Finance Minister, Haseeb Drabu speaks on a number of economic issues confronting the state of Jammu and Kashmir.

Finance Minister, Haseeb Drabu speaks on a number of economic issues confronting the state of Jammu and Kashmir. In an exclusive interview with Nissar Bhat he says that PDP-BJP alliance is a governance alliance and not a political one: Excerpts

NB:    It took your party about two months to forge alliance with BJP for formation of government in the state. It was widely perceived that one of the reasons to forge alliance with BJP by your party was that it would facilitate free flow of funds to the state.

But right now we are seeing that the state is under acute financial stress so much so that the treasuries were not able to clear the pending liabilities on the last date of the previous financial year. The traders are clamouring for relief. What is the reason for this financial stress?

FM:    Look, as regards forging of alliance is concerned, whatever people may have assumed it to be, the fact remains that getting money (for J&K) in lieu of the alliance was not a consideration. It was certainly not a consideration. The alliance was forged for ensuring good governance in the state. The agenda of alliance itself says it is a governance alliance not a political alliance. Of course to have a friendly government at the centre, helps. But that was not the reason for forging the alliance. The second part of your question is financial stress in the state. Financial stress you are talking about is essentially the liquidity problem.

There are liabilities which have not been cleared by the past government. But that is not the only reason. Our resources are not enough to meet expenditures. So obviously there is always a stress on the state finances.  The simple point being that our expenditures are far more than our revenues. Then, there are two parts to it: One, of course is that we get money as a part of our constitutional share from the central government; which comes and we utilize it.

There has been some change in that because of the 14th Commission award. There are some little more resources that come to us because of 14th Commission award, which have been regular, which come to us by devolution. The second part relates to the flood relief. The previous government had put across a proposal of Rs 44,000 crore. Only about Rs 3,000 crore have come so far. So when you talk of traders, relief and all that, let us separate the two issues: One is routine government functioning where the stress has been caused by past liabilities, plus our revenues being less than the expenditures. It is a liquidity problem. Second part is relief. That part is being addressed right now. It is only two months we have been in office, we need to figure out who will finance it, how much, etc.

But these issues are separate. In the first part, routine-wise there has been past pendency. Teachers had not received salary for 11 months. This government is there for only two months. So for nine months they had got no salary. Of course it is a part of the liability. I have said it even in the budget speech. We will meet it. The real issue is not of financial stress, the real issue is of systems.  If there is a problem today, to my mind it is not the problem about finances, it is about systems.

There is a complete decimation of systems, the institutional capacity has been decimated totally over the past years. That is what is the core of the problem. Unless you make systems, the stress will be there. Once systems are built these problems will solve of their own. Addressing the liquidity, getting some grant, is band-aids. It does not address the disease. The disease of systems.

NB:    The September floods hit the J&K economy badly. Almost all the sectors of economy in Kashmir were ravaged. Ideally your government should have pursued the Rs 44,000 core proposal made by the previous dispensation in the state with the central government. But instead of doing that you seem to be seeking to rely on internal resource mobilization. Isn’t this a bad economics?

FM:    First of all, this government is pursuing that package. But my basic issue is that the (past) state government estimated Rs 44,000 crore package, sent it, but was it ever followed up.

NB:    May be they did not find time because of the elections?

FM:    No. There was September, October, November. Why they did not follow in those months. Secondly, there are items in that proposal which nobody is going to accept. Resource gap of the state government for example. How is that a consequence of the floods? So my point is that Rs 44,000 crore, to my mind, was not normatively based, it was very ad hoc in that sense and it did not get the required follow up. It was sent to government of India as if a post-card was sent. It was the responsibility of the state government to not only follow norms, work out details, pursue it but also to see how it was to be funded. The contention of the state government that ok we have given a bill and now you settle it, is not how it should be done.

We should also discuss it, then follow it up and should have the sense of how it will be funded. You cannot put the blame on the government of India to do it now. So there is a certain system to be followed. Now, see, Rs 44,000 crore project submitted to the central government, fine. World Bank came, they did an assessment and estimated the loss at Rs 21,000 crore.

What reconciles the figure of Rs 44,000 crore and Rs 21,000 crore. World Bank is an independent agency. Traders community here says it is Rs 1,00,000 crore. So there has to be some system to arrive at a consensus. Now will somebody sit and reconcile these figures?

NB:    But is your government doing anything to reconcile these figures or doing what the past government omitted to do?

FM:    Exactly, we are reconciling these numbers. But more importantly, I am not looking at it from that perspective. It is not about packages. It is about spending. How you propose to spend this. Do you have the institutional capacity to spend this amount of money?

