Gandhinagar: The Comptroller and Auditor General (CAG) of India has cautioned the Gujarat government against its investments in projects of low financial returns with funds borrowed at high-cost.

"Increasing fiscal liabilities, accompanied by negligible rates of return on government investment and advances might lead to situation of unsustainable debt in medium to long run," the CAG report of state finance said.

It said that the average return on government's investment in statutory corporations, rural banks, joint stock companies and cooperatives was 0.25 percent in the last three years, while the interest that the government paid was an average of 7.67 percent during 2008-09 to 2010-11.

Sustainable measures need to be initiated to compress the non-plan revenue expenditure and mobilise additional resources, both through taxable and non-taxable source, the CAG said.

CAG is of the opinion that the Gujarat government should seek better funds value for its investment, otherwise the high-cost borrowed funds invested in projects with low financial returns will continue to strain the state's economy.

It has also said that delays in completion of projects, particularly, irrigation projects, have resulted in the blocking of capital, which needs to be addressed.

The CAG has also praised the Gujarat government for establishing an institutional mechanism of fiscal transparency and accountability, which was evident from the year-on-year presentation of outcome of budgets.