Para 3.13.6 — MSO (Audit)

MSO (Audit)mso-audit

What This Means

This para lays out the comprehensive audit checks for government borrowings. Audit must ensure borrowings do not exceed legislative limits, loan proceeds are properly accounted for and spent only on authorised purposes, conditions imposed by the Centre (for State loans) are complied with, and adequate arrangements exist for debt repayment (amortisation). Detailed principles govern how amortisation should be structured depending on whether the loan purpose is productive or unproductive.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Key Points

1Borrowings must not exceed limits fixed by the Legislature
2State Governments must comply with conditions imposed by the Centre for consent or guarantee
3Loan proceeds must be properly accounted for and spent only on authorised objects
4Adequate amortisation arrangements must exist and audit must flag inadequacies
5Amortisation period should relate to the purpose and asset life, not just loan maturity

Practical Example

A State Government borrows Rs 2,000 crore specifically for building irrigation infrastructure (productive purpose, 30-year asset life). The auditor checks that: (a) the borrowing is within the State Legislature's ceiling, (b) Central Government consent was obtained, (c) all Rs 2,000 crore is accounted for and spent only on irrigation works, and (d) the debt redemption plan is geared to a 30-year amortisation matching the asset life, not stretched to 50 years. If Rs 200 crore was diverted to salary payments, the auditor raises a serious objection.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Frequently Asked Questions

What is the difference between productive and unproductive borrowing?▼

Productive borrowing creates revenue-generating assets (like power plants or toll roads) that can service the debt. Unproductive borrowing finances expenses that don't create revenue streams (like consumption expenditure), making amortisation more critical since there is no revenue to service the debt.

What is the Debt Redemption Scheme?▼

It is a structured plan where the government sets aside a portion of revenue each year to systematically reduce its outstanding debt. Audit verifies that annual contributions are made as prescribed and the funds are used only for debt reduction.

Can amortisation be skipped for highly profitable assets?▼

In rare cases where the net earning power of an asset substantially exceeds the interest on the debt, amortisation may not be insisted upon. However, even in such cases, making amortisation arrangements is considered a sound and prudent financial policy.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Para 3.13.6 — MSO (Audit)

Original Rule Text

What This Means

Key Points

Practical Example

Frequently Asked Questions

Related Rules