Examine the role of the CAG in auditing state finances and its implications for cooperative and fiscal federalism in India.

Under Article 151(2), the CAG's reports on a State's accounts are submitted to the Governor and laid before the State legislature. The CAG thus acts as the constitutional hinge between a State's fiscal autonomy and its public accountability — a role visible in its annual State Finances Audit Reports (SFAR).

Role in auditing state finances

• Statutory mandate: the CAG's (DPC) Act, 1971 empowers financial, compliance and performance audit of State receipts and expenditure, with regulation-making power under Section 23 [1].
• Annual SFAR: the Tamil Nadu report showed the debt-GSDP ratio rising from 24.35% (2019-20) to 28.00% (2023-24) and the revenue deficit growing 24.59% to ₹45,121 crore [2].
• Verifying fiscal-rule compliance: the 2024-25 report placed TN's debt at ₹8.53 lakh crore (27.38% of GSDP), within the 28.90% ceiling set jointly by the 15th Finance Commission and the TN Fiscal Responsibility Act, 2003 [3][4].
• Assessing expenditure quality: committed expenditure — salaries, pensions, interest — absorbed 53.75% of revenue expenditure, with interest at nearly 21% of revenue receipts [3].

Implications for fiscal federalism

• Audited actuals independently test the Finance Commission's debt glide path and inform borrowing consent under Article 293(3) [4].
• Audit exposes structural stress hidden by headline growth: TN's GSDP grew 15.98% in 2024-25 even as the revenue deficit widened [3], a gap invisible in budget estimates alone [5].

Implications for cooperative federalism

• A single national auditor supplies comparable, standardised fiscal data across States, strengthening evidence-based devolution.
• Tabling in the State legislature empowers Public Accounts Committees, reinforcing legislative control over the executive.
• Frictions persist: audit is post-facto and often delayed, recommendations are non-binding, and States may read fiscal conditionalities as encroaching on autonomy.

The CAG is therefore less a fault-finder than a shared informational commons underpinning Union-State fiscal trust. Timely tabling, strengthened PAC follow-up and IT-enabled near-real-time audit would convert audit findings into corrective policy — helping the 16th Finance Commission anchor a federalism that is both cooperative and fiscally sustainable.