FM has crafted it well, other Ministries need to pitch in, reboot

TNN Bureau. Updated: 1/12/2017 1:50:11 AM Front Page

Drabu is creating an environment that increases possibility of total, effective utilisation of funds

Dipankar Sengupta

Budgets, both at the Centre and at the State are high profile events with the respective finance ministers fairly or unfairly the focus of all attention. And when the concerned ministers, be it Arun Jaitley at the Centre or Haseeb Drabu closer home are themselves high profile individuals, the association of the budget with the individual is more so.
It is possible that the state budget of the Government of Jammu and Kashmir now is beginning to be a burden to those individuals associated with its planning and design. The hopes raised two years ago when the Coalition just assumed power have long subsided. The innovative schemes (like Laadli Beti) that drew so much praise now have faded to distant memory. This is of course a tricky situation to be in for Haseeb Drabu and his team. Among the things an economist looks for in a budget is for the kind of expenditure that serve to boost growth in a manner that taxes and revenues also rise so as to finance such expenditure! What we forget is that the ability of a finance minister to craft a good budget is heavily dependent on the performance of the entire government and the performance of the government in general has been indifferent.
The economy of Jammu and Kashmir depends to a great extent on government expenditure. While this is true for most "special category states," Jammu and Kashmir is in a league of its own. If the size of the total government expenditure (Rs 79472 crores) relative to the Gross Domestic State Product (Rs 151916 crores) is projected at 52%, the figure for the neighbouring state Himachal Pradesh was approximately 25% last year while for Punjab it was 19%. There can be no better way to underline how weak the private sector of the State is and there is little in the budget on how to strengthen this sector. That apparent lack of vision is reflective of certain key ministries which deal directly with the economy. Additionally, when over two-thirds of this is financed by the Central Government and by borrowing, the dependency of the State on the Centre becomes all too clear!
Mr Drabu has himself remarked that real Jihad is waged by those persons who do business in the State! Given the unsettled conditions of the State over which arguably few have control this is hardly an exaggeration. To remedy this, it is not only the Finance Ministry but also ministries like Industry, Power etc which have to step up and perform! The question is, have they?
The key question lies in some of the elements of the budget that are the same as in the previous years and being legacy issues are unlikely to change drastically over time. They include a massive outflow on account of salaries and pensions (31% of total expenditure of Rs 79472 crores) and power (12%). Hearteningly, it also shows a healthy expenditure on capital formation (39%) which is part-funded by debt. This again has been a recurrent feature of quite a few previous budgets, which leads one to wonder why Himachal Pradesh whose government seems to spend so little on capital formation (only 17% of a total of Rs 28339 crores) fares no worse when it comes to growth! Clearly both the efficiency of government investment and the role of the private sector are important. These factors are largely affected by the performance of other ministries.
Private investment depends greatly on factors like local receptivity to investment. However, the fact that remains that when it comes to factors like "ease of doing business" where government policy is important, only states like Meghalaya, Nagaland and Arunachal Pradesh lag J&K! Clearly, the Industries Minister of the State has his work cut out. And when it comes to the power sector, which not only is a critical input to business as well as a determinant of financial health of the government, the answer is all too clear! The power ministry has not performed! The power deficit (the difference between what the government spends on power and what it collects) is nowhere near being under control. While the State has now signed up to the UDAY scheme and committed itself (twice in one decade) to reform the power sector, this second committment came when the State was under Governor's Rule! The manner in which the last round of power sector reforms were allowed to collapse by the NC-Congress government does inspire confidence that the State will keep up to the demanding schedule laid out by UDAY. As of now, the poor performance of this sector has prevented Mr Drabu from doing more while at the same time some industrial estates have received intermittent and poor power which have lead to losses.
Nor have Ministries that deal with the key sectors of the State's economy like tourism, horticulture, agriculture or animal husbandry demonstrated any idea or effort or note that the budget should take due note of and provide accordingly. Thus the State's Finance Minister has wisely chosen to look at those issues that will acquire salience in the future.
Among other things, Mr Drabu has chosen to reform the manner in which budgets are conceptualised, documented and the manner in which allocations are made. The aim is to make the budget more comprehensible and to unite power with responsibility when it comes to effective and timely utilisation of budgetary allocations. The importance of these steps cannot be overestimated. If budget making is to be an inclusive exercise which it should be in a democracy, budgetary documents need to be understood by all stakeholders including law makers. And by resolving to release 50 per cent of the Revenue and Capex budget by early February and planning towards a system where expenditure during the last quarter should be limited to 30 per cent of budget allocation, Mr Drabu is creating an environment that increases the possibility of total and effective utilisation of funds given the longer working period. This is in stark contrast where 70-80% is nowadays spent in the last quarter which almost certainly leads to poor quality work and outright fraud!
Also commendable are the steps announced to use IT especially in the form of Integrated Financial Management System (IFMS). This movement towards real time monitoring of finances increases speed, efficiency and transparency. Mr Drabu has also moved to clean up the balance sheets of PSUs like the J&K Power Development Corporation clearly meeting its obligations under UDAY partly financed by the Government in the form of UDAY Bonds. What these entities do subsequently will depend on the performance of the Power Ministry under Dr Nirmal Singh.
Likewise Mr Drabu is also recapitalising other PSUs and has confronted the NPA problem of the J&K Bank and infused capital to meet capital adequacy norms. He has also shown farsightedness in moving quickly to set up the J&K Asset Reconstruction Company in partnership with the J&K Bank whose mandate will be buy mandate will be to "buy the impaired assets of state subjects that are mortgaged to financial institutions". This move not only is a step towards business credibility in the State but in the light of the recent judgment of the Supreme Court on the issue of applicability to SARFAESI to the State acquires salience.
However, real innovation has been shown when providing and designing for insurance given the unsettled nature of the State (ie recurrent civic strife) as well as natural disasters. By part financing the premiums the government is attempting a low cost plan at reassuring business sentiment. Admirably this insurance has also been extended to the Invaluable Art and Culture Heritage of the State in th form of paintings, artefacts etc. The innovation shown by the Laadli Beti scheme has also resurfaced in Mr Drabu's efforts to design a social security net that includes life and accident insurance, soft loans/overdrafts upto a particular limit.

Another step taken by the Minister which will be significant in the long run is the setting up of a commitee to advise on manpower planning with respect to governmentemployees. While he has been quick to play down talk of downsizing, even if government manpower is effectively redeployed, governance will receive a massive boost.
The Finance Minister seems to have chosen this budget to signal without saying as much that the systems that are in place in Jammu and Kashnmir State will be compatible with and will be capable of integrating with the nationwide change that we will see once GST comes in. Mr Drabu has also dealt with the issue of employment and chosen to focus on self-employment and has laid out a detailed plan. But clearly an economist of his calibre with his exposure to Business and business journalism will know that employment creation will depend on private investor sentiument. For that the performance of his cabinet colleagues assume importance. Right now, in following Kipling's advice, Mr Drabu is keeping "his head while all round him are losing theirs!" But clearly the time has come for the State Government to reboot!

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