Nagaland State Enterprises: For every rupee earned, 14 owed in debt, finds CAG Report

Morung Express News 
Dimapur | April 25

Nagaland’s State Public Sector Undertakings (SPSUs) are facing mounting financial stress, with borrowing now drastically outstripping earnings, with a latest audit report estimating that every single rupee of revenue is outweighed by over 14 rupees in debt.

The report of the Comptroller and Auditor General (CAG) of India, tabled in the State Legislature on March 26, these enterprises are facing “acute difficulties” in financial sustainability driven by persistent losses and a pattern of “loan led expansion” that yields negligible returns.

As of March 31, 2023, Nagaland had seven SPSUs, including five working and two non-working companies. The total investment in six SPSUs stood at Rs 121.96 crore, with a significant 71.84% (Rs 79.70 crore) in long term loans. The state’s actual ownership stake, or equity, accounts for only 28.16% (Rs 42.26 crore).

The CAG noted that the increase in investment during the 2022–23 fiscal year was driven almost exclusively by higher borrowing rather than capital strengthening, a trend described as “loan led expansion” yielding negligible returns.

Borrowings rise, income lags
As per the CAG, between 2018–19 and 2022–23, SPSU debt increased by 20.97%, while turnover declined by 11.64%. Consequently, the debt to turnover ratio climbed from 10.46:1 to 14.31:1. In other words, for every rupee these companies earn, they now carry over Rs14 in debt, indicating “acute difficulties” in repayment.

Further complicating the fiscal picture is the non-accounting of interest. One entity, the Nagaland Industrial Development Corporation Limited (NIDC), was flagged for failing to pay or account for interest on long term debts, resulting in an accumulated, unaccounted interest liability of Rs9.19 crore.

Despite receiving Rs29.54 crore in government grants and subsidies during the year, primarily used to cover employee salaries, the commercial output of these firms remained marginal. 

The combined turnover for four working SPSUs was just Rs 5.92 crore.

Accordingly, during 2022–23, four working SPSUs incurred a combined loss of Rs 7.95 crore, a 36.13% increase in losses compared to the previous year. 

The financial performance of individual SPSUs reflected this stress: For instance, the NIDC reported a net loss of Rs4.87 crore against a turnover of Rs1.26 crore. With accumulated losses of Rs 59.3 crore and long-term loans of Rs 58.79 crore, the corporation faces a heavy debt burden.

Nagaland Hotels Limited (NHL) recorded a loss of Rs 2.84 crore on a turnover of Rs 3.95 crore. Its accumulated losses stood at Rs 22.09 crore, leading to the erosion of its capital base and rendering returns unworkable.

The Nagaland Handloom & Handicrafts Development Corporation Limited (NHIDCL) posted a loss of Rs 0.70 crore on a turnover of Rs 0.22 crore, with accumulated losses of Rs 6.31 crore, reflecting limited operational viability.

Only one entity, Nagaland State Mineral Development Corporation Limited (NSDMC), recorded a profit of Rs0.46 crore, though the audit noted this was largely due to government grants rather than independent commercial success. No dividends were paid to the state exchequer.

Meanwhile, accumulated losses of Rs 81.45 crore in two SPSUs had completely eroded their paid-up capital of Rs 25.55 crore, highlighting deep financial erosion. 

The return on government investment remained negative, with an erosion of 3.13% based on historical value and 1.32% on a present value basis, reflecting poor returns on public funds.

Transparency and oversight gaps
The CAG also flagged a lack of financial accountability and transparency. As of September 2023, five working SPSUs had a backlog of 17 accounts pending finalisation, with delays ranging from one to six years. 

Notably, Kohima Smart City Development Limited (KSCDL) has failed to submit a single set of accounts since its inception in 2017.

Such persistent delays are “fraught with the risk of fraud and leakage of public money going undetected,” the CAG observed. 

The report recommended that the State Government consider withholding further financial assistance to these companies until their accounts are brought up to date and suggested taking punitive action against management responsible for the arrears.

The CAG has also called for time bound reconciliation of financial discrepancies, the clearance of pending accounts, and a total overhaul of oversight mechanisms. 

Crucially, the audit suggests that future financial assistance should be strictly linked to timely reporting and improved institutional capacity.

Recommends timely executive response 
Meanwhile, the CAG observed that as its reports represent the culmination of the audit process, a timely executive response is essential.

Under established protocols, Administrative Departments must proactively submit explanatory notes on audit paragraphs once they are presented to the Legislature, rather than waiting for questionnaires from the Committee on Public Undertakings (COPU). 

However, the audit flagged a procedural gap, noting that Nagaland's Finance Department has yet to issue specific instructions to enforce this requirement.

While the CAG confirmed that no explanatory notes were pending for SPSU audit paragraphs from 2013–14 to 2021–22, it emphasised the urgent need for similar diligence and accountability regarding the current findings.

Statement showing summarised financial results of Government Companies for the latest year for which accounts are finalised as on 30 September 2023

Source: Report No. 2 of 2025 - Report of the CAG on Social (including LGA), Economic, General and Revenue Sectors for the year ended 31 March 2023- Government of Nagaland