Transcript All India Performance Audit on Rajiv Gandhi Grameen

AUDIT OF PUBLIC DEBT
MANAGEMENT
O/o Comptroller & Auditor General of India,
New Delhi
Scheme of presentation
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
Public Debt in India – definition, objectives, entities, etc
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Why do we audit public debt?
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SAI India - Approach to Public Debt
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Current Audit
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Audit Framework
Audit Objectives
Audit Methodology
Audit Criteria
Emerging issues
Legislative framework
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All public moneys received by or on behalf of the Government of
India are credited either to the Consolidated Fund of India or the
Public Account of India.
As per the Constitution of India, the Union Government can:
 borrow upon the security of the Consolidated Fund of
India within such limits, if any, fixed by Parliament;
 Give guarantees within such limits, if any, as may be so
fixed.
 make loans to any State / give guarantees in respect of
loans raised by any State, so long as any limits fixed are
not exceeded, subject to such conditions as may be laid
down by or under any law made by Parliament.
Receipts under public account in the form of liabilities include
small savings, provident fund contribution of government
employees, securities issued in lieu of oil food/fertilizer
subsidies, balances under various suspense and remittance
heads, etc.
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India is a federal polity of 29 state governments and 7 union
territories. In parallel to the provisions for the national
government, sub-national State Governments can also borrow
upon the security of the Consolidated Fund of their State within
such limits as prescribed by the Legislature of the State or give
guarantees within such limits, if any, as may be so fixed.

However, in India the State Government cannot borrow from
the sources outside the country. Only the Central Government
can contract external debt. Most of the external debt is from
multilateral agencies such as IDA, IBRD, ADB etc. A small
proportion of external debt originates from official bilateral
agencies. There is no borrowing from international private
capital markets.
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Though no limits were fixed on the Central Government with respect
to borrowings and guarantees, but in 2003, the Fiscal Responsibility
and Budget Management Act was enacted by the Central Government
to bring in prudent debt management consistent with fiscal
sustainability through limits on the central government borrowings,
debt and deficits, greater transparency in fiscal operations and
conducting fiscal policy in a medium term framework.
Public Debt in India - Definition
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
In India, public debt includes ‘Internal Debt’ and ‘External Debt’
for the Central / Union Government (national-level
government). The internal debt, i.e. debt raised domestically, is
composed of market loans, other long and medium-term
borrowing and short-term borrowing.

