The report, which was tabled in the Parliament today, also observed that a crucial objective of bringing about reforms in the governance of Urban Local Bodies (ULBs) could not be achieved through the scheme.
"We observed that a total of 1,517 and 1,998 housing and infrastructure projects respectively were approved for implementation between 2005 and 2011.
However, as on 31 March 2011, in respect of the housing projects, only 22 of the 1517 approved projects were completed," the CAG report said.
"The status of dwelling units within these housing projects was only marginally better but remained low as only 26 per cent of approved dwelling units had been completed.
In respect of urban infrastructure projects, we observed that out of the 1,298 projects approved, only 231 projects (18 per cent) were completed," the report stated.
The JNNURM is a central government scheme which is implemented by the ministries of Urban Development and Housing and Urban Poverty Alleviation with an aim to improve infrastructure and governance in Indian cities.
In the report, the CAG stated that the ministries of the central government were not equipped to monitor a project of JNNURM's magnitude.
Only 11 out of 216 sample projects selected by it for the period 2005-06 to 2010-11 had been completed and also referred to "various deficiencies" that it found in the implementation of these projects, the report stated.
"This included deficient preparation and appraisal of detailed projects, non availability of land, escalation in costs, change in design and scope etc.
In the housing projects many dwelling units remained incomplete primarily for want of land," it said.
The report said that against an allocation of Rs 66,084.66 crore by the Planning Commission, the Government of India had only made an allocation of Rs 37,070.15 crore of which only Rs 32,934.59 crore had been released by March 31, 2011.
The CAG report also said that in some cases, there were deficiencies in selection of beneficiaries of houses for urban poor which led to risks of ineligible beneficiaries getting the benefit.
"A few cases of unauthorised and irregular expenditure and even instances of undue favours to contractors came to light.
Due to delays in implementation of the projects, there were many cases of blockade of funds due to purchase of machinery/ equipment which was not put to use," the CAG said.
The CAG said that the JNNURM guidelines had been deficient in giving adequate advisory to states regarding parking of funds and there was no uniformity in utilising interest earned on parked funds.
It said that the Urban Development Ministry's web-enabled programme for monitoring and evaluation had proved to be unsuccessful.
The report said that in some states and Union Territories, mandatory and optional reforms had not been carried out as per the commitments made between state and central governments.
"Thus, the objective to bring about reform in financial, institutional, and structural governance structure of the ULBs to make them efficient, accountable and transparent could not be achieved as had been envisaged," the report said.
In its report, the CAG has recommended that the central government should give incentives to those states which implement the reforms envisaged under JNNURM.
It also suggests that delays should be monitored and timely implementation of projects be given due importance.
Giving wide publicity to schemes to generate awareness among eligible beneficiaries was another recommendation made by the CAG.
The report said that the government should monitor the execution of projects so that there are no diversions to ineligible beneficiaries.
The CAG has also suggested that the Ministry of Urban Development and the Ministry of Housing and Urban Poverty Alleviation should introduce a "zero tolerance policy" at all levels in respect of irregular expenditure and diversion of funds by the way of a greater financial discipline.