J&K Budget 2010-2011

Arjimand looks for the silver lining in the latest budget, followed by an analysis in the Kashmir Times on the dirty open secret called the Overdraft (OD) and how it has enriched the J&K Bank


(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 and has worked with UNESCO, Oxfam and ActionAid International in some seven countries in Asia and Africa. 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.)


Reflections on J&K’s Budget 2010-11


Contrary to anticipations, the state’s budget for 2010-11 has no surprises. It is a classical South Asian-style budget – which generally aim to consolidate rural vote banks, provide sops to specific constituencies and enhance hidden general taxes. The expected boldness and innovation from this budget are missing. It is a comfort budget in the short term for various interest groups, but it sans a reform and sustainability orientation – something that we need badly in the longer term.

There are surely some good ideas in this year’s budget, but the populist content far outweighs these. To say that this budget will transform the state’s economic landscape is little too exaggerating. There are valid reasons why it can’t do so.

Three administrative issues in the budget look promising: assigning the task of evaluation of 150 projects worth Rs. 744 crore to NABCONS and M/S Mckenzy, initiation of disinvestment of PSUs and Rs. 20 crore for creation of a power transformer bank.

For a larger picture, this budget has to be understood in the backdrop of the state’s Economic Survey for 2009-10. The survey, tabled on Friday at the time of the budget presentation in the Assembly, takes us to some of the state’s fundamentals, which we cannot afford to ignore for too long.

The increase in the Value Added Tax (VAT) by 1 per cent, service tax by 2 per cent to 10 per cent, along with the enhancement of the toll tax by Rs 10 per quintal, are likely to get us some more revenues. They are likely shoot up our inflation further too. But there was obviously no other choice. The question now is: is this sort of taxation good enough?

The target of generating additional revenue of Rs 3,858 crore, especially by collecting power tariffs, sounds little unrealistic. The problem is that power tariff campaigns in our state are too urban-centric. While they excessively focus on the pilferage part of it, they close their eyes to the system part of it – that is the obsolete transmission and distribution systems and the non-civilian pilferage. Our plans for power tariff realization must go beyond the cities of Srinagar and Jammu. Or else we will remain where we are now.

Finance Minister’s contention that toll tax and VAT exemption on agriculture-related appliances, fertilizers, and fodder etc. were meant to increase agriculture’s share from 25 percent to 47 percent in the 80s in the Gross State Domestic (GSDP) is absolutely misplaced. That is not going to happen in a foreseeable future. If at all that is going to happen, that will take our state backwards by several decades.

It is a fact that agriculture’s share in our GSDP has dipped to 25% from 47% during the 80s. But that is not a novelty; that is a global trend, even in the countries which have traditionally been agriculture-based economies.

A better way to fix growth targets for agriculture sector in J&K is to enhance targets for yield-per-hectare. In economic terms, in today’s world, it is wrong to set a target for enhanced percentage share of agriculture in GSDP.

Reduction of agriculture’s share in GDP fundamentally happens because greater education and development of knowledge component of economies tends to enhance services’ share. Same is the case with our state. The share of services, and also industry to some extent, is very likely to increase even further in J&K in the days to come. However, this increase in services’ share does not necessarily mean a negative growth in agriculture. This premise is wrong. In small-land economies like ours growth in a sector like agriculture has many constraints because of many reasons.

Another thing to acknowledge is that subsidies and tax cut on farm-related tools is fundamentally a populist measure in J&K’s context. Those who know the politics of the state’s farming sector know it very well that subsidies or tax cuts in this sector do not necessarily enhance its productivity. They target a segment which is basically a vote bank, and do not necessarily depend on agriculture for their livelihood. The ratio of government jobs to rural households is perhaps the highest in J&K in whole of India.

A tax cut and subsidies regime on farm-related products, like tractors, would not enhance our farm production massively. Those who know the state’s geography well and the nature of the land holdings know it too well that there is a limit to the use of tractors in our state.

Over the last few years, we have increasingly shifted from low-income agriculture, like paddy, to value-added and high-income cash crops. J&K’s case, as such, is different than the rest of India. Generally, barring a handful of rich states, India’s farming sector is about day-to-day survival. And economic and social policies are required to be designed as such. Our farming sector is mostly of an income supplementing nature, even though we have families which wholly depend on agriculture. We need to target these households with softer loans and other incentives which do not have government jobs and rely mainly on subsistence farming.

The budget statement also boasts of the ‘highest-ever’ award to the state by India’s Finance Commission. In actual terms, J&K’s share in the central taxes is only 1.55 per cent. What is, however, interesting is our state’s relative impoverishment in comparison to the rest of India. According to Economic Survey 2009-10 while our contribution to India’s overall wealth was 0.85 percent in 1999-2000, it has declined to 0.7 percent at present.

Likewise, while India’s income has grown at a rate of about 8.2 percent during last five years, our state income has grown at much lower rate of about 6 percent. We must factor in our population growth while understanding our economic growth. According to the Economic Survey 2009-10, our per-capita income (PCI) has grown at a rate of 4.13 percent during 10th Plan period. This slow growth in state income reflects in our per capita income (PCI) – which was Rs. 20604 in 2007-08, far below India’s national average of Rs. 27442.

