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Why in News?
The Comptroller and Auditor General (CAG) of India, K. Sanjay Murthy, held a high-level consultation with the 16th Finance Commission, chaired by Arvind Panagariya, in Bhopal. The meeting focused on key fiscal challenges faced by the Centre and States, including financial stress points, revenue generation, and transparency in fiscal management.
Key Highlights of the Consultation
Union and State Finances
The discussions centered on the fiscal landscape of both the Union and State governments, highlighting the widening gap between expenditure and non-debt receipts.
The CAG flagged concerns over declining State Own Tax Revenue (SOTR) buoyancy, varying levels of SOTR and Non-Tax Revenue across States, and the need for fiscal discipline.
The need for regular reporting of off-budget borrowings and adherence to the Fiscal Responsibility and Budget Management (FRBM) Act targets was emphasized.
CAG stressed the importance of considering post-audit liabilities computed in its reports for better fiscal planning.
Local Bodies and Public Sector Enterprises (PSEs)
The CAG highlighted the necessity of improving fiscal management in local bodies by standardizing accounting practices and aligning them with State and Central government accounts.
It suggested that top 100 cities should prioritize the harmonization of their financial accounts to improve transparency and fiscal discipline.
For Public Sector Enterprises (PSEs), the focus was on enhancing efficiency, reducing fiscal risks, and ensuring better financial accountability.
Technology Adoption for Fiscal Management
The CAG recommended leveraging technology for revenue generation and minimizing leakages.
Areas such as stamp duty, registration fees, and State excise collections were identified as having untapped potential for revenue enhancement.
Suggested measures include:
Regular updates to market value guidelines.
Improved classification of property types for better revenue collection.
Use of sensor-based systems and QR codes to improve data accuracy and minimize revenue leakages.
Goods and Services Tax (GST) Reforms
The consultation emphasized broadening the GST base and enhancing transparency through automated data collection.
Proposed measures include:
Integration of unregistered goods and service providers into the GST framework using real-time information systems.
Strengthening taxpayer verification processes to prevent tax evasion.
Key Recommendations for Local Bodies
Adoption of an Integrated Financial Management System (IFSM) for tracking fund transfers from State governments to local bodies.
Streamlining of accounting practices to ensure transparency in fund utilization and better fiscal planning.
Encouraging digitalization of local body financial transactions to enhance accountability and efficiency.
Challenges in India’s Fiscal Landscape
Declining Revenue Generation: Decrease in SOTR and lack of diversified revenue sources are putting fiscal pressure on States.
Fiscal Deficit: High fiscal deficit due to increased expenditure and lower revenue collection.
Off-Budget Borrowings: Unaccounted debts by States and Centre creating fiscal instability.
Public Sector Enterprises (PSE) Losses: Many PSEs remain financially unviable, adding to the fiscal burden.
GST Compliance Issues: Tax evasion and loopholes in GST administration lead to revenue losses.
Way Forward
Strengthening Fiscal Discipline: Regular monitoring of revenue and expenditure, ensuring adherence to FRBM targets.
Enhancing Revenue Generation: Reforming tax collection mechanisms, optimizing State excise, and adopting technology-driven revenue tracking.
GST Transparency: Widening the tax base and ensuring better compliance through digital reforms.
Improving Local Body Financial Management: Standardization of accounting practices and better fund utilization monitoring.
PSE Reforms: Ensuring financial viability of PSEs through efficiency-driven measures and reducing fiscal risks.
The consultation between the CAG and the Finance Commission marks a significant step in addressing India's fiscal challenges and ensuring sustainable financial governance for both the Centre and States.

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What is the Finance Commission?
The Finance Commission is a constitutional body established under Article 280 of the Indian Constitution. Formed every five years, it recommends how tax revenues should be distributed between the Union government and the States, as well as among the States themselves. The 16th Finance Commission, currently active, will provide recommendations for the fiscal period starting in 2026, aiming to ensure equitable resource allocation and fiscal stability.
What is the CAG?
The Comptroller and Auditor General of India (CAG) is the supreme audit institution tasked with overseeing the financial accountability of the Union and State governments, along with government-owned entities. Enshrined in the Constitution under Articles 148-151, the CAG audits public spending, identifies inefficiencies, and promotes transparency, playing a pivotal role in maintaining fiscal discipline.