External debt, as is evident from its name, is made up of loans
received from foreign governments and multilateral institutions.
Domestic Debt of the Government
Internal Debt
Small Savings
(postal)
a) Market Loans
and Bonds
b) Treasury Bills
a) Deposits
b) Certificates
c) Special Securities
Issued to RBI
d) Special Floating
and
Other Loans
e) Ways and Means
Advances
f) Loans from Banks
and Other
Institutions
Provident Funds
and Other
Accounts
Reserve Funds and
Deposits
a) State Provident
Funds
a) Interest
Bearing
b) Public Provident
Funds
c) Other Accounts
b) Non-Interest
Bearing
Public Debt in India (contd….)
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However, Central Government (national) liabilities are larger
than just public debt and also include “Other” liabilities which
are interest bearing obligations not a part of the public debt of
the government, such as post office savings deposits, deposits
under small savings schemes etc.
Public debt of the Central Government accounts for 86.9 per
cent of total liabilities, while public account liabilities constitute
the remaining 13.1 per cent, at the end of March 2013.
External debt (at Rs 3.3 trillion as at end March 2013)
constituted 6.4 per cent of the total liabilities of the Central
Government.
Over-all debt of the government would include debt of both the
national and sub-national (state) governments.
Debt Management in India
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Presently public debt management is divided between the Central
Government, State Governments and the RBI.
External debt is managed directly by the Central Government
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The RBI acts as the debt manager for marketable internal debt for
the central government as an obligation and for the State
governments by an agreement under the RBI Act, 1934.
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RBI decides about the maturity pattern, calendar of borrowings,
instrument design and other related issues in consultation with the
central Government.
Debt management entities
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CITIZENS / EXTERNAL STAKEHOLDERS
GOVERNMENT ADMINISTRATION
LEGISLATURE (PARLIAMENT)
MINISTRY OF FINANCE (DEPARTMENT
OF ECONOMIC AFFAIRS)
C&AG
RBI
MULTI-LATERAL / BILATERAL LENDERS
DEBT MARKETS; PRIMARY
DELAERS; UNDERWRITERS
Objectives of Public
Debt management in India
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The objective of debt management policy is to mobilize
borrowings with long term cost efficiency subject to prudent
levels of risk in the debt portfolio.
It is also an objective to develop a liquid and well functioning
domestic debt market.
Debt Position of the Central Government
Component
2010-11
2011-12
(provisional)
2012-13(RE)
2013-14(BE)
Internal Debt
2675823
3216622
3734602
4283310
% of GDP
34.3
35.8
37.3
37.7
External Debt
278877
322897
332004
342564
% of GDP
3.6
3.6
3.3
3.0
Other
Liabilities
% of GDP
579249
599265
615492
686107
7.4
6.7
6.1
6.0
Total liabilities 3533950
4138784
4682098
5311980
% of GDP
46.1
46.7
46.7
45.3
Debt Position of the State Governments
Component 2010-11
2011-12 (RE)
2012-13(BE)
Public Debt 1340530
1473460
1663480
Other
Liabilities
488440
530360
564260
Total
liabilities
1828970
2003820
2227740
Central Government Debt …
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Trends in Central Government Debt and Liabilities (% of GDP)
67
62
61.6
57
61.0
59.1
56.9
52
47
56.1
54.5
50.5
50.2
50.3
49.7
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2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
RE
Debt reported in Budget
BE
Why do we audit public debt?
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
As per constitutional mandate, C&AG has to report on all the
receipts and expenditure of Union Government and State
Governments to Parliament and State Legislature.
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Audit of public debt can help policymakers to understand the
significance, benefits and risks of public debt, and contribute to the
efforts of public debt managers toward making their operations
more effective and increasing the efficiency of internal
administrative processes.
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Such audits enhance public debt transparency and accountability
by examining current reporting practice.
SAI India - Approach to Public Debt
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Audited separately for the central govt. & State govts.
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Comments, annually, on level & composition of public debt in
report on accounts of the Govt. of India.
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A separte audit report on public debt of the Govt. of India was
prepared by SAI India in 1994.
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Comments, annually, on level & composition of public debt also
find mention in audit reports of state government which are placed
in their legislature.
Earlier Audit comments on Debt
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Audit comments have been made on
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Debt sustainability
 Debt stabilization
 Level of non debt receipts
 Net availability of borrowed funds
 Burden of interest payment
 Maturity profile of govt. Securities
Persistence of primary and revenue deficits over the years which
would lead to an accumulation of government debt.
Importance of exercising sound expenditure control measures.
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Current Audit
Audit Framework
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Public debt operations involve a number of stakeholders whose
functions range from advisory to recording to actual operations.
Main stakeholders of Public Debt Management are the RBI and
the Ministry of Finance.
Audit will examine the records pertaining to internal and
external debt of Government of India available at Department of
Economic Affairs (DEA) (Budget Division, EDMU, MO, CAAA etc.)
and Reserve Bank of India (RBI) (DGBA, IDMD, Public Debt
Offices, etc.).
Audit stages
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Preliminary
(March-May
2014)
A preliminary study
of the subject would
be conducted to
develop a program
and work plan for
performance audit.
Guidelines would
be developed
indicating audit
objectives, criteria
for evaluation, etc
Field audit
(June -November
2014)
Reporting and
finalisation
(December 2014
- April 2015)
Holding of entry
meetings, etc.
Obtaining evidence
through physical
verification,
examination of
documents, data
collection, etc. ,
Analysis of the
data and
information
Preparing of the
findings, conclusions
and
recommendations
Holding of exit
conference, etc
Obtaining replies
to the draft report
and finalisation
Audit Objectives
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The overall audit objectives of the Audit of Public Debt are to gain
an assurance that:
 A clear and explicit legal framework is in place; and that the
organizational arrangement establishes clear roles and
responsibilities for effective execution of debt management
activities;
 The debt management strategy is consistent with the country’s
debt goal and objective, and that the debt management strategy
minimizes risk and is cost effective;
Audit Objectives
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The government followed sound practices in preparation of
borrowing plan, that the borrowing plans are consistent with its
public debt strategy, that the borrowing needs have been
determined correctly, and that the government followed its
borrowing plan;
The debt managers have adopted sound practices in debt
servicing and that correct amounts are specified in public debt
agreements;
There is adequate design and implementation of internal
controls and compliance with laws, regulations and directives;
Audit Objectives (contd.)
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The public debt IT / IS systems enhance the economy, efficiency,
and effectiveness of debt management objectives, especially in
relation to planning, execution, monitoring, and reporting;
The public debt reporting system / debt database is complete
and accurate to provide reliable financial information and meets
legal requirements, and that there is comprehensive and regular
disclosure of public debt activities to the legislature, executive
and other stakeholders.
Audit Methodology
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Typical audit techniques:
 discussions,
 record examination and documentary analysis,
 qualitative analysis of procedures,
 test check of transactions from the system.
 Comparison of existing state with that prescribed,
 verification of compliance with the decisions of meetings, etc.
Audit Criteria
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National laws and regulations governing public debt activities
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Fiscal Responsibilities and Budget Management Act, 2003
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Government Securities Act, 2006
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Reserve Bank of India Act, 1934
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Guidelines for Public Debt Management prepared by IMF and world
bank
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Circulars/guidelines issued by Government time to time
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Quarterly/annual reports relating to Public Debt
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Manuals of RBI, DEA etc.
Emerging issues
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
Legislation in the area of fiscal responsibility has expanded and
achievement of articulated debt management goals and objectives
is to be seen in the context of global financial crises (2008).
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Cost Minimization – Issuance calendar, maturity profile, short vs long
Risk Mitigation – Rollover risk, exchange rate risk, interest rate risk
Market Development – primary and secondary market
Cash Management – difficulties of predicting, lumpiness of payments
Debt reporting obligations and disclosures have also increased.
The manner in which the Total liabilities are reported in the budget
documents needs to be examined so that the outstanding debt
truly reflects the outcome of fiscal operations of the Central
Government.
Emerging issues
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
Management of debt management today requires professional
debt management techniques. At the same time, it is a separate
policy instrument from monetary policy, so we need to see:
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The conflict between the fiscal and monetary policy and debt
management policy:
 Fixation of interest rates.
 The choice of keeping debt servicing costs low over the short term
or over the medium term.
Conflicting objectives if the Central Bank conducts the debt
management policy:
 Liquidity management
 Interest rates
Emerging issues
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
Since active debt management is becoming the norm, the remit of
the debt management office, borrowing purposes, etc are critical.
At the same time, Audit has to consider:
 Ideal size of the debt in terms of manageability and
sustainability.
 Repayment burdens - for instance, there is a steep increase in
the annual repayment burden during 2014-15 to 2017-18.
These near-term repayments need to be planned in advance to
control refinancing risk. This underscores the need for active
debt management to even out redemption burden over a longer
time frame.
 Yield and maturity profile
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Thank You