Myth of Jammu & Kashmir's Financial Dependence

Arjimand Hussain Talib

Yaoundé (Cameroon), July 19: It is an old story now that 60 percent of Jammu & Kashmir state’s expenditure now comes from central ‘grants.’ Within India, and even abroad, this theory is widely circulated and believed.

Media in India is again posing questions today: ‘how come a state which gets such generous grants from New Delhi remains so discontent and rebels so often?’ These questions reverberate every now and then. But there are many facts which remain unknown. Facts, which are plain facts.

A latest Reserve Bank of India (RBI) study “State Finances: A Study of Budgets of 2009-10” reveals some parts of those facts. It sheds some interesting light on the state’s administrative expenditure and lower social spending. It also gives some comparisons with other states, sharpening our understanding of the ‘dependency syndrome.’

According to the document, J&K received Rs 13,252 crore as grants from the Centre in 2009-10. In comparison, the eight conflict-ridden northeastern states received grants and loans worth Rs 29,084 crore from the Centre in 2009-10, which, as per the report, was 44% of their combined total expenditure. And what does that mean?

It may mean that these states generate more internal revenues and that is why these grants constitute only 44 % of their expenditure. But if that is so, why do these states need such grants in the first place?

The RBI document sheds important light on the pattern of public spending in J&K. It says the government spending on the social sector in the state — education, healthcare, rural development, social welfare, etc — is a mere 30% of the total expenditure. And this kind of social spending has remained stagnant in J&K since 1980.

These percentages mean J&K has the fourth lowest proportion of social spending among all states in India. The all-state average of social spending is 40% in India. And then there are states like Chhattisgarh which spends 54% on social sector, Maharashtra spends 50% and Rajasthan 46%.

According to J&K’s 2010-11 budget document; power, interest payments, security expenditure and ‘other expenditure’ consumes 30 per cent of the state’s budget. The rest about 40 per cent goes into salaries and pension.

Out of this, power, some interest payments and security expenditure are not due to the state’s fault.

Let us take power, for example. Central-government owned National Hydro Power Corporation (NHPC) produces 1560 MW of power from J&K.

NHPC’s generation cost per unit of power in J&K is an average 0.30 paisa, but the state is charged a much higher tariff. Our power deficit and the drain on the budget are primarily for this reason.

Then is the question of the state’s energy deficiency. According to the Draft J&K State Hydel Policy, 2010, at present J&K’s unrestricted demand for power is 2120 MW, while suppressed demand is 1450 MW with scheduled curtailment. That means there is a deficit of about 500 MW even vis-a-vis restricted demand. Can industries really thrive?

The per capita power consumption in J&K makes interesting analysis as well. According to the J&K State Hydel Policy, 2010, J&K’s per capita power consumption is 750 units, compared to 872 units in Himachal Pradesh, 706 units in Uttarakhand, 1506 units in Punjab and 1208 units in Haryana. These are the main states where J&K’s power goes.

Then the political question. Despite repeated demands from the state and the Rangarajan Committee’s recommendation of handing over of some of the power houses back to the state, New Delhi has chosen to look the other way. This is despite the fact that the NHPC-run projects in the state have earned huge profits since commissioning.

J&K’s State Hydel Policy, 2010 proposes a hydel project in private-public partnership to remain out of state hands only for 35 years. That does not apply to the NHPC because New Delhi wishes that so.

Interestingly, NHPC reported a 94 per cent jump in consolidated net profit at Rs 2,090.50 crore for the financial year 2009-10. A bulk of its profits comes from J&K. Its Chairman and Managing Director, S.K. Garg was quoted in the Business Line in May saying that the hydro power firm was looking to invest its surplus funds in the mutual funds market!

The RBI report also sheds interesting light about the high administrative expenditure - 12% of all expenditure - in J&K. The report says that there are states with similar harsh terrains, like Himachal Pradesh and Sikkim, which spend only about 6% on administration.

Then let us take the issue of the annual per capita spending. The RBI document says that J&K’s annual per capita spending by the government was about Rs 20 lakh in 2009-10. In other ‘economically backward’ and conflict-ridden states like Sikkim, Mizoram and Arunachal Pradesh, the per capita spending is much higher - Rs 59 lakh, Rs 35 lakh and Rs 38 lakh respectively for the same period.

Then there are other ‘economically-backward’ states like Meghalaya, Manipur and Nagaland where government per capita spending ranges between Rs 18 to 21 lakh per annum.

Jammu & Kashmir’s annual imports are to the tune of around Rs 25000 crore. There is hardly any official mechanism to calculate the inbuilt taxes that J&K’s citizens pay on those imports, which go directly to government of India’s tax kitty. If an average of 12 percent of such taxes is calculated, J&K state pays Rs 3000 crore in terms of in-built taxes, which are never reflected in any system.

Jammu and Kashmir’s record in internal tax collection is not bad either. It retains its top position in terms of Value Added Tax (VAT) collection in whole of India. The government has already revealed that the Commercial Taxes Department collected record revenue of Rs 1721.59 crore by the end of February 2009 as compared to Rs 1623.87 crore during the same period in 2008.

However, there is a flaw in some direct taxes analysis. Many direct taxes, like the income tax, are not reflected in the state’s finances just because they are directly booked by non local companies outside the state. They get never reflected in the state.

Add to all this the misery of J&K’s tourism sector. Despite a show piece airport at Srinagar labeled as an ‘international airport’, the government of India is yet to find the political will to make it so. And it still looks for the clues for the unrest in Kashmir’s streets.