative impacts.
  • Adoption of MTEF: Integrate Medium-Term Expenditure Frameworks to ensure multi-year horizon planning rather than ad-hoc annual estimates.
  • Automated Real-Time PFM: Enforce strict adherence to modern Public Financial Management Systems (PFMS) and Single Nodal Agency (SNA) models to monitor unspent cash balances and check “parking” of funds.
  • Incentivising Accurate Estimations: Establish departmental disincentives for seeking supplementary grants when previous allocations remain severely unspent.
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OPSC Exam Relevance

Budget absorption, BE/RE/actuals, supplementary grants, surrender of savings, Articles 148, 149 and 151 and the CAG–PAC accountability loop are recurring themes for OPSC Prelims (Polity & Economy) and OPSC Mains GS Paper II & III, where outcome budgeting, MTEF and PFMS-based cash management are standard public-finance reform points.

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Source: CAG Audit Report on State Finances (2024–25), News Reports

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