The Banana State

It takes courage to tell the way it is, and Arjimand does not shy away when confronted with sad reality. Indeed, he makes a solid case that charity begins at home

(Mr. Arjimand Hussain Talib, 34, was born in Srinagar. He 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.)

Budget and Bananas

The pejorative - banana republic – for any society would sound disrespectful. But as a political science term you just can’t wish away what it describes - a politically unstable country, dependent upon limited agriculture, mainly bananas, and ruled by plutocracy. And, worse of all, dependent for almost everything on imports and outside aid.

The way J&K is planning its budgets sounds like short term populist accounting – as if tomorrow doesn’t exist. As if the responsibility for tomorrow wrests alone with those who will live tomorrow.

Beyond philosophical reflections, in practical terms what J&K state does is borrow money blindly irrespective of our repaying capacity, spend lavishly on public salaries and spend crazily to maintain political ‘order.’

Spare me for sounding too pessimistic, but doesn’t the substance of our budgets strengthen our sense of being a high degree banana republic?

As per the Budget 2010-11, we have generated our own tax revenues of Rs 3643 crore last year. The government’s target for this year is Rs 4,183 crore. So much so good.

But look at our interest payment of our accumulated loans alone – it is Rs 2251 crore for the current fiscal. Our power bill is Rs 2,324 crore during this year.

The Government would spend Rs 1174 crore on account of repayment of loans coming fiscal as against Rs 959 crore this year to the Government of India and other institutions.

And we have other liabilities as well – we will need Rs 2651 crore during the next financial year for pensions and retirement benefits. This year we have paid Rs 2031 crore.

Our Security Related Expenditure (SRE) is no small money - this year it is Rs 693 crore.

So where is the money to build infrastructure, finance social and welfare spending?

Almost 60 per cent of our roads are built or maintained by borrowed money, mainly from NABARD. If we need a hospital or even an ambulance, we need a government of India bailout package. From schools to drains, from tourist huts to police uniforms we are dependent on money from Delhi.

All this point to a serious political and economic dysfunction. What is alarming is that it is simply unsustainable because no political entity can afford to do this indefinitely without taking some drastic steps to set this dysfunction right.

Four things for that need to go – one is our political uncertainty, second is the curbs on our global business linkages, third is the embargo on international air connectivity and the fourth is the fruitless populism.

When the government statistics say that our Gross State Domestic Product (GSDP) for the current year is likely to be Rs 47,709 crore, reflecting a growth of 10.35 per cent, I don’t think there is neither a need for jubilation nor concern. Our GSDP doesn’t convey anything significant. One reason being that most of the economic activities are propelled by public expenditure.

Public expenditure in theory would enhance the multiplier effect – create more money in the process. But the problem is that our balance of trade is so huge that the multiplier effect ends up creating more money outside the state than here. The money that is generated here is not able to enrich the public finances, courtesy populism and conflict management. So we are in a vicious circle which does us no good.

Revenue will come from greater economic activities outside the state expenditure. For that we need better roads (for which we have no or little money), we need other industrial infrastructure like industrial estates (for which the budget has no money). We also need a massive tourism-related infrastructure for which money never comes, and we have to instead manage with an infrastructure which is primitive by today’s global standards.

When it comes to revenue generation efforts in the 2010-11 Budget, they look aimless.

What the government has done for widening the tax net looks juvenile. Bringing in commercial construction, repairs and even alterations under service tax net looks unnecessary. That is not going to generate big money. Nor are services like TV and Radio program productions, architects, interior decorators, Chartered Accountants and advertising by providing hoardings going to generate significant money.

Over the last couple of decades the consumption pattern has significantly altered in our state. With rising purchasing power in our rural areas, consumption there has increased manifold. Quite naturally, like companies are targeting these emerging markets, we are supposed to shift our tax focus too there. From cars to fertilizers, from color TV to pesticides, from satellite TV to mobile phones; rural markets are the main consumers now.

VAT exemption on pesticides, insecticides, weedicides, milch animals, poultry feed, beehives and colonies doesn’t make economic sense. Similarly, GST exemption for Green Houses used in farms is not prudent. They generate good money.

As someone belonging to a family engaged in horticulture for decades I can say it with certainty that all segments of fruit, poultry and dairy producing communities can afford paying tax on these items. Even they can easily pass on the extra cost to the consumer who is a ready buyer for these products.

It is now common knowledge that except for a small segment of landless rural folks and jobless urban populace almost all segments of the population have the capacity to purchase food grains from the market. So exempting food grains from VAT doesn’t make much sense as well.

What is also strange is that rather than privatizing our loss making public sector enterprises like the J&K Handloom Development Corporation and the Government Woolen Mills we continue to waste money for their revival. Budgetary provisions for these take us nowhere.

What has gone almost completely unnoticed is what the finance minister said he will be doing this fiscal – allow ‘bulk consumers’ of power approach an outside supplier of electrical energy directly. This is bizarre. What it means is that having failed to properly distribute power in the state sector we are now going to allow ‘outside entities’ get into power distribution business. Where are we heading?

Another disturbing provision in the budget is the whopping Rs 1037 crore for Master Plan of Jammu city. It is not bad to earmark more money for that city which we love, but the question is how can Srinagar city – where from this government derives its electoral power – be ignored when its infrastructure is the worst in the whole state?

Sad questions but no ready answers.