Although Chief Minister Conrad K Sangma told the Assembly that there is nothing to fear even as the state adds to its debt burden, the Comptroller and Auditor General (CAG) has warned that Meghalaya’s borrowing trends could lead it into a debt trap.
In its State Finance Report 2021-22 for Meghalaya, the CAG has pointed out that the state is servicing its existing debts by taking out more and more loans.
In absolute monetary terms, Meghalaya’s overall debt has increased by 63.22 per cent from Rs 9,485.08 crore during 2017-18 to Rs 15,481.09 crore during 2021‑22. As a percentage of GSDP, the overall debt was 32.14 per cent in 2017-18, but has “increased considerably” to 40.92 per cent in 2021‑22.
‘Internal debt’, which comprises market loans, ways and means advances from RBI, special securities issued to National Small Savings Fund and loans from financial institutions, etc, makes up nearly three-quarters (73 per cent) of Meghalaya’s outstanding debt. The rest is made up of ‘public account liabilities’ (23 per cent) and loans from the central government (4 per cent).
Compared to the previous financial year, the outstanding debt at the end of 2021-22 increased by 13.67 per cent (Rs 1,862.35 crore).
Internal debt constituted 94.39 per cent (Rs 11,244.83 crore) of the total outstanding public debt (Rs 11,912.82 crore). During the year, the state government borrowed Rs 1,608.00 crore in the form of market loans and paid Rs 699.55 crore towards interest, which was higher by Rs 112.66 crore as compared to 2020-21.
“This indicates that a substantial portion of fresh market loans are being utilised towards servicing of existing debts which may lead to a debt trap in future,” the CAG report said.
However, in the recent Assembly session, the Chief Minister told the house that there is nothing to fear about debt or a debt trap.
“Loans are part of the government’s expenditure. Every government takes loans. But while we take loans, the government of India has prescribed a system and a format in which you can take it. The government of India has put a limit on the amount which you can take and no state can take beyond that even if you want to. So there is nothing to worry,” Sangma said.
However, the CAG is concerned.
It added that in 2021-22, public debt as a percentage of GSDP was 31.49 per cent, which was higher that the 28 per cent limit prescribed by the Meghalaya Fiscal Responsibility and Budget Management Act.
In order for Meghalaya to avoid a debt trap, it must grow its GSDP “at a sufficient pace in order to generate enough revenues for future debt servicing”. That is what the government is arguing that it is doing as it aims to be a $10 billion dollar economy in the next five years.
