In the corridors of J&K’s power, there is an excitement about America’s new story these days. Upset with shortage of funds and curbs on unlimited borrowing, some mantris went to an IAS babu to share an idea. The idea was this: if the Americans can borrow so much, and even raise the limits of their borrowing, why the hell we can’t do the same?
This is no kidding. Americans, after months of tense internal debate, indeed decided to raise their debt limit. So now that country’s debt is 100 percent of its gross domestic product (GDP). In simple words, Americans will now borrow as much as they produce!
In economics, the debt-to-GDP ratio is a lovely indicator of how healthy an economy is. The lower the debt-to-GDP ratio, the more it is likely of an economy producing enough to pay back its debts. A higher debt-to-GDP ratio is a recipe for disaster, especially when the means to repay are few. But can we compare ourselves with the Americans?
There are basically separate standards for this ratio for developed and developing countries. Even within a developing country, let us remember, we are a ‘special category state’, which has certain ‘specialties’ about it.
One specialty about us is that we must live by grants and always acknowledge that upkar (sic.). Second, we can’t aim for self reliance, so we must always rely on sahokar – the big lender.
That is the politics part of it. Now let us see what the Comptroller and Auditor General of India (CAG) has to say about this. Its latest report says that our state's debt has increased by 18 per cent to Rs 28,735 crore in 2009-10 since the previous year. J&K’s debt-to-gross state domestic product (GSDP) ratio rose to 75.03 per cent in 2010 - up from 69.78 per cent in 2008-09. In a way, we are catching up with the Americans!
A recent Reserve Bank of India (RBI) document analyzing the states’ debt gives us a comparative perspective. Among all the states in India, J&K’s debt-to-GSDP ratio was the highest in 2008-09 - except for the four tiny states of Mizoram, Sikkim, Manipur and Arunachal Pradesh. Incidentally, CAG says our situation has worsened since 2008-09.
It is very much possible that our actual situation is even worse. As per RBI, states do not give a clear idea about the nature and the composition of their debt. Same is the case with J&K.
Interestingly, RBI has set a goal for J&K like all other states in India – to reduce the debt-to-GSDP ratio to under-25 per cent in the next five years. That is theory. J&K’s political relation with the sahokar leads us to the opposite.
It is not that we are not doing any firefighting. We brought in the fiscal responsibility law and ended the Ways and Means Advances (WMA) business with the J&K Bank, yet the basics remain the same. We are in such a vicious cycle of deficit, debt and debt servicing that these measures will achieve only cosmetic results.
Sixty seven per cent of J&K’s government securities will mature in 7 years time. We must pay the others in the coming seven years. Is there a way out?
J&K’s economic growth is tardy because its infrastructure is abysmal and political climate is fragile. The former is so because we spend so much on interest payments and non-productive expenditures that we spare too little for infrastructure and other assets. As infrastructure is poor, avenues for productive investment remain limited. Government’s revenue earning base is limited because most of its resources and tax options don’t lie in its hands. The cumulative effect is that our tax revenues fall too short of what we need for our expenditure.
According to RBI, the central government provided aggregate debt and interest relief to all the State governments during 2008-09 amounting to Rs 5748 crore and Rs 3398 crore respectively. J&K state was among the three states that received nothing. The reason was that our fiscal performance was poor, just because we borrow more and earn less.
In a nutshell, let us admit J&K is in a pretty bad soup. Going by the mantris’ American logic will be a disaster. There are few takers for the upkar theory now. For the sake of survival and dignity, we must rework our relation with the sahokar.

Lastupdate on : Sat, 20 Aug 2011 21:30:00 Makkah time
Lastupdate on : Sat, 20 Aug 2011 18:30:00 GMT
Lastupdate on : Sun, 21 Aug 2011 00:00:00 IST