As Ladakh faces Rs 1000 cr budget cut; J&K political parties, analysts debate: could J&K be next?

1 December 2024

Ziraat Times Special Story

Ladakh LG meeting Finance Minister Nirmala Sitharaman in New Dehi seeking review of the budget cut decision.

Srinagar: A surprise budget cut of approximately Rs 1,000 crore for Ladakh, including Rs 110 crore each for the Leh and Kargil Autonomous Hill Development Councils, has sparked widespread debate this week. The decision, which the Leh and Kargil Autonomous Councils believe could adversely impact developmental projects and commitments, has prompted reflection among political parties and analysts in Jammu & Kashmir, including in the ruling party.

Sources revealed to Ziraat Times that the budget reduction, typically made in January after a thorough review of expenditures, was imposed unusually early this year in October. This timing has created uncertainty for ongoing UT projects, with officials emphasizing that many bills for current projects are yet to be submitted.

Interestingly, the cut includes Rs 220 crore collectively allocated to the Leh and Kargil Hill Development Councils which are elected bodies and undertake their own development activities in the region.

Officials in the Finance Ministry maintain that the move is guided by financial discipline considerations alone and that there was no political motive attached. They emphasized that all states and UTs provided special central grants are required to abide by the Union Government’s spending rules and policies.

Notably, with a very small tax base of its own, Ladakh, after its separation from J&K, remains significantly dependent on central grants for funding its budget.

Authorities in Leh and Kargil, however, argue that the implementation of the Model Code of Conduct (MCC) during parliamentary elections earlier this year, which lasted from March to early June, caused delays in initiating tenders and project activities. As a result, they contend that the budget cut is unjustified and will further hinder progress.

Ladakh’s Lieutenant Governor Brig (Retd) BD Mishra, in response to the budget cut, rushed to New Delhi last week to meet Finance Minister Nirmala Sitharaman. During the meeting, he highlighted the challenges posed by the decision, particularly its impact on ongoing projects.

“The Lieutenant Governor requested the Finance Minister to maintain the status quo in budget allocation for Ladakh’s capital component for the financial year 2024-25,” a spokesperson for the Raj Bhavan in Leh stated. Sitharaman assured Mishra that the issue would be reviewed.

Are There Lessons for J&K?

The budget cut imposed on Ladakh has sparked discussions within the ruling National Conference and among economic analysts in J&K about the possibility of similar financial implications if its financial discipline remains ineffective.

While the administrative and political structures of J&K differ from Ladakh, with J&K having a considerably larger tax base, several factors suggest that it could face similar budgetary challenges.

“The Ladakh budget cut indicates that being Union Territories, there will be greater scrutiny by the Union Government over fund utilization. Since J&K also depends significantly on central government funding, a failure to demonstrate efficient utilization of allocated resources could lead to similar cuts, particularly in unspent or underutilized funds,” said a veteran economist, requesting anonymity.

“Despite recent reforms, delays in tendering, billing, or executing developmental projects in J&K remain common and could make it vulnerable to budget revisions. For example, J&K has seen delays in large infrastructure projects, which could invite financial cuts,” admitted an NC leader.

There are also murmurs within the ruling party that J&K’s District Development Councils (DDCs) and Panchayati Raj institutions could face similar challenges if financial discipline and effectiveness are not prioritized.

“At the end of the day, these projects rely on central grants. You cannot expect the new J&K administration to undertake poorly executed populist development activities at the expense of the Centre’s financial discipline priorities. The central government may no longer be willing to allow that,” said an economic advisor to the central government on J&K.

Major projects in J&K, such as ring roads, Smart Cities initiatives, power transmission upgrades, flood mitigation works, Panchayati Raj-driven development activities, and other centrally sponsored schemes, require consistent funding and may come under greater scrutiny.

“Unlike Ladakh, which lacks legislative representation, J&K UT has its political processes in place (albeit limited without statehood). This could offer J&K an advantage in advocating against budget cuts through elected representatives and local pressure groups. We are not worried,” said a senior NC leader when asked if similar cuts could affect J&K.

However, analysts believe that J&K must not ignore Ladakh’s development and needs to focus on timely execution of projects and ensure minimal fund surrender to avoid justifications for budget cuts.

They argue that J&K still has a long way to go in cutting wasteful expenditure, curbing corruption, and ensuring administrative efficiency in executing projects on time.

“Strengthening financial management and transparent reporting on projects is the only way forward. J&K must prioritize timely implementation of projects and efficient fund utilization to avoid similar budget cuts,” remarked an analyst.