Most states bunch up expenditure in March, CAG warns of fiscal risks

CAG warns most Indian states of fiscal imprudence as March spending overshoots limits, with key departments exhausting large portions of budgets in the last month of FY24

Most Indian states are bunching up their expenditure in the last month (March) of the financial year, an analysis of 2023-24 state finance audit reports by the Comptroller and Auditor General (CAG) showed, cautioning against such “non-adherence to financial propriety”.

 

A review of data available for 15 states and the National Capital Territory of Delhi revealed that expenditure in March far exceeded the ceilings prescribed by the Union finance ministry, which caps last-quarter spending at 25 per cent and March spending at 10 per cent of the budget.

 

“Maintaining a steady pace of expenditure is a crucial component of sound public financial management, as it obviates fiscal imbalances and temporary cash crunches arising from unanticipated heavy expenditure,” CAG observed.

 

Of the 16 states and Union Territories (UTs), 12 — including Delhi, Haryana, Maharashtra, Gujarat, Jharkhand, Rajasthan, Madhya Pradesh, Odisha, Bihar, Goa, Himachal Pradesh, and Uttar Pradesh — breached the prescribed levels either for a particular department or for total budgeted expenditure.

 

Of these, Maharashtra (25.14 per cent), Gujarat (19.32 per cent), Jharkhand (19.12 per cent), Madhya Pradesh (17.54 per cent), Bihar (15.5 per cent), Rajasthan (13.6 per cent), and Goa (12.04 per cent) exceeded the finance ministry’s limit for March, with monthly payouts accounting for more than 10 per cent of their annual expenditure.

 

Of the 16 states and UTs, only Delhi and Karnataka adhered to the overall monthly expenditure ceiling. Monthly expenditure data for Mizoram, Nagaland, and Chhattisgarh were not available in the CAG reports. 

 

Several states also ignored their own self-imposed expenditure ceilings. In Odisha, for instance, the government had prescribed a 40 per cent ceiling for the fourth quarter, with March expenditure limited to 15 per cent. However, CAG found that 15 departments failed to adhere to these guidelines.

 

In Himachal Pradesh, while guidelines capped last-quarter expenditure at 25 per cent of total budget allocation, five grants — including Public Works, Power Development, and Housing — spent over 40 per cent between January and March.

 

Similarly, Haryana, which set its March-quarter expenditure at 30 per cent, saw 24 major heads exceed this ceiling, with housing spending at 57 per cent and medium irrigation a striking 87 per cent in the last three months of the financial year.

 

In Uttar Pradesh, 67.8 per cent of the Social Welfare Department’s budget was spent in March alone. Delhi’s finances showed a similar pattern, with several grants such as Education, Home, Public Works, and Welfare incurring half their full-year spending in the last month of the financial year. For example, two sub-heads under Social Welfare exhausted their entire allocation in March.

 

Aditi Nayar, chief economist at Icra, says that the bunching of expenditure is sometimes a reflection of bill clearance during a concentrated period. “One of the concerns this poses is cash flow management, and concentration of borrowings in a short period of time,” she added.

 

Devendra Kumar Pant, chief economist at India Ratings & Research, said that such back-loaded spending is often triggered by late tax devolution and cash flows from the Centre. These cause a surge of payments and clearances in March and create what he termed a “lumpiness” in expenditure.