The state of Jammu and Kashmir is mired in fiscal problems that cannot be covered up with the usual state budget fixes. The state has entered an unprecedented epoch of permanent fiscal crisis that demands real leadership and decisive action, which unfortunately the current budget to a large extent is not endowed with. Nothing less than the solvency of the state is at stake.
Budget 2009-10 estimates the fiscal deficit for the current year at Rs 2081 crore. Looking back at the past year's figures, we get a grim picture for the state’s fiscal position. The fiscal deficit for the year 2006-07 (Pre-actual) [RE] was Rs 1509 crore, the same figure for 2007-08 was Rs 2666 crore and for the year 2008-09 (BE) it stood at Rs 2330 crore.
To further worsen the state’s fiscal position this year, the government has already reached an agreement with the employee representatives for the implementation of the 6th Pay Commission. The move is expected to put further strain on the already scarce resources of state exchequer, which would require Rs 4200 crore for meeting the expenses of the pay commission.
The Finance Minister (FM), Abdul Rahim Rather, too ascertains this by saying, “The state has fewer resources available at present and the financial position of the state has been meticulously presented before the 13th Finance Commission. We are hopeful that very soon the state would be given adequate funds so that other demands of the employees could be fulfilled.”
For the fiscal 2008-09, the state spent about 60 per cent of the budget in paying the salary-bill of the state. At present, the state has over 3.32 lakh employees on its rolls. On the main items of expenditure, the current year’s non-plan salary provision is Rs 6,594 crore in comparison to Rs 4,973 crore of the past year. An additional provision of Rs 121 crore has been kept for the salaries of migrant employees.
The power sector is another major concern for J&K, and the state has failed miserably to bring deficit down due to it. The previous government managed a zero-deficit budget by taking out the power bill and putting it separately as ‘power budget’, which hardly helped the state to bring down its electrical energy bill but could be termed as ‘good window dressing’. The state already has to account for the gap between expenditure incurred on purchase of electrical energy. The revenue collected has nearly doubled from Rs 767 crore during the year 2003-04 to Rs 1,406 crore during the last year.
The interest payments and servicing of debt figures of J&K has gone up by an alarming amount in the fiscal 2008-09. Rising interest costs and debts have cast a shadow on the financial health of the state. According to a report by the Reserve Bank of India for the fiscal 2008-09, J&K figures show an increase on interest payments and servicing of debt (budget estimate) compared to 2007-08.
For the fiscal 2008-09, J&K was expected to spend a sum of Rs 160,055 lakh (budgeted estimates) on interest payments and servicing of debt, while as in 2007-08 the state had actually spent a huge amount of Rs 203,236 lakh (revised estimates) for the same. This year, the present coalition government has kept the provision for payment of interest at Rs 1,729 crore in comparison to last year’s figure of Rs 1,602 crore. There was an immediate need to restructure the debt of the state as it adversely affects the state expenditure, and the current budget in this regard has not done much.
Every day the state spends crores of rupees more than it receives in revenue. Red ink is projected at Rs 1,729 crore for this year alone. Not only for the current budget cycle but for years to come, J&K must come to grips with budget gaps and bring the present debt level to a sustainable level.
The present government has put Additional Resources Mobilization (ARM) in form of increasing taxes in certain sectors while leaving others. The current level of consumption of petrol in J&K is over 14 crore litres. The increase of cess to Rs 3 per litre is likely to yield additional revenue of Rs 28 crore per annum and about Rs 18 crore in the current financial year.
The FM proposed an employment cess of Rs 1 per litre on diesel. The current level of consumption of this commodity is about 46 crore litres per annum. Therefore, the proposed measure is likely to yield an annual revenue of Rs 46 crore per annum and additional revenue of Rs 30 crore in the current financial year.
In the case of liquor, the rate of GST is currently 20%. FM proposed to increase the same to 25%. As such, estimates of expected additional revenue on this account are placed at Rs 21.50 crore per annum and Rs.15 crore in the current financial year.
Nearly 1.32 crore poultry table birds are being brought from outside the state annually. As adequate numbers of day-old chicks are not available within the state, the poultry rearing units are also importing around 2.38 crore day-old chicks which are subjected to toll tax at Rs 1 per chick. FM proposed to exempt import of day old chicks from payment of toll tax and increase the rate of toll tax on poultry birds from existing Rs 2 per bird to Rs 5 per kg. The net additional revenue on this account is expected to be around Rs 4 crore per annum which will be utilized for development of poultry sector within the state.
Nearly 16 lakh sheep and goats are being imported from outside the state annually to meet the local mutton requirement. FM proposed enhancement of toll tax on sheep and goats from the existing rate of Rs 25 per head to Rs 35 per head. This may yield additional revenue of Rs 1.60 crore annually.
From all the above raise of taxes, no sector yields more than Rs 50 crore. But the sectors left out by the state government takes away huge capital from the state and are exempted. All these tax raises ultimately has to be borne by the poor denizens of the state.
Why are sectors that make huge profits from the state left out like the telecom sector (mobile companies), which at current takes away a huge sum of Rs 1000 crore annually from the state? A tax rate of 10% would earn Rs 100 crore for the state. This sector hardly makes a mention in the current budget.
What about the insurance sector operational here? Why can't the state tax them too as they have a market base of over Rs 1500 crore in the state? And why leave the automobile sector? Why not put a heavy import duty on them too as this could prove a good annual resource for the state? And there are many other sectors wherein the state gets lesser benefits compared to other states.
As of now, I think it is time to reform the government at all levels and make it more accountable. What we need is a different approach to budgeting, turning from what we cut to what we keep. In short, make sure that the taxpayer's money goes into programs that work, that taxpayers can afford and that people actually need.
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—About our writer:
Bilal has a Master's degree in Finance and Control from the University of Kashmir. He has worked as a financial writer and analyst for a telecom start-up company [iLocus], and was until recently employed with the HDFC bank. He was also the sub-editor, ‘Business section’ with the leading local English daily, Greater Kashmir. His principal interests are capital markets, developmental sector and ecological economics.
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