Meghalaya's borrowing trend could lead to debt trap, warns CAG

While Meghalaya strives to become a USD 10 billion economy in the next five years, the Comptroller and Auditor General (CAG) has cautioned that the state's borrowing tendency has climbed by more than 63 per cent in the last five years, putting the state in a debt trap.

The CAG stated in a budget report for Meghalaya for 2021-22, which was recently filed in the Budget session, that the state's entire debt has climbed by 63.22 per cent from Rs 9,485.08 crore (2017-18) to Rs 15,481.09 crore (2021-22).

Of the total debts, about 73 per cent are internal in the form of market loans, ways and means advances from RBI, special securities issued to National Small Savings Fund and loans from financial institutions. Another 23 per cent is public account liabilities and about four per cent is loans from the central government, the CAG noted. 

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In terms of GSDP percentage, the entire debt, which was 32.14 per cent in FY 2017-18, has risen significantly to over 41 per cent in 2021-22, according to the report.

In contrast, the outstanding debt after the fiscal year 2021-22 climbed by 13.67%. (Rs 1,862.35 crore). The internal debt is Rs 11,244.83 crore, accounting for about 94.39 per cent of the entire outstanding public debt (Rs 11,912.82 crore).

Even the interest payment of Rs 699.55 crore during 2021-22 was Rs 112.66 crore higher than in FY 2020-21 since the government borrowed Rs 1,608.00 crore in the form of market loans, it added. "This suggests that a significant amount of new market loans are being used to service existing debts, which may lead to a debt trap in the future," according to the CAG study.

It further stated that the state government is covering its current obligations by taking out increasingly large loans. In the budget session, from March 20 to 28, Chief Minister Conrad K Sangma assured the House that there is nothing to fear about debt or a debt trap. "Loans are a kind of government spending."

Every government borrows money. "There is nothing to be concerned about," he added, adding that the Government of India defines a structure, format, and boundaries within which state governments can borrow.

Conrad also predicted that the state's GDP will expand to USD 10 billion (Rs 80,000 crore) during the following five years. The CAG has voiced worry, however, that the public debt percentage of GSDP was 31.49 per cent, above the 28 per cent limit stipulated by the Meghalaya Fiscal Responsibility and Budget Management Act.

It proposed that to avoid the debt trap, the state's GSDP must expand "at a sufficient pace to produce adequate revenues for future debt payment."