By: Arjimand Hussain Talib
A quick analysis of Jammu & Kashmir state’s budget for 2019-20 reflects two things: one, it is an exercise designed to make almost everyone happy. Two, it vividly, and honestly, tells us what macroeconomic mess we are in.
While an attempt has been made to make budgetary allocations across social, infrastructure and economic sectors, the consistent macroeconomic situation of Jammu & Kashmir presents a worrying picture.
Two aspects of the macroeconomic situation of Jammu & Kashmir particularly evoke a concern. One is the debt-to-GSDP ratio, which remains quite high, something that suggests that the state continues to struggle in mobilizing financial resources to fund its annual expenditure. Second is the widening gap between the state’s exports and the imports, signalling something is terribly wrong with our internal production and the demand for imports.
According to Budget 2019-20, the state’s debt-to-GSDP ratio was unsustainably high at 48 %. This is a serious situation.
The government of India has set a target for all the states to achieve a debt-to-GSDP ratio of 20% by 2023. Given the current situation and the unlikelihood of J&K state to raise its revenue receipts to meet its expenditure requirements, it seems quite improbable for J&K to achieve this target. On the one hand, the debt-to-GSDP ratio of J&K is rising since 2013 and on the other hand, any attempt to achieve a 20% debt to GSDP ratio is fraught with significant economic implications for the state.
Quite naturally, for reducing the current debt-to-GSDP ratio, the state would need to reduce its borrowings, meaning much lower availability of financial resources to meet both the revenue and capital expenditures.
Not only that, the financial year 2018-19 has reflected a worrying increase in fiscal deficit and primary deficit from 1.95% of the GSDP in 2017-18 to 12.31% in 2018-19. Although the policy planners of the state expect this percentage to come down to 7.89% in 2019-20, it is still much higher than the 5% primary and fiscal deficit the J&K state has been experiencing between 2014 and 2017.
Although the state’s economic growth seems to be consistently good (about 11 % in 2018-19), the growth doesn’t seem to keep pace with the liabilities of the state.
One of the promising things to have happened in recent years is the improvement in the state’s own revenues. In actual terms, J&K’s tax and non-tax revenues have grown from Rs 4576 crore in 2010-11 to Rs 16,955 crore in 2018-19.
While the tax-to-GSDP ratio has improved from 6.09% in 2011-12, the fact that this ratio is only 7.27% in 2018-19 does not reflect a healthy growth. Worse, this percentage is expected to increase by only 0.02% in 2019-20. That may have something to do with the GST related revenue challenges.
One of the other worrying economic trends in the state today is the high import intensity of GSDP. There has been a massive jump in J&K’s import intensity of GSDP from 31.14% in 2016-17 to 40.06% in 2017-18.
Similarly, the growth in imports far exceeds the growth in exports. For example, while in 2016-17, J&K’s imports were Rs 39,314 crore, they have jumped to Rs 58,050 crore in 2017-18, reflecting an intense growth.
When it comes to exports, J&K’s total exports in 2016-17 were Rs 22,457 crore, which have only increased to Rs 30,406 crore in 2017-18.
Significantly, J&K’s trade balance has increased from Rs 15,858 crore in 2011-12 to Rs 27,644 crore in 2017-18.
At the structural level, the mismatch between the revenue expenditure and the capital expenditure continues to widen, reflecting a significant weakness in the overall architecture of public financial management in J&K state.
Interestingly, in 2019-20, salaries and pension of government employees alone is going to consume 27% of the entire budget, while power and interest payments on borrowings consume 6% each of the total budget.
The fact that power revenue deficit eats up 6% of the state’s budget should be a cause of worry for all political formations of the state. There have to be more effective steps in addressing this deficit so as to avoid such an atrocity on the state’s budget.
The writer is Founding Editor of Ziraat Times