Inside Maharashtra's shadow economy: CAG exposes billions in hidden debt and parked funds

Maharashtra, India’s largest state economy, is facing uncomfortable questions about its true financial health after a series of Comptroller and Auditor General (CAG) reports exposed a vast ‘shadow’ balance sheet, billions of rupees parked outside the treasury, and serious gaps in transparency and accountability.

For 2024–25, Maharashtra’s fiscal deficit remained within statutory limits and the top‑line numbers suggested a healthy economy. Yet the CAG’s findings reveal that formal compliance has been underpinned by practices that obscure the true fiscal picture, including extensive off‑budget borrowing, end‑of‑year spending spikes, and large sums of public money held outside the Consolidated Fund.

The reports describe a complex financial situation in which growth and deficit control coexist with what officials call a 'shadow' economy of hidden liabilities and parked funds.

₹28,325 crore in off‑budget borrowing

One of the most serious concerns flagged is the state’s heavy reliance on Off‑Budget Borrowings (OBB). These are loans raised by state‑owned entities for which the government is ultimately responsible, but which do not appear in the official budget presented to the Legislature.

The main borrowers are the Maharashtra State Road Development Corporation (MSRDC) and its subsidiary MSRDC Tunnels Ltd. As of March 31, 2025, total outstanding OBB stood at ₹28,325 crore. In 2024–25 alone, MSRDC raised ₹18,440 crore through loans from entities such as HUDCO and REC, largely for land acquisition and road projects.

By routing debt through public sector undertakings, the state effectively bypassed legislative oversight and understated its true liabilities. The CAG also found that the government spent ₹2,089.48 crore on interest and ₹315 crore on principal for these loans, but incorrectly booked these payments as Capital Outlay rather than revenue expenditure. This accounting manoeuvre artificially lowered the reported revenue deficit.

Billions parked outside the treasury

The audit highlights a pervasive culture of ‘fund parking’, where departments move money into accounts outside the central treasury to prevent budget provisions from lapsing at year‑end.

Virtual Personal Deposit (VPD) accounts: Audit teams discovered ₹20,993.06 crore retained in these accounts beyond the March 31 deadline. The CAG notes that this practice artificially inflates reported expenditure and distorts the revenue deficit.

DDO bank accounts: An additional ₹15,298.83 crore was found lying unspent in commercial bank accounts run by 9,148 Drawing and Disbursing Officers (DDOs). The Urban Development Department alone accounted for more than half of these idle funds.

Compounding this, the state engaged in a pronounced 'rush of expenditure' at the close of the fiscal year: 24.84% of total annual spending occurred in March alone. In some grants, the entire yearly allocation was spent in that single month, raising concerns over sub‑optimal utilisation and hurried, poorly planned outlays.

Accountability black hole

The CAG points to serious weaknesses in how the government tracks and certifies actual spending.

Utilisation Certificates (UCs): As of March 2025, there was a staggering pendency of 12,829 UCs covering ₹40,097.59 crore in grants. UCs are the only formal proof that funds were used for their intended purpose. The Urban Development (₹11,040 crore) and Planning (₹5,804.88 crore) departments were the worst offenders.

Abstract Contingent (AC) bills: Another ₹3,532.05 crore remained unadjusted in 1,698 AC bills—funds withdrawn for 'contingent' needs but not reconciled with final vouchers, in some cases for over a decade. The Medical Education and Drugs Department had the highest pendency, at ₹2,212.43 crore.

These backlogs create a large accountability gap, where thousands of crores have left the treasury but lack timely, documented evidence of lawful and proper use.

Flagship falters: Jal Jeevan Mission

A performance audit of the Jal Jeevan Mission, which aims to provide tap water to rural households, shows sharp cost escalation and serious data integrity issues.

Cost escalations: The initial estimated cost of ₹13,668.50 crore had more than doubled to ₹26,410.51 crore by March 2024, with a further ₹9,608.87 crore in proposed revisions. The CAG attributes this to poor baseline surveys and frequent changes in project scope.

Data discrepancies: Auditors found that 27.74 lakh private tap connections were wrongly claimed as new connections under the mission. In Kolhapur district, state‑level data reported 2.80 lakh taps, while district records claimed 6.37 lakh, a mismatch of over 3.5 lakh connections.

Inadmissible spending: Funds earmarked for water supply were diverted to pay for staff quarters, unrelated software (such as Sewer Gems), and departmental electricity bills.

Taken together, these findings suggest that while reported coverage has risen on paper, a significant portion of the expenditure has not translated into genuine, new service delivery.

Mismanaged forest funds: Maha CAMPA

The audit of the Maharashtra Compensatory Afforestation Management and Planning Authority (Maha CAMPA) reveals that substantial resources intended for forest protection and expansion have been poorly managed.

Physical shortfalls: Maha CAMPA achieved only 47.37% of its physical targets for compensatory afforestation.

Interest loss: Surplus funds ranging between ₹2,184 crore and ₹3,093 crore were not invested in high‑yield government securities, despite being permitted. This failure led to a significant loss of potential interest income.

Diversion and conflict of interest: About ₹94.69 crore was irregularly diverted to finance works already covered under the normal state budget. In another case, a ₹12.50 lakh contract for third‑party evaluation was awarded to a society formed by Maha CAMPA’s own retired officials, raising clear conflict‑of‑interest concerns.

Digital vulnerabilities

An IT audit of the state’s Integrated Financial Management System (IFMS) uncovered critical security and control lapses in the digital backbone of Maharashtra’s finances.

The system lacked:

* Two‑factor authentication,

* Encryption for sensitive modules such as SEVAARTH, and

* Automatic account lockouts for repeated failed logins.

Auditors also found troubling data anomalies, including payments processed for 868 vehicles and 499 telephone connections not registered in the master tables. In some cases, government service joining dates were recorded as being earlier than an employee’s date of birth, suggesting serious data entry errors and potential scope for fraudulent claims.

PWD’s irregular fee distribution

The Public Works Department (PWD) was found to have irregularly distributed ₹21.73 crore in fees collected from local bodies and other government departments. These revenues, which should have been credited to the state treasury, were instead shared among PWD personnel based on a 2019 Government Resolution issued without the mandatory approval of the Finance Department.

The CAG notes that this not only violates financial rules but also undermines the integrity of the state’s revenue accounting.

CAG’s roadmap for reform

To address the widespread irregularities and restore fiscal discipline, the CAG has recommended a set of structural reforms:

* Mandatory disclosure of OBB: All off‑budget borrowings must be brought onto the budget, ensuring transparency and legislative control over the full debt picture.

* Prohibit fund parking: End the practice of keeping government money in commercial bank accounts; ensure all unspent PD balances return to the Consolidated Fund by March 31 each year.

* Strict accountability: Hold department heads personally liable for timely submission of UCs and adjustment of AC bills, reducing space for misappropriation and long‑pending suspenses.

* Enhance IT security: Introduce two‑factor authentication, data encryption and stronger controls in IFMS to prevent fraudulent entries and protect sensitive financial data.

* Performance overhauls: Require that large projects like Jal Jeevan Mission and Maha CAMPA be sanctioned only after proper land surveys, realistic costings and assured water or land resources are identified, reducing cost overruns and under‑performance.