Populist and smart
(Dateline Srinagar, Sunday, 14 March, 2010)
By: Arjimand Hussain Talib
Contrary to anticipations, the state’s budget for 2010-11 has no surprises. It is a classical South Asian-style budget – which generally aim to consolidate rural vote banks, provide sops to specific constituencies and enhance hidden general taxes. The expected boldness and innovation from this budget are missing. It is a comfort budget in the short term for various interest groups, but it sans a reform and sustainability orientation – something that we need badly in the longer term.
There are surely some good ideas in this year’s budget, but the populist content far outweighs these. To say that this budget will transform the state’s economic landscape is little too exaggerating. There are valid reasons why it can’t do so.
Three administrative issues in the budget look promising: assigning the task of evaluation of 150 projects worth Rs. 744 crore to NABCONS and M/S Mckenzy, initiation of disinvestment of PSUs and Rs. 20 crore for creation of a power transformer bank.
For a larger picture, this budget has to be understood in the backdrop of the state’s Economic Survey for 2009-10. The survey, tabled on Friday at the time of the budget presentation in the Assembly, takes us to some of the state’s fundamentals, which we cannot afford to ignore for too long.
The increase in the Value Added Tax (VAT) by 1 per cent, service tax by 2 per cent to 10 per cent, along with the enhancement of the toll tax by Rs 10 per quintal, are likely to get us some more revenues. They are likely shoot up our inflation further too. But there was obviously no other choice. The question now is: is this sort of taxation good enough?
The target of generating additional revenue of Rs 3,858 crore, especially by collecting power tariffs, sounds little unrealistic. The problem is that power tariff campaigns in our state are too urban-centric. While they excessively focus on the pilferage part of it, they close their eyes to the system part of it – that is the obsolete transmission and distribution systems and the non-civilian pilferage. Our plans for power tariff realization must go beyond the cities of Srinagar and Jammu. Or else we will remain where we are now.
Finance Minister’s contention that toll tax and VAT exemption on agriculture-related appliances, fertilizers, and fodder etc. were meant to increase agriculture’s share from 25 percent to 47 percent in the 80s in the Gross State Domestic (GSDP) is absolutely misplaced. That is not going to happen in a foreseeable future. If at all that is going to happen, that will take our state backwards by several decades.
It is a fact that agriculture’s share in our GSDP has dipped to 25% from 47% during the 80s. But that is not a novelty; that is a global trend, even in the countries which have traditionally been agriculture-based economies.
A better way to fix growth targets for agriculture sector in J&K is to enhance targets for yield-per-hectare. In economic terms, in today’s world, it is wrong to set a target for enhanced percentage share of agriculture in GSDP.
Reduction of agriculture’s share in GDP fundamentally happens because greater education and development of knowledge component of economies tends to enhance services’ share. Same is the case with our state. The share of services, and also industry to some extent, is very likely to increase even further in J&K in the days to come. However, this increase in services’ share does not necessarily mean a negative growth in agriculture. This premise is wrong. In small-land economies like ours growth in a sector like agriculture has many constraints because of many reasons.
Another thing to acknowledge is that subsidies and tax cut on farm-related tools is fundamentally a populist measure in J&K’s context. Those who know the politics of the state’s farming sector know it very well that subsidies or tax cuts in this sector do not necessarily enhance its productivity. They target a segment which is basically a vote bank, and do not necessarily depend on agriculture for their livelihood. The ratio of government jobs to rural households is perhaps the highest in J&K in whole of India.
A tax cut and subsidies regime on farm-related products, like tractors, would not enhance our farm production massively. Those who know the state’s geography well and the nature of the land holdings know it too well that there is a limit to the use of tractors in our state.
Over the last few years, we have increasingly shifted from low-income agriculture, like paddy, to value-added and high-income cash crops. J&K’s case, as such, is different than the rest of India. Generally, barring a handful of rich states, India’s farming sector is about day-to-day survival. And economic and social policies are required to be designed as such. Our farming sector is mostly of an income supplementing nature, even though we have families which wholly depend on agriculture. We need to target the households which do not have government jobs and rely mainly on subsistence farming with softer loans and other incentives.
The budget statement also boasts of the ‘highest-ever’ award to the state by India’s Finance Commission. In actual terms, J&K’s share in the central taxes is only 1.55 per cent. What is, however, interesting is our state’s relative impoverishment in comparison to the rest of India. According to Economic Survey 2009-10 while our contribution to India’s overall wealth was 0.85 percent in 1999-2000, it has declined to 0.7 percent at present.
Likewise, while India’s income has grown at a rate of about 8.2 percent during last five years, our state income has grown at much lower rate of about 6 percent. We must factor in our population growth while understanding our economic growth. According to the Economic Survey 2009-10, our per-capita income (PCI) has grown at a rate of 4.13 percent during 10th Plan period. This slow growth in state income reflects in our per capita income (PCI) – which was Rs. 20604 in 2007-08, far below India’s national average of Rs. 27442.
Another key area which the Economic Survey calls for attention is the state’s fiscal deficit. It has increased from Rs.1665 crore in 2004-05 to Rs. 3386 crore in 2008-09, which is around 9.7 percent of our GSDP.
It is well known that a fiscal deficit of around 10 percent is unsustainable. Containing fiscal deficit, as the survey itself has noted, would require mobilisation of additional resources, by raising direct and indirect taxes, including on public services and compressing expenditure, particularly establishment related. But has this budget really attempted that?
Feedback at arjimand@greaterkashmir.com
