A Critical Look at the CAG’s State Finances Report 2025
Image credit X.com Sansad TV
The CAG’s 2025 State Finances report offers detailed numbers on state budgets, but by excluding comparable data on the Union government, it risks skewing perceptions of fiscal stress and accountability.
By P SESH KUMAR
NEW DELHI, September 25, 2025 — The CAG’s “State Finances Publication 2025” purports to map the trajectory of state fiscal health over the last decade, with particular attention to committed expenditure, debt, revenue trends, and intergovernmental transfers. While the exercise is methodologically ambitious and serves as a useful reference, it falls short of offering a fully grounded, actionable audit-level diagnosis.
The analysis is dated (reporting up to 2022-23, now published in 2025), fails to juxtapose the Union government’s parallel fiscal stance, understates the impact of modern financial‐information systems, and lacks integration with actual audit findings that gauge financial discipline, compliance, and quality of expenditure. Unless read in conjunction with CAG audit reports, the publication risks becoming a scholarly snapshot rather than a tool for governance oversight. I make an attempt to identify the logical, methodological, and institutional lacunae, and propose ways for future editions to be more robust, timely, and policy-relevant.
The Lag in Timeliness: Two Years’ Delay Undermines Relevance
While the CAG deserves kudos for what is a first of its kind publication, a principal weakness of the report is the time lag: a “2025 publication” that uses data only until 2022-23 (i.e. two full years behind) significantly diminishes its policy utility. Fiscal trends, especially debt dynamics and expenditure pressures, can shift sharply in two years. Thus, by the time the report is released, some of its “key trends” may already have evolved or reversed.
A real oversight authority ought to aim for more contemporaneity. This lag also accentuates the risk that conclusions are overtaken by subsequent events (e.g. pandemic stimulus rounds, revenue shocks, state‐level borrowing interventions).
This cannot perhaps be helped as CAG’s is what is called ‘post mortem’ audit and it cannot use figures other than formally published.
Because the data trail is stale, policy makers, legislators, and the public may misread the snapshot as current, when in fact it is retrospective. That temporal disconnect weakens the CAG’s convening and influencing power. A more nimble cadence — e.g. by mid of next year, or partial “fast releases” of key metrics — would help.
Absence of Union Government Comparisons
In presenting state finances in isolation, the report misses an essential comparative benchmark: how does the Centre fare on the same metrics (committed expenditure to revenue, debt growth, revenue elasticity, etc.)? Without that, readers cannot judge whether states are uniquely challenged, or part of a broader national fiscal drift. The impression becomes that states are under the microscope alone, while the Union escapes scrutiny. Perhaps CAG will come out with a separate compilation on the decadal trends of Union Government’s financial health
A state‐vs‐Centre juxtaposition would also help highlight intergovernmental interdependencies:
if the Centre’s revenue shortfalls or transfer constraints force states to borrow more, that must be reflected. The absence of this juxtaposition gives the green light to narratives that blame states alone for fiscal stress, when often the structural design of fiscal federalism or central policies contributes.
Insufficient Integration with Audit Observations
The publication is explicitly not an audit report, but that does not justify treating it as a standalone “neutral picture” divorced from audit realities. Financial health is not only about magnitudes of debt or salary growth, but also about discipline, compliance, quality of expenditure, leakages, and valuations.
The CAG’s audit reports, especially on state governments, often uncover irregularities in revenue recognition, misclassification of capital vs revenue, off-balance sheet liabilities (guarantees, public private partnership exposure), and contingent liabilities. Without weaving in those findings, the state finances document runs the risk of glossing over “how” the numbers are constructed, and where the slippages lie.
In effect, reading the “publication” in isolation is akin to reading the balance sheet without the auditor’s notes. A realistic assessment must straddle both — the macro trends and the audit micro‐evidence. The presentation that “salary bills rose 2.5x, debt rose 3.4x” is meaningful only if it is accompanied by commentary on whether those expenditures had audit caveats, reversals, or provisions.
Underplaying Modern Information Systems & Data Quality
In the last decade, almost all states have adopted Integrated Financial Management Systems (IFMS) or equivalent systems, and at the Centre the Public Financial Management System (PFMS) is in place. These systems offer transaction‐level traceability, real‐time recording, and internal controls. The Publication hardly acknowledges the transformation (or disparities) in data generation, data accuracy, and institutional capacity.
Because the report treats the state financial data more as static aggregates (revenues, expenditures, debt), it fails to explore data quality, control lapses, reconciliations, and under‐reporting risks that are critical when one is relying on system‐generated numbers. Differences across states in maturity of IFMS or audit trails (e.g. reconciliation between IFMS and cash‐book, direct on‐line transfer records) could introduce distortions in year‐to‐year comparability. Without a contemporaneous audit of data integrity, some trends may reflect improved accounting/reporting, not real policy shifts.
Selective Metric Emphasis and Lack of Deeper Ratios
The publication highlights that salary bills across states have grown 2.5x in ten years, subsidies have more than tripled, and committed expenditure is nearly 43.5% of revenue expenditure. It also notes a debt rise to ₹59.6 lakh crore (about 23% of combined GSDP). These are headline grabs. But the analysis leaves out deeper ratio analytics — for example, interest burden relative to revenue, debt servicing stress over time, debt elasticity (change in debt per unit change in revenue shortfall), off-budget liabilities, and fiscal buffers (liquid reserves or cash balances) beyond committed expenditure metrics.