Another key area which the Economic Survey calls for attention is the state’s fiscal deficit. It has increased from Rs.1665 crore in 2004-05 to Rs. 3386 crore in 2008-09, which is around 9.7 percent of our GSDP.

It is well known that a fiscal deficit of around 10 percent is unsustainable. Containing fiscal deficit, as the survey itself has noted, would require mobilisation of additional resources, by raising direct and indirect taxes, including on public services and compressing expenditure, particularly establishment related. But has this budget really attempted that?



J&K's Rising Liabilities a Hurdle

Jammu: Ever-rising liabilities of the J&K in the form of total outstanding debt, Over Drafts (ODs) and drawals from General Provident Fund (GPF) are a major threat vis-…-vis the recovery of state's shattered economy.

As per SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis of Economic Survey 2009-10, the total outstanding debt as a percentage of GSDP works out to around 48 percent as on March 31, 2009. However operating on GAIL (Gross Accumulated Internal Liabilities), it works out to around 62 percent of GSDP. This is a considerably high level of debt and the debt-GSDP ratio needs to be brought down to a level of 55 percent over the next five years or so.

However given the persistent upswing in the overall liabilities including the ODs despite having generous central grants in the past six-seven years, it seems a remote possibility.

The total outstanding debt of the J&K as on March 31, 2008 stood at Rs 16659.00 Cr. Apart from the stock of debt, the state government also resorted to an Over Draft (OD) of Rs 2299.53 Cr from J&K Bank as Ways And Means (WAM) facility to meet temporary mismatches in liquidity. Further drawals from GPF amount to Rs 4826.00 Cr. When this is also taken into account, the overall liabilities, net of overdraft, as on March 31, 2009 comes to Rs 21485.00 Cr

In fact, the comparative account of Over Draft (OD) position of the state during different regimes gives an interesting portrayal.

During National Conference (NC) regime headed by Dr Farooq Abdullah while the OD as percentage of Total Expenditure (TE) was 18.37 percent in the year 1997-98, it came down to 15.44 percent in his last year of governance in 2001-02 while fluctuating in between 18.13, 13.51, 13.93 from 1998-99 to 2000-01.

In the first year of Congress-PDP coalition government i.e., 2002-03, when Mufti Mohammed Sayeed was the Chief Minister, this percentage was 14.43. In 2005-06, OD as percentage of TE had reached to the level of 17.00 percent, although the flow of the central grants to the state was too generous as compared to Farooq's regime which was more a turbulent period.

In between i.e., in the year 2003-04 and 2004-05, this percentage was 14.60 percent and 15.82 percent respectively.

Interestingly during Azad's regime in 2007-08, the percentage came down to the level of 12.89 percent while in his first year of rule, this percentage was 16.24 percent.
In 2008-09, when Congress-NC government was at the helm of affairs, it showed yet again an upswing to the level of 13.43 percent despite further increase in central grants.

As far as debt position in the state is concerned, outstanding debt at the end of 2008-09 stood at Rs.24275 Cr, comprising Internal Debt of Rs. 13336 Cr, Loans and Advances from central government Rs 3135 Cr and other liabilities accounted for under Public Account Rs. 7804 Cr, which does not include the investment of Rs. 11 Cr made in Calamity Relief Fund - Investment Account out of Calamity Relief Funds.

The state also acts as a banker and trustee in respect of deposits like small savings collections, provident funds and deposits. There was an overall increase of Rs. 664 Cr (Rs. 675 Cr - Rs. 11 Cr) in respect of such liabilities of state government during 2008-09.

Liabilities of the state government thus increased by Rs. 2920 Cr from Rs. 21355 Cr in 2007-08 to Rs. 24275 Cr during 2008-09.

Public debt comprising internal debt of the state government and loans and advances from the central government increased by Rs. 2245 Cr from Rs. 14226 Cr in 2007-08 to Rs. 16471 Cr at the end of the current year.

Interest payments on debt and other liabilities totaling Rs. 1578 Cr constituted 13 percent of revenue expenditure of Rs. 12048 Cr. Interest payments on public debt were Rs. 1275 Cr (Internal debt Rs. 1079 Cr and loans and advances from central government Rs. 196 Cr) and Rs. 303 Cr on other liabilities. The expenditure on account of interest payments, however, decreased by Rs. 859 Cr during 2008-09.

Internal debt of Rs. 5578 Cr raised during 2008-09 was mainly used for discharge of debt obligations (Rs. 3352 Cr) and payments of interest (Rs. 1578 Cr).

Jammu and Kashmir government obtained temporary loans from Jammu and Kashmir Bank for its Ways And Means (WAM) requirements. The state government had temporary loans from the bank for 365 days during the year. The maximum temporary loan obtained was Rs. 2480.43 Cr on September 29, 2008. The total temporary loans raised during the year amounted to Rs. 2883.48 Cr. A balance of Rs. 2055.22 Cr was also outstanding on April 1, 2008. Government repaid Rs. 2648.45 Cr during the year leaving a balance of Rs. 2290.25 Cr (figures are under reconciliation) on March 31, 2009.

During the year 2008-09, Rs 217.65 Cr (Rs 195.00 Cr OD-I and Rs 22.65 OD-II) were paid as interest. (Kashmir Times)