(Mr. Arjimand Hussain Talib, 37, is from Srinagar and matriculated from Tyndale Biscoe Memorial School in 1991. He subsequently graduated with a Bachelor's degree in Engineering from Bangalore University. He is also 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. Arjimand is currently working as Project Manager for Action Aid International (India) in the Kashmir region and is a member of its International Emergencies and Conflict Team (IECT). His forthcoming books: " Kashmir: Towards a New Political Economy", and "Water: Spark for another Indo-Pak War?" are scheduled for release in 2008. Mr. Talib is presently a technical consultant in international development, covering Asia Pacific and Africa regions.)
Kashmir's Money Problem
Kashmir’s political economy case is paradoxical in many ways. Our state has now a proud distinction – we have the fastest growing tax revenues in India. In contrast, we still bank too much on government of India’s grants for our spending needs. Worse, we borrow far greater than what the state’s current repayment capacity is.
A close look at the state’s finances also highlights a rather weird pattern of our spending. The questions of curiosity that arise are this: why our spending continues to go mostly into areas that don’t look too promising for revenue generation? Can we balance populism with fiscal prudence? Can we transform our political economy to the one that will make our repayment capacity better?
Let us first take the growth in our own tax revenues, a story which is quite contrary to the perception that the people in J&K state don’t pay taxes well.
The Reserve Bank of India (RBI) state budget studies tell us that the state’s tax revenues were Rs 3,074 crore in 2009-10. From 2009-10 to 2010-11 the growth was about 13.3 per cent. And then came the big leap.
From Rs 3,483 crore in 2010-11, J&K’s taxes grew to Rs 4,791 crore in 2011-12; marking a growth of 37.5 per cent. During the same period our non-tax revenue grew by a staggering 69.3 per cent. This is the fastest growth in a state’s own taxes in the whole of India.
In contrast, the revenue receipts in 2011-12 were less than budgeted by Rs 1,188 crore, primarily because the central funding was less than budgeted by Rs 2,390 crore.
Despite that, our revenue surplus in 2011-12 was Rs 2,659 crore. It is expected to rise to Rs 4,958 crore in 2012-13. That is undoubtedly a big achievement for a state like ours, and, in theory, should help in making more capital expenditure by making more productive investments.
For general information, revenue account involves receipt and expenditure of tax revenues, non tax revenues and central grants; while capital account involves flow of loans from centre or other financial institutions.
While in 2010-11 about 14 per cent of our revenue came from our share in central taxes, we find that the state’s dependence on central grants is reducing. What is particularly notable is that while our total revenue composed of 65.6 per cent of central grants in 2010-11, they have reduced to 60 per cent in 2011-12. If our tax collection goes like this, which in all likelihood will, our dependence on central grants will reduce well below 60 per cent in the coming years. And that could mark a watershed in the history of the state’s political economy.
But what remains a cause for worry is our spending pattern.
While our estimated outlays for 2012-13 are up by 10.6 per cent from 2011-12, some of our key sectors – that could propel growth and help greater revenue generation - have reduced budgets now. And that is what brings our priorities into question.
In the estimated outlays for 2012-13, while agriculture and allied activities have witnessed an enhancement by 34.5 per cent, energy sector outlay has reduced by 8.2 per cent. Crucial sector of communication has seen a reduction by 33 per cent. Similarly, Science, Technology and Environment has seen a reduction of 16 per cent.
What also remains unclear is the quantum of administrative expenditure, including that incurred by the hospitality and protocol activities of the government. If they fall under the head of general services then a 10.6 per cent increase is in odd contrast to the critical sectors mentioned above. This partly explains why our debt situation remains worrisome.
From 2007-08 to 2010-11, our debt has grown by 40.3 per cent. The debt-GSDP ratio – one of the best indicators of economic health of states - was 60 per cent in 2009-10. Although it reduced marginally in 2010-11 to 54.8 per cent it has grown yet again.
It is important to note that although J&K technically falls in the category of a “special category state”, it is not comparable even with the worst performing non-special category state like West Bengal whose debt-GSDP ratio being 39.5 was in 2010-11.
Global financial crisis is very likely to get more serious with the inevitable default and exit of Greece and Spain from the Euro zone. A new price spike in food commodities due to decline in world food production is inevitable too. The uncertainties in the global petroleum supply lines will very probably raise inflation. All these issues do not augur well for India and J&K’s growth prospects and a revenue generation that will keep pace with the expenditure needs.
Now the question remains is this: is a shift from populism to fiscal prudence possible now?