Further, much of the discussion is aggregate and national; while the publication mentions extremes (Nagaland 74 %, Kerala 63 % committed expenditure), it rarely delves into heterogeneity across states or correlates these pressures with growth, revenue buoyancy, or reform regimes (tax reforms, subsidy rationalization, public sector restructuring). Without that, the insights remain bland and general.
Weak Narrative on Cause, Policy, and Risk
Although the report chronicles what happened (e.g. rising salary and subsidy bills), it is weaker on why — what were the policy drivers, institutional constraints, or external shocks (commodity price swings, central devolution changes, state fiscal autonomy changes)? Similarly, the risk assessment is shallow: while it terms debt growth as a “medium-term fiscal risk,” it does not explore scenarios (e.g. interest rate shocks, contingent liability crystallization, revenue shortfalls) or propose prudential thresholds for states.
By presenting a largely descriptive chronology, the report reads like a textbook compendium. For a constitutional audit body, there is a higher expectation: to guide states (and Union) on fiscal boundaries, red flags, and reform imperatives.
Presentation and Readability Choices
The summary indicates the use of key tables (e.g. share of devolved taxes to top states) and trend lines, but the narrative is light on interpretative shading. There’s a tension: a too-dry, aggregated presentation makes it accessible as a research reference, but reduces its uptake among policy stakeholders. Also, without indexing or interactive data tools (dashboards, filters by state, trend decomposition), the report risks being static and under‐utilized.
Further, by not embedding audit flags, caveats, or data quality footnotes per state, the user is left to guess which numbers are more reliable. In a technically literate audience, that ambiguity undermines confidence.
Why It Reads More as an Academic Exercise than Oversight Instrument
Because the publication plays it safe, stays largely descriptive, and avoids making normative judgments or naming specific state practices, it tilts toward scholarship rather than oversight. Its delayed delivery, lack of comparative benchmarks, absence of audit corroboration, and generic narrative style make it better suited to being cited in research than used as a real-time tool to prod states or inform legislative action.
In short, it is a well-compiled “state level public finance atlas” rather than a sharp, position-taking instrument of financial accountability.
Way Forward: Suggestions to Strengthen Future Editions
- Improve Publication Cadence & Interim Releases
Aim to publish the state finances summary within 9 to 12 months of the end of the fiscal year. Even if full chapter-level audits are delayed, a fast‐track “headline & red-flag” summary should be issued. This bridges the policy relevance gap.
- Embed Union versus State Comparison Modules
Include a chapter (or annex) comparing analogous fiscal indicators of the Union government, to place state performance in context and reveal cross‐level fiscal stress patterns.
- Integrate Audit Findings & Caveats
For each state and metric, provide pointers where audit reports have flagged non-compliances, restatements, contingent exposures, or valuation issues. A matrix of “top 10 audit warnings by state” would help users see how macro trends and micro findings converge or diverge.
- Drill into Data Quality, Reconciliation & System Maturity
Incorporate assessments (possibly through sample checks) of the IFMS/PFMS linkage, data reconciliation protocols, lag in reporting, and state-level maturity indices. Flag where data integrity is weak. Use audits or third-party validations to adjust trends.
- Augment Analytic Depth: Stress Tests, Scenarios, Ratios
Move beyond level trends. For example: what happens if interest rates rise by 1 p.p.? Evaluate sensitivity of debt burden, interest servicing, and fiscal headroom. Introduce fiscal “alarm triggers” (e.g. debt/revenue > X, interest/revenue > Y). Explore elasticity of debt to shocks, fallback options, and buffer cushions.
- Disaggregate State Groupings & Regression Insights
Classify states along dimensions (reformist vs non, high vs low revenue buoyancy, net debtor vs external aided) and run regressions to explain which factors drive favourable or adverse fiscal trajectories. That moves the narrative from “what” to “why”.
- Design Interactive Data Tools & State Profiles
Launch a companion web dashboard where users can select a state and see trends, audit flags, and comparative peer states. Make downloadable state-wise “health cards.” This increases uptake by legislators, think tanks, and public.
- Strong Narrative Positioning & Risk Warnings
The report should not shy away from normative framing. When a state’s fiscal posture looks unstable, the narrative should issue caution, demand reforms, or signal need for corrective measures. The auditor’s moral authority is diminished if the voice is uniformly neutral.
- Coordinated Communication & Legislator Engagement
Accompany the release with statewise summaries, press briefs, and legislative primers so that the report doesn’t stay in academic corridors but reaches finance secretaries, state legislatures, and public accountability forums.
- Continuous Feedback Loop with States
Create a mechanism where states provide feedback or challenge trends/interpretations before publication, akin to audit response windows, thereby improving accuracy and institutional ownership.
(This is an opinion piece, and views expressed are those of the author only)
E-Way Bills, Delayed Truths: CAG’s Audit That Arrived Too Late
Follow The Raisina Hills on WhatsApp, Instagram, YouTube, Facebook, and LinkedIn
About The Author