Let me give you an example. We need roads and Rs 700 crore is the estimate for roads. Can we spend this money in the next six months or one year? Suppose I get a cheque for the R&B for this amount, will the R&B be able to spend this money? How many hot-mix plants do we have in the Valley today? Just 100! Out of them 75 are functional. If 75 plants work 24/7 they still cannot spend more than Rs 200 crore a year. We don’t want to throw money; it has to be spent well. So more important for me is not to get the Rs 44,000 crore package, I must understand will I be able to absorb it and in how much time.

I have designed a package, the PMRP, for Rs 24,000 crore (some years ago) and that is still continuing. Out of that Rs 18,000 crore were for power. Only Rs 6,000 crore were for infrastructure building here. It is still continuing. So my point is that more than any other package, it is important to see that how much we can absorb. So for me it is important to see that whatever we do we do it properly here. We are pursuing the package, we are reconciling the numbers, we are also trying to see the best way to finance it. We are trying to identify which ministry is to finance which part.

There are categories of losses. First is the public infrastructure. To my mind it is the responsibility of the government to ensure restoration of public infrastructure. There are no two opinions about it. Whether the central government does it or the state government, but the government has to do it. Second category of losses is private assets and businesses that the government is not obliged to do it, but it is the responsibility of the government to ensure relief and rehabilitation.

We started with small ticket. Instead of waiting for these Rs 44,000 crore, we started with something and that we started within 45 days of our coming to power. In the first phase relief was given to traders who have less than five lakh rupees turnover and we are doing it phase wise. In the second phase relief will be given to traders with Rs 5 lakh to 10 lakh turnover. And, we are doing it on the recommendations of Bazaar committees. Relief, rehabilitation and reconstruction cannot be an event, it has to be a process which has various facets, one is funding and second is spending.


NB:    But there are allegations that government resorted to pick and choose in giving relief to the traders. Number two, if you are saying that money is no problem and the problem is our low capacity to spend, what about those liabilities which are past liabilities? Why the government has not been able to release the money of the contractors against the works already executed?

FM:    I am not saying money is not important. I am saying we have to look to the other facet as well. We have to look to our spending capacity. As regards the relief, it was given to the DCs. The Bazaars Committees were involved, they certified something and the relief was given. It was totally a transparent system. There was no question of pick and choose. As regards contractors, there are liabilities. A large number of bills were given at the treasuries on 31st March and there is nothing new about it. When does the Finance department found opportunity to verify these bills? I issued a circular in advance that don’t bring bills to us on 31st March, give us some time to verify the bills.

And during verification we found that many bills were lacking in certain respects. In one of our treasury bills were presented for Rs 37 crore and when it was verified it was only Rs 19 crore. So we are verifying the bills and there is no question of any lapsing; post-verification all money will come. We are not going to negate any liability. We will meet all liability but there is a system to be followed and it will take some time to build such system. And secondly, we have cleared contractor liabilities which were pending since 2010, 2011. I can give you record of those liabilities which were pending from 2010. So we are also trying to bring fairness in the system.

Let the oldest liability be cleared first, then 2015 may be cleared. That is how it should work. People have come to me saying that now we will commit suicide, we have borrowed the money and the liability is pending from 2010. So we are in the process of clearing the bills. You must give some time to the system to build, once it is built, you won’t have these problems.

NB:    While presenting the budget in the state legislature, you said that the state would not go with begging bowl to the central government. In a federal economic structure, where the funds are released to the states as per a set mechanism, do you really think that going with begging bowl to the centre that you accused the previous government of doing, worked for them? Or it was just a rhetorical statement issued by you for the public consumption?

FM:    No, I am very clear about that. As a part of federal system we are entitled to certain funds which are constitutionally given to us, which come to us every month and there is no begging in that. Some money is coming from Planning Commission even that is not begging. Where the begging would come is to have a plan of Rs 7,000 crore, the state would ask for Rs 14,000 crore.

Why? In fact last time around for a plan of Rs 7,000 crore, I think some Rs 16,000 crore were asked for because Rs 9,000 crore was non-plan deficit. There is no fiscal federal rule which will force or oblige the government of India to fund that part. That is a begging part that sometimes they would give, sometimes they would not. Invariably what would happen is instead of that Rs 9,000 crore they would give Rs 6,000 crore so Rs 3,000 crore was the first shortage. That is how the liquidity problem starts. I have stopped that. I said I will not allow it. I abolished the Plan.

I made revenue expenditure-capital expenditure. Today I have Rs 10,000 crore capital expenditure. I will spend and I will show you every bit of it that this amount led to this road, this amount led to this bridge, which I have said in the budget. Revenue expenditure is salary and all that. The biggest tragedy of our state is that to spend this Rs 10,000 crore I have to spend Rs 35,000 crore. It should have been the other way round.

NB:    Post-floods Kashmir economy is in distress. State apparently has no capacity to help its revival. Don’t you think that this economy needs a massive bailout which the central government can only afford to help it revive?

FM: Look, my view is that the state must help itself.


NB:    But has the state such capacity?

