In a letter to the CAG, reviewed by Business Standard, the Commission said that although classifying all expenditure “in black and white” may not be possible, consistency in reporting is essential. It added that since subsidies are presented in a separate statement in Finance Accounts, the auditor “may not be bound by how states are classifying expenditure under subsidies and transfers while deciding what goes in this statement and what doesn’t”.
The issue has drawn significant attention and public debate in recent times as states often announce a spate of freebies, particularly before Assembly elections.
The Election Commission of India (ECI) announced the schedule for Assembly elections in West Bengal, Tamil Nadu, Kerala, Assam, and Puducherry on Sunday (March 22). In its letter, the Commission also flagged the issue of off-budget borrowings, recommending that these be reported in Finance Accounts, which are essentially the audited annual statement of actual receipts and expenditure of states.
It said such disclosure would be important “from the viewpoint of fiscal stability”, and noted that independent reporting would “go a long way in reining in them”, especially since the Centre now considers these borrowings when setting the borrowing limits of states.
On tax devolution, the Commission addressed concerns raised in some quarters that the “exact amount as per the percentage recommended by FCs is not actually transferred by the Union to the states”. It called these concerns “unfounded”, explaining that transfers are initially based on estimates and subsequently adjusted after accounts are finalised and audited figures become available.
However, it pointed out that while the CAG is required under Article 279 to certify the net proceeds of taxes, the certification is not made public.
The Commission recommended that “in the interest of transparency, this data be made public”, adding that this would “ensure full transparency” in sharing tax revenues.
It also noted that the Union Budget for 2026-27 has included a separate Annexure-4C in the Receipt Budget on these lines. Annexure-4C is the “disclosure statement of data on net proceeds as certified by the CAG as per Article 279 of the Constitution".
The Parliamentary Standing Committee on Finance recommended on Tuesday that the finance ministry strictly align fund releases with the Commission’s recommendations while prioritising the reduction of time lags between the sanction and the actual transfer of funds for centrally sponsored schemes.
The Commission further highlighted variations in reporting grants to local bodies, noting that “each state follows its own mechanism”, which leads to a lack of uniformity. It said that if such transfers are reported “uniformly and transparently”, it would “enable proper implementation” of conditions attached to these grants.
It also underscored the importance of timely and accurate accounts of local bodies, stating that “active involvement of the CAG would be of great help in ensuring timelines and improving quality of accounts and audit”.
 "Illustration: Binay Sinha")