Excesses of a State Indulged by Other People's Money (OPM)

Arjimand analyzes J&K’s case to the 13th Finance Commission of India

(Mr. Arjimand Hussain Talib, 34, is a columnist/writer and a development professional who matriculated from Tyndale Biscoe Memorial School in 1991. He subsequently graduated with a Bachelor's degree in Engineering from Bangalore University and has a diploma in journalism as well. He is an alumni of the International Academy for Leadership, Gummerbach, Germany. Arjimand writes regular weekly columns for the Greater Kashmir and The Kashmir Times since 2000 on diverse issues of political economy, development, environment and social change and has over 450 published articles to his credit. His forthcoming book: "Confronting the Myths: A Critical Analysis of the Political Economy of Jammu & Kashmir," will be published soon. He is currently working with an international development organisation, undertaking projects evaluation and developing contingency plans in some 11 countries in Asia and Africa.)


Recipe for bankruptcy

Ancient India’s Machiavellian - Kautilya - believed that artha (sound economy) was the most important thing to the survival of a State. To him, dharma (faith) and karma (deeds) are both dependent on it.

When it came to dealing with an adversary within the State, Kautilya always suggested to his king - Chandragupta Maurya – a mixture of strategies: sanman (appeasement), danda (punishment), dana (gift and bribery), bheda (splitting opposition) and maya (illusion and deceit).

While trying to understand Omar administration’s current financial condition and Srinagar’s relation with New Delhi, there are some interesting signs in Kautilya’s ‘wisdom’. We need to look the way other way round too. Omar administration’s karma and dharma alone would determine whether Kashmir could avoid a seemingly impending financial bankruptcy.

The current visit of India’s 13th Finance Commission to Kashmir has come at an interesting time. Our State is neck deep in debt. We no longer have sustainable finances to run the State. More than half of Kashmir’s 2008-09 budget of Rs 18,400 crore – about Rs 10000 crore – came from what are generally called as ‘central grants’.

Our own tax revenues account for just 20 per cent of the total expenditure. Our expenditures are rising but income in average terms keeps going down. We cannot even build a drain now without a ‘central grant.’

Our overdraft from J&K Bank has now become chronic. It now never goes below Rs 1500 crore at any given time. Government’s has a standard solution: one-time grant from government of India to write that off! There are other miseries too.

Omar Abdullah has made a public commitment to raise the salaries of government employees. It means his government requires an additional Rs 1700 crore every year. To pay the arrears, he needs over Rs 4200 crores. There is no way his government can get this money. There is only one solution: recurring annual ‘central grants’!

The question is: are all these grants without Kashmir being able to raise its own resources really possible to sustain?

A sustainable way out goes much beyond the 13th Finance Commission. Our current case presentation to the Commission is argumentatively weak and politically short sighted. Kashmir needs hard political bargains. That alone would enable us to take economic decisions that will end our dependency. Has this government the stomach to do that, by the way?

We are now asking for Rs 15000 crore as devolution, mainly for investing in the power sector. If we get that money it is possible we will be able to pay our debts and generate a surplus. But would that happen?

Since Kashmir’s annexation and division, New Delhi has never let Srinagar assume political and economic power that will enable us to take our own decisions. We have been systematically paralysed, not only to act decisively but even to think logically.

Today our case before the 13th Finance Commission for a ‘generous’ award seems to be influenced by panic and desperation, rather than a right. We need to make Kashmiri people understand that financial devolution from New Delhi to Srinagar is not a matter of political concession or generosity; it is all about due economic rights. What they are supposed to pay us through devolution, we have already paid all that through the visible and invisible taxes on the goods and services we use.

To have the system of tax devolution in India in perspective would be helpful. Generally the Finance Commission follows the equity and efficiency criteria while proposing awards to states – trying to improve services in low income states, promoting horizontal equity and rewarding better performing states.

When the Twelfth Finance Commission (TFC) distributed tax money among Indian states, it increased the `efficiency share' to 15 per cent (7.5 per cent for fiscal discipline and 7.5 per cent for tax effort). The weightage for population was raised from 10 per cent to 25 per cent. It reduced the ‘distance criterion’ to 50 per cent. In other words, better performing states were rewarded.

Omar administration must remain informed that budgetary gaps as a ground for equity have now been given up as not being conducive to efficiency. Our ‘budgetary gaps’ argument is again not sustainable.

No matter the criteria followed on the percentage of grants to devolutions, the problem is that they will hardly help us in raising our internal revenues. Kashmir needs its natural resources and political sovereignty back. Nothing else will do.

Government of India now encourages States to take loans directly from the market. The singular option of raising loans from the central government is over now. But such a course needs good fiscal health and commitment to fiscal responsibility. Are we in that condition right now? Who will give us loans looking at our pathetic repayment condition?

One of Kashmir’s biggest handicaps is that we do not know our exact contribution to the central tax kitty. It is never made known to us. It is common sense that given our high reliance on imports from India, our share in India’s tax kitty is higher than what we get through the normal formulae of devolution. As such, Omar administration needs to embrace a language of rights rather than generosity.

Another area of concern is the centrally-sponsored schemes (CSSs). It is now an established fact that most of the CSSs in Kashmir are an absolute waste. A few months back while delivering a lecture at IMPA, Srinagar, I asked some block-level government officers about their perception of centrally sponsored schemes. The response was unanimous – they see these schemes in collision with socio-economic realities of Kashmir. We must renegotiate the terms of CSSs in Kashmir. By virtue of our own constitution, we must get them as untied discretionary grants which could be used contextually.

On power, there is no substitute to handing over our power houses to us. To say that it is the Indus Waters Treaty that inhibits our ability to develop our hydro power resources is misleading. It is a kind of political red herring which tends to pass the buck. The case is simple: New Delhi has managed to harness a huge chunk of our water resources within those ‘limitations.’ We need to negotiate our rights within that space, which is broad enough to exploit sustainably.

Kashmir’s current level of financial dependency is totally unmanageable. The current course of unsustainable and open ended grants leads to bankruptcy. This course of running after grants and packages is nothing but a fool’s errand.

Omar administration’s future dharma and karma would reflect how it takes this state out of this dependence. Kashmiris don’t need sanman (appeasement). We need samman (honor). We can’t tolerate danda (punishment) indefinitely. Nor a culture of dana (gift and bribery). Kashmiris do see through the maya (illusion and deceit) now. It is time to think different.

And reversing the excesses of political disempowerment alone holds the key.