"If this practice continues, Punjab would not be able to generate additional revenue to service its debt and it would have no option but to raise new borrowings every year to repay the borrowings of earlier years," the CAG warned the state government.
In its latest report on state's finances for 2014-15 tabled here during the ongoing budget session of the Punjab Vidhan Sabha, CAG said a major portion of borrowings was utilized for repayment of earlier borrowings (47 to 70 per cent) and revenue expenditure (20 to 39 per cent).
It said the state's public debt, including other liabilities, jumped from Rs 74,784 crore in 2010-11 to Rs 1,12,366 crore in 2014-15.
CAG, which found the state's debt-Gross State Domestic Product (GSDP) ratio to be on the higher side, asked the government to step up resource mobilization efforts to ensure debt stability, as the ratio is an important indicator of sustainability of public debt.
"Though the debt-GSDP ratio at 32.12 per cent was
within the target fixed (38.70 per cent) under Fiscal Responsibility and Budget Management Act, yet the borrowed funds were mostly used for redemption of past debts. As much as 23 per cent of the revenue receipts were used to meet the burden of interest payments during current year," the report said.
CAG said 62 to 73 per cent of revenue expenditure of the state was utilized on salaries, interest payments and pensions, therefore the government needs to reconsider its priorities regarding subsidies and grants.
"Expenditure on subsidies and grants-in-aid, which was between 14 per cent and 21 per cent during the period 2010-11 to 2014-15, is neither statutory nor developmental.
"The State Government needs to reconsider its priority on subsidy and grants-in-aid to ascertain whether it would be beneficial to discontinue subsidy and grant in aid to reduce current debt requirements and utilize the resultant savings for repayment of debt so that its interest payments come down," it said.