JK Mired In Debt Trap

JK Mired In Debt Trap

2 July 2011
Greater Kashmir
Muddasir Ali

Srinagar: During the past 20 years the state’s liabilities have grown from a meagre Rs 3,300 crore to Rs 26,000 crore, pushing Jammu and Kashmir into a “debt trap.” Not only this, the annual increase in the liabilities towards government of India and market borrowings has started to touch 20 percent, the highest in the entire northern region. Absence of a long term policy on part of the state government to boost financial resources, and ensure fiscal discipline is seen among the reasons for JK’s mounting fiscal burden. The liabilities have grown from Rs 3,358 crore with a percentage increase of 17% in 1991-92 to Rs 24,800 crore (percentage increase of 19.17%) in 2009-10. Of the total liabilities, the market borrowings stood at Rs 10,213 crore. The internal debt proportion is more than 60 percent of the total liability and is much higher compared to neighbouring states of Punjab and Himachal Pradesh. Noted economist, Prof Nissar Ali said the outstanding liabilities including debt has grown as a major resource problem and there is no short term solution to it. Though, Prof Ali said the position was equally worse in other states like Maharashtra, HP, Andhra Pradesh but they have “strong and robust” revenue base as against JK where resources are confined to tax and non-tax revenue. “And it does not go beyond Rs 4000 crore a year to meet the budget size, and therefore the revenue gap is met mostly through central devolutions,” he said. The revelations about liabilities have been made by the State Finance Commission which was constituted in 2007 to suggest financial reforms and propose measures for equitable development of the state’s three regions. The panel headed by Dr Mehmood-ur Rehman submitted its report to the state government last November, a copy of which is in possession of Greater Kashmir. The panel has asked the government to set as top priority the debt and liability management in overall fiscal management while maintaining that public expenditure compression is urgent need for consolidation. “The state needs to manage internal debt efficiently by introducing fiscal discipline, and expenditure compression particularly on the revenue side needs to be taken up seriously. The mismatch between the receipts and expenditure has emerged as a structural deficit and is assuming a high proportion,” the report warns. It goes on to add that a high burden of interest payments tends to widen the revenue deficit and in turn gross fiscal deficit, a vicious circle of deficit, debt and interest payment. The report however mentions that it is not possible to get out of debt trap in short run but government needs to slow down the internal debt and total outstanding liabilities. The difference in the revenue realization in the power sector on account of tariffs and expenditure on energy procurement is seen as one of the main reasons for the mounting debt. Though the panel report mentions that the internal debt and outstanding liabilities are practical problems faced by all the States, it has called for a focused attention on part of the Jammu and Kashmir government to address the problem. Prof Ali who was a member of the SFC argues that debt is part of a general budget which is subjected to fiscal deficit. As per the norms, he said the annual budget deficit should not exceed 3 percent of Gross State Domestic Product (GDP) however, it had grown up to 10 percent in the previous budget due to mismatch in revenue receipts and expenditure particularly unabated growing revenue expenditures. The debt, Prof Ali said, is now proving counter-productive, hitting state’s long term development programs. In order to augment internal resources mobilization, Prof Ali said J&K needs to workout long term solutions particularly exploitation of water resources for hydropower generation.


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