RBI, CAG Warns Of Giving Loans To AP Govt

The Comptroller and Auditor General of India warned agencies that have already lent and those planning to extend loans to Andhra Pradesh twice before doing it and do it at their own risk. The CAG report detailed about the grim financial condition in the state till March 2021.

The CAG expressed anxiety over several issues in connection with AP’s financial status between 2019-21. Even the Reserve Bank faulted the AP government in several areas. The Union finance ministry also warned various agencies on giving loans to the AP government. The CAG report said the AP government was taking fresh loans to clear the old dues.

The CAG said that governments should take loans to create infrastructure and towards development works but not to pay interests on borrowed money and for day-to-day expenditure. Such acts will lead to financial instability, it warned. Even when the FRBM Act mentions that the entire money taken as loans by 2020-21 should not exceed 35% of the GSDP, the CAG said that the loans taken by the AP government had already crossed the figure and reached 35.30%.

If the loans not being shown in the Budget are also considered, the AP government’s loans would reach 44.04% of the GSDP. Basing on the financial condition in March 2021, the government will have to clear debts of Rs 1,23,640 crore in the next seven years. If there is no clear cut strategy to pay off the loans, there will be shortage of funds for development works.

The CAG report warned that the AP government’s debts have been increasing every year. It said that 81 per cent of the loans taken by the government are being spent towards revenue expenditure leading to shortage of income. Banks and financial organisations should take cognizance of this fact and then lend loans to the AP government, the CAG report said.