The Union FM Nirmala Sitharaman unveiled the J & K Budget for fiscal year 2021-22 on the floor of Parliament on 17th March, 2021 with a total budget estimate of ₹ 1.08 lakh crores. The budget is based on four pillars of ‘maximum governance and minimum govt., socio-economic development, infrastructure development and employment generation”. The FM also reiterated the commitment of the central government to make J & K a model of development with focus on governance that is transparent, responsive and accountable. The growth rate has been projected at 7.5 percent for the current fiscal year. The fiscal deficit has been projected at 5.29% of GSDP in BE-2021-22 down from 8.39% in RE-2020-22.
The analysis of the allocation of budgetary resources reflects the underlying ideology and the vision of the present govt. at the centre. The central govt. has pushed forward difficult and long overdue reforms in sectors like agriculture, power sector, labor market etc. to improve the ease of doing business in the country. The govt. is determined to reduce its presence in sectors where the private sector has come of age, through strategic disinvestment. The dominant view of the mandarins in the power corridors of Delhi is that ‘the private sector leads to more wealth and job creation as well as more dynamism in the economy’. There is a genuine ideological push for Atma Nirbhar Bharat to create global champions in India and Kashmir can be an important part of it given its huge export potential. However, given the political, geographical and infrastructural disadvantages of the J&K, it remains to be seen how successful the central govt. is to attract the risky private capital to the UT.
In a bid to achieve sustainable post-pandemic recovery, the central govt. has focused more on the capital expenditure and asset monetization. The recovery package of the central govt. includes major focus on the infrastructural spending which as per Economy Survey (2021) has a higher multiplier effect (2.5x) on the economy. The same ideology and vision are reflected in J & K budget ranging from the identification and development of new tourist destinations under PPP mode to the announcement of Central Sector Scheme for Industrial Development with a total outlay of ₹ 0.28 lakh crore. In addition, various incentives in the form of interest subvention, working capital incentives etc. have been given to the private sector to be a part of the developmental journey of the state.
The overall capital expenditure contributes 19.8% to UT’s GDP in which the infrastructure sector alone contributes 12.12% to the GDP of the J & K. The capital component of the budget has been drastically increased which will increase the productive capacity and adaptability of the UT and will give a significant boost to its GSDP in the medium and long run. An ambitious target of 16000 projects to be completed by this year has been set which will generate huge employment and give a significant boost to aggregate demand and growth.
If we talk of the expenditure breakup, the capital expenditure is estimated to be Rs 0.39 lakh crore and revenue expenditure as ₹ 0.69lakh crore. Out of the total capex, around 71 percent will be financed by the revenue surplus and remaining through the capital receipts and borrowings of the govt. The capex as a percentage of fiscal deficit has increased from 190.04 in RE-2020-21 to 373.98 in budget estimate. This is an example of increased efficiency of the governance and determination to put the state on a higher and sustainable development trajectory.
Good Governance and its Positive Externalities
The role of governance is to ensure that a suitable and a cordial atmosphere is created with equal opportunities for all. It focuses on creating a level playing field and provision of seamless delivery of govt. services especially to the underserved sections of the society. J & K has achieved 100% electrification under Saubhagya Schemes and also expects 100% water connections by 2022. The govt. has also expedited the process of completing the projects which have been lingering there for decades due to government inefficiency. The 4-lane Qazigund-Banihal tube will be completed during this year and the train link is expected to be completed by Dec. 2022. In my opinion, this will be a game changer for the state economy. Not only will it bring the freight charges down but also will ensure seamless supply of necessary imports from other states. Given huge unemployment, these developments will also attract the private players to the state to produce for the rest of the country and world. These developments were earlier hindered by the high transport costs as well as frequent blockade of national highways due to bad weather. The low-cost train service will also attract the low-end tourists to the state, giving significant push to tourism related employment. In the short run, the govt. has also notified 12379 Gazetted and Non-Gazetted vacancies besides 10000 Class IV vacancies for accelerated recruitment drive. These along with a slew of other measures, will have huge positive externalities on the economy as a whole. A world bank study on Ukraine in 2018 argued that if corruption is removed from the economy, it will increase the growth rate by an additional 4% in an economy. Thus, good governance has the potential to change the investment landscape of the state and make it a serious contender for the private capital.
The J & K economy grew at an average rate of 9.96% y-o-y basis between 2013-14 to 2020-21. However, the growth story has been very erratic with huge fluctuations and a standard deviation of 3.35. The high standard deviation is on account of the political unrest witnessed by the state in 2016 and 2014 floods. The total debt to GSDP ratio is 46% down from 50% of RE of 2020-21 which is well within the FRBM limits. The fiscal deficit of 5.29% is well beyond the FRBM limits but given the Pandemic, the states have been allowed to borrow 0.5% more of their GDP and can run an extra 2% more deficit in the current year to ensure smooth post-pandemic recovery. The J & K has always prioritized the social sector. As a result of which, the state is a good performer on various developmental indicators such as life expectancy, fertility rate, immunization etc. (NFHS-2021). The budget has increased both the revenue and capital expenditure on the social expenditure with most increase in the health and education sectors. However, more needs to be done in order to make Kashmir a center for higher education in the country.
The Road to Recovery
The UT of J & K has shown high resilience and flexibility in its fight against the Covid19 and to deal with post-August 2019 fall out. Much of it can be credited to the efficiency, transparency and accountability of the administration which has worked tirelessly during the entire year to keep the population safe and bring governance at the doorsteps. The state recorded a growth rate of 4% in 2020 and is expected to grow at 7.5% this year. GST collections have shown a positive trend, there has been a significant increase in the own tax revenue and a high revenue surplus point towards recovery. The Tax to GSDP ratio is estimated to increase to 8.10 in 2021-22. In addition, under the Atma Nirbhar Bharat Package, the power sector has been cleared of its liabilities which will increase its efficiency and service delivery. These are some green shoots that signify that the UT is moving fast towards recovery and prosperity.
The author is a freelance writer and a Junior Research Fellow at Institute of Development Studies Kolkata.