Comptroller and Auditor General (CAG) audits have revealed that several Indian states understated their fiscal gaps in 2024-25 due to accounting practices, off-budget borrowings, and unrecorded liabilities. According to reports from Business Standard, in each report covering Bihar, Chhattisgarh, Gujarat, Karnataka, Kerala, Maharashtra, and West Bengal, the CAG carries out a post-audit recalculation of the headline deficit. In every case, the revised figure is worse than the one originally reported by the state government. The headline deficit figures come from each state's Finance Accounts for 2024-25, the official audited statement of receipts and expenditure presented to the legislature, which are subsequently subjected to post-audit review by the CAG.
Chhattisgarh offers the starkest example of the audit findings. As reported by Business Standard, it reported a revenue deficit of ₹5,099 crore but after the auditor stripped out misclassified expenditure and off-Budget loan repayments wrongly booked as capital expenditure, the deficit doubled to ₹10,246 crore. Similarly, Bihar's reported revenue deficit of ₹357 crore expanded nearly sevenfold to ₹2,501 crore, while Maharashtra's fiscal deficit increased by more than ₹20,000 crore after the auditor added back ₹28,325 crore of off-Budget borrowings to the state's debt. In Odisha, the auditor found that the reported revenue surplus was overstated by ₹721 crore, highlighting the widespread nature of these accounting discrepancies across multiple states.
The audit reports point to several recurring accounting practices behind these revisions. According to Business Standard, the most common practice is the classification of revenue expenditure as capital outlay, which inflates capital expenditure while reducing the reported revenue deficit. Maharashtra misclassified ₹4,070 crore, Karnataka ₹2,021 crore, Chhattisgarh ₹1,235 crore, and West Bengal ₹1,032 crore under this method. Another practice involves keeping debt off the books through borrowings by state-owned companies and special purpose vehicles, with Kerala's report identifying ₹39,230 crore of such off-budget borrowings excluded from liability figures. The auditor also flagged the extensive use of the catch-all '800 – Other Expenditure' accounting head, which obscures the actual destination of spending. Kerala booked ₹7,164 crore, or 4.19% of its total expenditure, under this head, with the auditor noting that regular use renders the accounts opaque.
The auditor also flagged the non-transfer of earmarked cesses to dedicated welfare and development funds, with the money instead retained in the government's general bank account. As reported by Business Standard, Gujarat alone withheld ₹4,169 crore of motor spirit cess and ₹3,519 crore of labour cess. Several states also fell short on future obligations, with Maharashtra under-remitting employees' NPS contributions by ₹3,278 crore and parking unspent money in Personal Deposit accounts, creating ₹20,993 crore in Maharashtra and ₹11,418 crore in Odisha at year-end. The West Bengal report notes that undischarged liabilities, such as non-transfer of collected cess to designated bodies or short-remittances to the NPS, can have significant long-term fiscal and governance implications, as these unpaid obligations accumulate over time, creating hidden liabilities that distort the state's true financial position.
Gujarat's reported revenue surplus of ₹18,943 crore shrank to ₹7,014 crore once statutory dues and short transfers to designated funds were taken into account, according to Business Standard. Its fiscal deficit also increased by ₹12,383 crore to ₹61,348 crore. The West Bengal report emphasizes that these unpaid obligations accumulate over time, creating hidden liabilities that distort the state's true financial position, with the auditor warning that such practices can have significant long-term fiscal and governance implications for state finances.
