Is J&K really bankrupt?

By
Ziraat Times
-

By: Arjimand Hussain

Let us be candid: financial distress among people in J&K is palpable today. Jobs are scarce and business sentiment is low. Real estate demand is as sluggish as we haven’t seen in three decades. Traditional retail is struggling. A lot of businesses are either bankrupt or banks are knocking on their doors for recoveries. Energy poverty is rampant. Whatever economic activity we see around is courtesy what I would call our own GATT – government jobs, apples, trade and tourism.

In J&K’s context, public spending, whether in economic or social sectors, has always been crucial to pep up its economy. This leads us to the question: isn’t this the right time for the J&K and central governments to loosen their purse strings? Should we really be in the austerity mode embraced by J&K for about a decade now?

We always have had two popular public perceptions in J&K. One that suggests that the public finances of this soon-to-be-a-state-again are not that good to afford bigger public spending. The second perception has it that since J&K lives largely on Dilli’s crumbs, its own financial options are limited.

There is an element of truth in both these theories. But, interestingly, times have been changing rather rapidly, much more than one could normally imagine. And so have been J&K’s several financial and economic indicators. Let us take a look how.

The Reserve Bank of India (RBI) released its major annual report on the state of finances of all states and UTs last week. The report has a lot of food for thought on J&K’s current state of public finances and its broader economic trajectory.

In this report’s background, let us first begin with the question: could J&K really afford to loosen its purse strings?

To begin with, let us talk about the state’s current financial liabilities. In 2024-25, J&K liabilities stand at Rs 87,865 crore. This sounds big,  but not that big when we compare ourselves with other states and UTs? The truth is that J&K’s these liabilities are moderate in comparison to many other states like Uttar Pradesh (₹8,95,966 crore) or Maharashtra (₹8,58,708 crore).

If compared with its current peer UTs, J&K’s liabilities are higher than Puducherry (₹14,113 crore) or Sikkim (₹19,808 crore). But that is not a fair comparison. Let us look at the liabilities as a percentage of Gross State Domestic Product (GSDP).

J&K’s liabilities as a percentage of GSDP were 59.2% in 2007, making it one of the highest among states. This figure remained consistently high over the years, reaching a peak of 61.2% in 2010. What RBI’s data suggests is that post-2014, J&K’s liabilities started to decline, reaching a healthy 33.2% in 2022.

And things seem to be consistently improving. For 2023, the revised estimate for J&K’s liabilities is 30.3%, with a budget estimate of only 28.8% for 2024. This seems to suggest that there is a significant downward trend in J&K’s liabilities in relation to its GSDP. Now the question that begs an answer is this: how does J&K fare in comparison with other states?

The overall average liabilities to GSDP ratio for all states and UTs in the country in 2023 stands at 28.5% (RE). This means that J&K’s liabilities are now close to the national average, a marked improvement from its earlier situation. And we seem to be doing much better in comparison with our neighbouring and other large states on this parameter.

The RBI data indicates that the top seven states with the highest liabilities as a percentage of GSDP in 2023 are: Punjab: 48.4%; Himachal Pradesh: 45.2%; Rajasthan: 43.7%; Bihar: 41.2%; Kerala: 39.5%; West Bengal: 37.7% and Jharkhand: 37.5%.

While this suggests we are doing much better today, what is little striking is the source of J&K’s borrowing. Major sources of J&K’s loans, as per RBI data, are State Development Loans (SDLs): ₹55,166 crore; compensation and other bonds: ₹1,540 crore; loans from NABARD: ₹681 crore; loans from NCDC: ₹1 crore; and loans from the centre: ₹25,712 crore.

This situation suggests that J&K continues to have an over-reliance on specific lenders. Larger states, as what RBI data suggests, have diversified their liabilities more widely across financial institutions. In contrast, J&K leans more on SDLs and central loans. Moreover, J&K’s provident and reserve funds are comparatively smaller than those of states like Gujarat or Tamil Nadu, which suggests less internal financial cushioning.

While this financial position is modest compared to the country’s larger states but it is substantial relative to smaller states/UTs.

While this represents a part picture, a more realistic picture emerges from J&K’s fiscal deficit situation today. In 2022-23, J&K’s revenue receipts were ₹68,278, while the expenditure was ₹80,187.3 crore, creating a deficit of ₹11,909.3 crore. In 2023-24, total receipts were ₹72,693.0 crore, while the expenditure was ₹85,132.4 crore, raising the deficit to ₹12,439.4 crore.

However, in 2024-25 (Budget Estimates), with the receipts at ₹76,141.9 crore and the expenditure at ₹86,996.9 crore, the deficit has decreased to ₹10,855 crore.

While this suggests that J&K’s fiscal deficit is averaging around ₹11,000-12,000 crore annually, there is actually a fiscal improvement.

A comparison with other states with highest fiscal deficits in 2024-25 is very insightful in the RBI report.

Uttar Pradesh, with ₹1,08,689.4 crore fiscal deficit, tops the list. The other high deficit states are – Tamil Nadu: ₹1,08,659 crore; Maharashtra: ₹1,10,355 crore; West Bengal: ₹94,404 crore; Rajasthan: ₹70,095 crore; Karnataka: ₹84,521 crore; Andhra Pradesh: ₹68,743 crore; Madhya Pradesh: ₹57,537 crore and Gujarat: ₹51,917 crore.

This suggests that Uttar Pradesh and Tamil Nadu have fiscal deficits exceeding Rs 1 lakh crore, driven by their known extensive social welfare programs and infrastructure investments,  while West Bengal and Rajasthan’s fiscal deficits remain persistently high.

In comparison, J&K’s fiscal deficit of ₹10,855 crore (2024-25 BE) is significantly lower than the deficits of the top 10 states.

(To be concluded in part II on Monday)

The author, an international development expert, having worked across 15 countries, is founder of Ziraat Times. 

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140 COMMENTS

  1. Very elaborate and informative one missing corruption aspect though even single partake kf cooruot esrning called Haram nullifies 40 nimazs subject to corrections still it is neck deep drenched in it .even Swamis Mulves every part of society. We have streched adminstration deliverance system beyound limit created Institute on political consideration which are born of financial non.plan budget after give years from plan to non plan where from money comes it is from.borriwing.
    Industries are non recursive one proved mostly banks are looted.
    We are not self sufficient in any field.
    Name a few honest souls here among us.

  2. J&k is not corrupted even they are खंड मीठे लोग सारे but the agencies those have taken over j&k under coercion and force are not loyal….they tendency is to divide and rule and moreover wait for some days common masses will come to know about their transparency and honesty

  4. It’s true’ the system ruling by center what they know about j&k and we are living our life under pressure from New Delhi huge corruption directly in defence and civil defence our future forced to downwards through LG administration their advisor and secretaries from out of of state how comes and they are ruling us at our home land all those stupidity one day colleps

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