Jammu and Kashmir : Public finance and fiscal policy

Jammu and Kashmir : Public finance and fiscal policy

Jammu and Kashmir is one of the ten special category states of the country. The state has not been able to generate sufficient revenue from its own resources and has been facing serious financial problems. The problem became all the more serious due to the prevailing circumstances in the state affecting both revenue and expenditure. The state suffered from militancy for a long period, resulting in the erosion of the tax base, increase in expenditure, destruction of infrastructure and various other factors related with disturbed law and order. The state income did not grow and it became difficult to collect user charges and sales tax revenue.

Fiscal Trends in Jammu and Kashmir

The Share of Central Taxes has shown an increase of 74 percent during 2015-16 over the previous year. The revenue expenditure likewise has shown an increasing trend over the previous year with increase of 24 percent. There has been a good sign of improvement in the collection of non-tax revenue which has increased by 98 percent. The aggregate cash balance of the State ( including un-invested cash with the RBI, invested cash and cash in departmental chests) decreased during 2015-16 by Rs 527 crore from the opening balance of Rs 1401 crore. More concerted efforts can bring more buoyancy in the tax revenue. Increase in the Revenue Expenditure has impacted revenue surplus envisaged to be Rs 3707 crore to a large extent which has in actual term reduced to (-) Rs 640 crore.

Resources of the State: The revenue receipt and the public account receipts have shown upward trend. Public Debt has increased to Rs 10033 crore in 204-15 and Rs 14645 crore in 2015-16. Decreasing trend of revenue receipts is discernable within the overall receipts during 2015- 16 as compared to their ratio for 2014-15.

Revenue Receipt: Transfer from the Union Government of State’s share in Union taxes and duties and grantin-aid together constituted on an average 69 percent of the State’s revenue receipt.

State’s Own Tax Revenue: The tax policy of 2015-16 was based on a more realistic growth estimation keeping in view the lower tax buoyancy in the previous years. The underlying theme was to give a boost to domestic manufacture, bring about greater clarity in tax laws, maintaining stable rates and rationalizing the tax structure. The tax revenue has been showing constant progressive trend with these structural reforms. Tax revenue has increased to Rs 7326 crore during 2015-16 from Rs 6334 in 2014-15. Expenditure on collection of taxes on sales and trade was Rs 45 crore, State Excise Rs 27 crore. Percentage of expenditure to gross collection of revenue was 0.86 percent and 5 percent respectively. The percentage of cost of collection in respect of the land revenue was the highest. Expenditure on collection of land revenue was Rs 148 crore which is an area of concern.

State’s Own Non-tax Revenue: Buoyancy in non-tax revenue has not remained much attractive over the years. The policy has been to reform power sector which constitutes the most significant component of State’s non-tax revenue which has been realized to Rs 1477 crore much less than the budget estimates. Major policy initiative during 2015-16 in this context was to separate power budget from the general budget. The initiative was a first step towards transformation in power system which would ultimately lead to effective unbundling and power reforms. Big impediment to achieve growth in this category are non-realisation of any progress on recovery of atleast 50 percent of the service charges from the user after accounting for the operation and maintenance expenses, as recommended by the 13th FC and dismal performance in power revenue collection.

Grant-in-aid from the Union Government: Grant-in-aid represents the significant component from the union government in the budgetary resource base of the State Government. The grant-in-aid from union government in absolute terms has remained 47 percent in 2015-16 vis-à-vis total revenue receipts and 38 percent vis-à-vis total expenditure. The major policy reform under grant-in-aid has been aftermath of the abolition of the Planning commission and replacement of same by the NITI Ayog. The grants in terms of 14th Finance Commission are now fixed for next four years for the state.

Recommandations for better public finance management

The state needs to institute improved practices of financial management and radical re-orientation of major policies for improving the efficiency of resource use in the state. In fact, a sound and effective management of state finances calls for efficiency, economy and effectiveness of revenue and expenditure operations. There are many potentialities for improving the revenue receipts in the state The following long-term and short-term measures are recommended for improving the financial management practices of the state:

LONG-TERM MEASURES

The revival of tourism in the state to pre-militancy level will not only increase the contribution to SDP but can be perceived as an effective tool for broadbasing the taxation policy structure. However, this option cannot be harnessed at this stage due to the militancy and law and order problems.
Attracting capital investment, both domestic and foreign, would enhance the financial strength of the state. The promotion of investment can be strengthened once the law and order situation in the state is increased.

SHORT-TERM MEASURES

Short-term measures shall focus on enhancing revenue realization, to curtail wastage of resources and to ensure effective servicing of the taxation measures.

Reduction in expenditure on establishment: Revenue expenditure is the major drain on the limited financial resources of the state. It is a fact that initially due to the adoption of the Sixth Pay Commission Report, there has been a tremendous and immense growth in the revenue expenditure.This is the single most contributory factor that has aggravated the problem. Some of the suggestions in this regard are:

Most of the PSUs in the State are moribund and in the red. Public sector undertakings like the JAKFED, AIDC, JKTDC, JK Cable Car, and HPMC can be privatized. Rather, some of these organizations own large assets including cold storages, buildings, huge lands which can fetch good money to the government for investment in the developmental activities.
The state government could be assisted by the Government of India or through banking arrangement for implementation of the VR scheme. This scheme can be implemented to begin with for such of the wings of the state government that are required to be abolished. Similar assistance can be given for dispensing with the services of employees of most of the corporations that can be listed for closure. Most of this amount can be offset and countervailed against the realization from the sale and disposal of the assets available with these organizations.

Control of overdraft: There should be an upper limit for overdraft that must be fixed keeping in view the critical requirement of the state and be fully enforced through different measures including guidelines from RBI. There should be a special dispensation to cover the overdraft over a period of 3 years. This is virtual reality and has to be dealt with as a malaise.

Funding of Development programme: To boost the economy of the state the central government should ensure accountability. This will ensure infusion of funds for the specified areas/ objectives and will strengthen thrust sectors for which there is a tremendous potentiality in the state. These sectors include urban development, rural development, tourism, agriculture, drinking water, power, forest, employment generation and infrastructure development.

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