The Fiscal Mess In Jammu & Kashmir

The Fiscal Mess In Jammu & Kashmir

16 February 2014
LiveMint
Haseeb A. Drabu

New Delhi: The state budget of Jammu and Kashmir (J&K) for 2014-15, presented last week by the National Conference-Congress government, has set new standards in budgetary impropriety. In view of the Union budget being a vote on account this year, the level of the gross budgetary support to the annual plan has not been decided. Accordingly, the Planning Commission has circulated guidelines for state plan projections. The guideline asks all states to budget the state plan on the basis of 5% increase in normal central assistance, the special plan assistance and the special central assistance. All other central plan transfers are to be kept at the current fiscal yearís level. Notwithstanding this clear directive, J&K government has gone ahead and presented what can be best described as a hip-shooterís budget. For example, in the current fiscal year of 2013-14, the special central assistance provided to J&K was Rs.3,441 crore. Instead of projecting it at Rs.3,613 crore for 2014-15, the state budget estimates it to be Rs.9,997 crore. This is a growth of 190%, whereas it should have been 5%. If the Planning Commissionís guidelines were to be followed for all central plan transfers (including centrally sponsored schemes), the total central grants to the state should have been estimated at around Rs.16,000 crore. Instead, these have been estimated at least to be Rs.22,973 crore. This is an overestimation of nearly Rs.7,000 crore. For a state whose plan in the current fiscal year is just Rs.7,300 crore, this difference changes the entire budgetary arithmetic. For instance, the non-plan revenue deficit is estimated at Rs.9,525 crore. The plan revenue account surplus, boosted by the central grants, is estimated to be Rs.15,800 crore. This leaves an aggregate revenue account surplus of Rs.6,273 crore for funding the capital expenditure. This, along with an estimated capital receipts of Rs.4,282 crore, finances the total capital expenditure of Rs.10,600 crore. Of which, Rs.8,500 crore is estimated to be the plan capital expenditure. However, adjusting for the violation of Planning Commission norms, the budgeted surplus on revenue account actually becomes a deficit of Rs.700-odd crore. As a result, out of the estimated capital receipts of Rs.4,282 crore, Rs.700 crore of borrowing will go to finance the revenue deficit. This leaves the state with Rs.3,600 crore of borrowings to finance its total capital expenditure. Of this, Rs.2,090 crore is non-plan capital expenditure, which is fixed as it has to go towards repayment of debt. So what really is left for the capital plan or developmental capital expenditure is a measly Rs.600 crore and not Rs.8,500 crore as estimated in the budget. This is so in spite of the fact that the budget estimates the state plan to increase from Rs.7,300 crore to Rs.11,300 crore. Indeed, the increase in the plan expenditure from Rs.7,900 crore to Rs.11,900 crore (including Rs.600 crore of the Prime Ministerís Reconstruction Plan) is contestable. Never has any state got an increase of over 50% in one year. To make the increase absurd, for the last two years there has been a zero percent increase in the plan. This is perhaps the first budget in the country, which, for all practical purposes, borrowed money only to pay for revenue expenditure or defray past liabilities. There is no state plan in the budget as it is meant to be. Going beyond the arithmetic, three issues need to be highlighted. First, such an outlandish budget brings into disrepute the entire budgetary process and makes a mockery of the document that has huge public policy implications. Second, and more importantly, it is tantamount to misleading the legislature. It seriously compromises the sanctity of the House. Third, in a sensitive and volatile state such as J&K, this easily escalates into a political issue. The moment the Planning Commission resizes the plan, which it is bound to, from Rs.11,900 crore to a technocratically realistic level of Rs.8,700 crore, all hell will break loose about discrimination against J&K. By then, the budget and its illegitimate numbers will have long been forgotten and the debate will get into completely irrelevant terrain. As if these budgetary blunders were not enough, the state government has gone into an overdrive of giving off-budget sops in the run-up to the parliamentary and assembly elections later in the year. For instance, in a fortnight the state government announced creation of more than 3,000 new administrative units in the revenue administration setup. Not only does this bureaucratic decentralization subvert the democratic decentralization of panchayats, it sets back the government by anywhere between Rs.1,500 to Rs.2,000 crore. The new government, whichever it may be, will be left carrying the can. Given this situation, it is important from an institutional perspective that some mechanism must be provided to rein in such action. Perhaps the Fiscal Responsibility and Budgetary Management Act should be modified to stipulate an acceptable band of deviation between budget estimates, revised estimates and actuals. Haseeb A. Drabu is an economist, and writes on monetary and macroeconomic matters from the perspective of policy and practice.