Unattinainble budget projections

By AIJAZ LONE
The Omer Abdullah lead J&K government seemed to be in much hurry to present the state budget for financial year 2014-15. Being the last budget of NC-Congress lead collation government, preparations were more glowing than financial realities of the state.
The state economy in the past has faced challenges with regard to the annual fiscal plans in terms of  fiscal deficits, level of revenue collection internally, employment challenges, revival of agriculture sector and growth of industrial sector, social infrastructure development, the burden of wage and pension bill and tackling capital flight. The total estimated receipts for the year 2014-15 are Rs 43,543 crore and the projected revenue receipts are Rs 39,221 crore with an own tax estimated revenue of Rs 7496 crore. Comparing to total revenue receipts of Rs 31,227 crore for 2013-14 as against the projected receipts of Rs 33970 crore, the state economy couldn’t attain the projected estimates due to less than expected funds from the centre. The total revenue expenditure touches Rs 32,948 crore and a Non-Plan Revenue Expenditure (NPRE) consumes Rs 29,553 crore. The growing revenue expenditure is mainly on account of salaries and pension payments of Rs 18445 crore sums 62.4 percent of total NPRE, interest payments Rs 3470 crore, power purchases Rs 3668 crore including provisions for other expenditures hence leaving a less proportion for development related initiatives.
Most of the state revenues come from its revenue receipts for which it has no repayment liability and is used to finance its revenue expenditure.  These include state tax and non-tax revenues and the grants from central government – estimated as Rs 2096 crore for 2014-15. As per the recent budget estimates, the state government made attempts and has taken diverse measures to pre-set the balanced budget and claimed previous budgets as ‘zero deficit budget’  – contradicting the last year’s report from Comptroller and Auditor General of India. For these previous fiscal plans, the state government pegged the fiscal deficit by given public borrowing and repayment liabilities, hence it is inquisitive to show that these fiscal plans were deficit free. Taking note of the recent level of fiscal deficit of about 10 percent which is highly unsustainable, the Fiscal Responsibility and Budget Management (FRBM) legislation could not even help to bring this level down to 3-3.5% targeted by end of 2010. Considering the poor performance in growth of revenues, the FRMB Act was amended, as per the amendment made in the FRBM Act, the state had to maintain the fiscal deficit at 4.7 percent of GSDP and even after amendment and revision in targets the state failed to attain its targets.
The capital expenditure of the state as per 2014-15 budget estimates are Rs 10595 crore compared to Rs 9378 crore for 2013-14, hence the revenue expenditure stands three times more than that of capital expenditure. Comparatively, the total capital receipt estimates are Rs 4322 crore against the capital expenditure of Rs 10595 crore. Hence, the receipts are much lower than the expenditures (both revenue and capital expenditures) and the state fills the gap by borrowing and special financial assistance provisions by the central government. Though the state government has shown some progress in collection of internal tax revenues estimated at Rs 7469 crore for 2014-15, there is a long way to go and the government needs to adopt right tax measures tap the resource loss.
As per the budget estimates, for social infrastructure development there has been provisions for education and health sectors – INR 734 (crore) and INR 310 (crore) respectively and INR 332 (crore) for social welfare, this individually  comes to less than 2% of total GSDP in 2012-13.  Similarly, the budget provisions for agriculture and allied sectors are INR 321 (crore), industries INR 179 (crore), tourism INR 106 (crore) and power development INR 396 (crore) respectively. This is not sufficient, the need to revisit the budgetary allocation deficit among the key sectors of the economy (revenue generating in nature) and accordingly allocate resources. The other initiatives, like allocation for YSLS, Women’s Entrepreneurship, regularization of Rehbar-e-Zirat, provision for marriage for orphans of BPL families, exemption of hotel tariff tax, HIV AIDS and Cancer treatment fund and other related incentives seem socially motivated. However, the need is to ensure that these measures help to achieve their objectives and maximize individual social welfare. Moreover, for tacking unemployment and promoting self-employment, other than budgetary allocations the need is to progress on bottlenecks – improved administrative and regulatory framework, improved access to finance and reduced corruption are key among them.
The concern is the growth of the revenue expenditure mainly on account of wage bill, pension and interest payments, the budgetary support of sick PSUs and revenue deficit in power tariff accounts. The establishment of new administrative units put an additional financial burden on state budget. The tax revenue for the state government has not been encouraging enough hence the government should prefer legitimate taxation over deferred taxation to minimise borrowings. The existing environment is not conducive and encouraging or attracting private investment, the need is to make regulatory and legal frame conducive to attract the private investment. If the economic scenario goes like neglecting the realities, one wonders how to rejuvenate the path of inclusive economic growth.

—Aijaz Lone is a development
 consultant based in New Delh

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