Budget and bananas
Our short term populism can’t substitute sustainability
Arjimand Hussain Talib
The pejorative - banana republic – for any society would sound disrespectful.
But as a political science term you just can’t wish away what it describes -
a politically unstable country, dependent upon limited agriculture, mainly
bananas, and ruled by plutocracy. And, worse of all, dependent for almost
everything on imports and outside aid.
The way J&K is planning its budgets sounds like short term populist
accounting – as if tomorrow doesn’t exist. As if the responsibility for
tomorrow wrests alone with those who will live tomorrow.
Beyond philosophical reflections, in practical terms what J&K state does is
borrow money blindly irrespective of our repaying capacity, spend lavishly on
public salaries and spend crazily to maintain political ‘order.’
Spare me for sounding too pessimistic, but doesn’t the substance of our
budgets strengthen our sense of being a high degree banana republic?
As per the Budget 2010-11, we have generated our own tax revenues of Rs
3643 crore last year. The government’s target for this year is Rs 4,183 crore.
So much so good.
But look at our interest payment of our accumulated loans alone – it is Rs
2251 crore for the current fiscal. Our power bill is Rs 2,324 crore during this
year.
The Government would spend Rs 1174 crore on account of repayment of
loans coming fiscal as against Rs 959 crore this year to the Government of
India and other institutions.
And we have other liabilities as well – we will need Rs 2651 crore during the
next financial year for pensions and retirement benefits. This year we have
paid Rs 2031 crore.
Our Security Related Expenditure (SRE) is no small money - this year it is Rs
693 crore.
So where is the money to build infrastructure, finance social and welfare
spending?
Almost 60 per cent of our roads are built or maintained by borrowed money,
mainly from NABARD. If we need a hospital or even an ambulance, we
need a government of India bailout package. From schools to drains,
from tourist huts to police uniforms we are dependent on money from
Delhi.
All this point to a serious political and economic dysfunction. What is alarming
is that it is simply unsustainable because no political entity can afford to do
this indefinitely without taking some drastic steps to set this dysfunction
right.
Four things for that need to go – one is our political uncertainty, second is the
curbs on our global business linkages, third is the embargo on international
air connectivity and the fourth is the fruitless populism.
When the government statistics say that our Gross State Domestic Product
(GSDP) for the current year is likely to be Rs 47,709 crore, reflecting a growth
of 10.35 per cent, I don’t think there is neither a need for jubilation nor
concern. Our GSDP doesn’t convey anything significant. One reason being that
most of the economic activities are propelled by public expenditure.
Public expenditure in theory would enhance the multiplier effect – create
more money in the process. But the problem is that our balance of trade is so
huge that the multiplier effect ends up creating more money outside the state
than here. The money that is generated here is not able to enrich the public
finances, courtesy populism and conflict management. So we are in a vicious
circle which does us no good.
Revenue will come from greater economic activities outside the state
expenditure. For that we need better roads (for which we have no or little
money), we need other industrial infrastructure like industrial estates (for
which the budget has no money). We also need a massive tourism-related
infrastructure for which money never comes, and we have to instead manage
with an infrastructure which is primitive by today’s global standards.
When it comes to revenue generation efforts in the 2010-11 Budget, they look
aimless.
What the government has done for widening the tax net looks juvenile.
Bringing in commercial construction, repairs and even alterations under
service tax net looks unnecessary. That is not going to generate big money.
Nor are services like TV and Radio program productions, architects, interior
decorators, Chartered Accountants and advertising by providing hoardings
going to generate significant money.
Over the last couple of decades the consumption pattern has significantly
altered in our state. With rising purchasing power in our rural areas,
consumption there has increased manifold. Quite naturally, like companies
are targeting these emerging markets, we are supposed to shift our tax focus
too there. From cars to fertilizers, from color TV to pesticides, from satellite
TV to mobile phones; rural markets are the main consumers now.
VAT exemption on pesticides, insecticides, weedicides, milch animals, poultry
feed, beehives and colonies doesn’t make economic sense. Similarly, GST
exemption for Green Houses used in farms is not prudent. They generate good
money.
As someone belonging to a family engaged in horticulture for decades I can
say it with certainty that all segments of fruit, poultry and dairy producing
communities can afford paying tax on these items. Even they can easily pass
on the extra cost to the consumer who is a ready buyer for these products.
It is now common knowledge that except for a small segment of landless rural
folks and jobless urban populace almost all segments of the population have
the capacity to purchase food grains from the market. So exempting food
grains from VAT doesn’t make much sense as well.
What is also strange is that rather than privatizing our loss making public
sector enterprises like the J&K Handloom Development Corporation and
the Government Woolen Mills we continue to waste money for their revival.
Budgetary provisions for these take us nowhere.
What has gone almost completely unnoticed is what the finance minister said
he will be doing this fiscal – allow ‘bulk consumers’ of power approach an
outside supplier of electrical energy directly. This is bizarre. What it means is
that having failed to properly distribute power in the state sector we are now
going to allow ‘outside entities’ get into power distribution business. Where
are we heading?
Another disturbing provision in the budget is the whopping Rs 1037 crore for
Master Plan of Jammu city. It is not bad to earmark more money for that city
which we love, but the question is how can Srinagar city – where from this
government derives its electoral power – be ignored when its infrastructure is
the worst in the whole state?
Sad questions but no ready answers.
The columnist can be emailed at arjimand@greaterkashmir.com