FM:    We cannot forever be in this position. Our position has been made difficult by the floods. As it is, the financial position of the state is very poor, it has been compounded by the floods. Now the other way to see it is that it is a great opportunity to recreate, re-develop and rebuild the state. And we are seeing it like that. I don’t want to pass on this responsibility to the centre.

I think it is our responsibility. Of course we will involve the centre into it. We will involve other agencies into it, whether it is the World Bank, Asian Development Bank. But it cannot be anybody’s responsibility except ours. We will of course involve the central government. We will give the proposals. But this is our problem and we have to think for it. This is the starting premise. We cannot just wash away our hands. But yes we will involve the central government and say to it that this is the right way to do it.  Let us discuss it. We will think for it and I don’t want any other body to think for it. In a way we are responsible. We have formed this government. We have people’s mandate.

We are answerable. The central government is not answerable in a democratic sense. If there is stress today. We will take responsibility of it. But if you want to have a new initiative, I don’t want to call it bailout.  I don’t believe in bailouts. We will get what we will spend and what is required in a certain planned manner, which will be a fully funded initiative for redeveloping J&K. Immediate component of course is the relief.  Second component is rehabilitation, third restoration and fourth redevelopment. We will go step by step. Relief has been delayed, no question about it, for whatever reasons but it has been delayed. Some money has come like PM’s relief Rs 1,000 crore.

It has gone to houses which have suffered damage. Some money has come from NDRF but that is not enough by our standards. So we are seeing how we can do it. As I said, public infrastructure certainly a responsibility of the government, private houses and business, not the responsibility of the government but we have to take action to give relief to people because at the end of the day they are taxpayers. They have a stake in the system. We cannot under-rate the losses.

But certainly we will make ways in which we provide for their rehabilitation and relief. We have started the process. Now when you say bailouts, I don’t believe in bailouts. That will not allow us to grow as a people, as a society and as a state. That is where I made the statement that I will not go with a begging bowl. I will make a plan and there will be financing of it. Some will come from government of India, some from other institutions.

NB:    There are huge challenges on the economic front to your government, which, as you mentioned, have been further compounded by the recent floods. Has your government framed any blueprint to deal with these challenges and if so where the funds will come from?

FM:    Yes, we have framed it. Please understand. Budget laid out broad fiscal strategy. The broad strategy that the only way to come out of this morass is that we need to spend. Today we cannot have a conservative fiscal policy. We don’t have the resources, but we will borrow. We will get some from government of India, from other institutions.

It will be a collective effort whereby we ensure that the entire state gets redeveloped and we are able to provide livelihood, incomes to people. A whole series of policies will come out. Tourism policy, industrial policy, agricultural policy, horticultural policy. But this needs some time, because there has been a complete decimation of the institutions.

NB:    The traders are demanding compensation. You in your budget speech laid stress for helping the businesses to revive. But do you think that paultry sums given out to few traders out of CM’s relief fund, would really help businesses revive?

FM:    No. We said let us look at the most vulnerable section first. We began with traders having less than Rs 5 lakh annual turnover. I approached very systematically. We decided to give 20 per cent of the turnover that means the provision for Rs 1 lakh. But then when the administrative machinery went for loss assessment they found the loss was less than Rs 1 lakh.

So the relief was given accordingly. We will move to stage two from Rs 5 lakh to Rs 10 lakh. Again the same procedure will follow: 20 per cent of the turnover subject to a cap of Rs 2 lakh. Then we will go to stage three i.e. Rs 10 lakh and above subject to a cap.

NB:    GST, it is believed, will impinge upon the special status of J&K in the federal structure of the country. Would your government allow its implementation in the state?

FM:    I attended one GST meeting where I took the position that J&K is a special taxation area where we have power to tax services unlike other states and unless that special taxation powers are protected we will not be going for the GST. Number two, under GST regime, we will not be able to incentivize our business and industry.

So depending on these two, we have to figure out what shape and format it takes and the Union Finance Minister concurred with the view saying yes it is up to you to decide whether you want to be part of it or not. Subsequent discussions will happen, where we will see how we can evolve a model which protects our own powers and yet gives us the benefit of a better system.

NB:    It is widely perceived over here that your coalition partner, BJP, is pursuing its agenda and raking up controversial issues like issuing of PRCs, saying no to AFSPA revocation, etc. while the PDP seems apologetic or simply maintaining silence. What is your take?

FM:    See, we spent lot of time in discussing the nature and content of the alliance. Every single matter is listed out in the agenda of alliance. And, I have heard number of times from the BJP that agenda of alliance is the guiding framework for our alliance.

Every coalition does have teething troubles. The NC and the Congress alliance, despite ideologically being very similar, you would see walkouts from the cabinet meeting every third day and what was the track record of that government. Coalitions by nature will have these different elements to it.

We have spelled all items of agenda of our alliance so in that case this is a unique alliance. Some points will turn first and some later, depending on how the situation evolves.