Mumbai: Sounding a warning on Maharashtra's economic health, the Comptroller and Auditor General (CAG) has pointed out that increasing ratio of fiscal liabilities to GSD together with a large revenue deficit indicated that the state is gradually slipping into a debt trap.

"Large revenue and fiscal deficit year after year indicates continued macro-fiscal imbalances of the State," states the CAG report, for the year ended March 31, 2003, which was tabled in the State legislative Assembly by Finance Minister Jayant Patil today.

The continuous application of borrowed funds largely on current consumption and debt servicing indicates "increased un-sustainability and highlights vulnerability of State finances," the hard-hitting report says.

Mentioning that it is common for a state to borrow for increasing its social and economic infrastructure support and creating additional income generating assets, the CAG report said the higher buoyancy of debt both with regard to its revenue receipts and own resource indicated its increasing un-sustainability.

Maharashtra's high cost borrowing for investments, which yields very little return indicated an implicit subsidy, it says adding, the guarantees extended by the state to various institutions with accumulated losses had the inherent risk of invocation, which the State has to honour.

CAG has recommended that the State has to either generate more revenue from out of its existing assets or needs to provide from its current revenue for servicing its debt obligations.

It further stated that the long-term fiscal stability can be achieved only through reducing revenue/fiscal deficit by compressing non-developmental revenue expenditure in a medium term framework, prudential debt management and greater transparency in fiscal operations.