Of fiscal consolidation and correction

Greater Kashmir

Srinagar, Jan 16: The budget 2008-09 presented in the state assembly today has come amid certain positive pointers like a fully funded Rs 4500 crore budget, an enhanced Rs 25,834 crore 11th five year plan, a considerably good revenue growth and a little bit containment of expenditures in the state. With these positive indicators should we believe then the state is limping towards the goal of fiscal correction and consolidation? Let us try to find out the answer. 
 To begin with, our experience with past budgets is not too healthy. Besides the critical challenges in economic and social areas hobbling state’s overall growth – that we continue to grapple with – the successive budgets while failing to forecast the formidable challenges emerging in a weak economy, like we have in J&K, did not devise long term measures as would strengthen and create self-sufficiency element in the state economy.
 With budgets losing sight to trigger internal resource mobilization and contain unproductive expenditures, the dependency syndrome in J&K economy has seen a sustained elasticity.
 Even as the current fiscal has made a positive shift in terms of enhancing the internal revenues, the burgeoning fiscal deficit that represents the growing borrowing requirement of the government continues to be an area of concern. Despite some increase in the state’s own tax revenue and share in central taxes, the outstanding liabilities as per cent of the gross state domestic product were at 60 per cent in previous fiscal. No wonder then J&K is far from achieving the goal of posting a revenue balance and reducing the ratio of gross fiscal deficit-gross state domestic product to three per cent by 2009-10 set forth by the twelfth finance commission while stressing for fiscal correction strategy in the states.                                                                                                              
 The two areas of concern other than the power where the liability has witnessed a sustained increase over the years are the pension and interest payments. While the interest payment and serving of debt in 1973-74 stood at Rs 14.75 crore, this increased to a whopping Rs 1100 crore in 2004-05. Similarly the pension liability grew from a mere Rs 1.58 crore in 1973-74 to Rs 630 crore in 2004-05.                                                                                           
 The interest payments as percentage of total revenue expenditure have  hardly seen any decline. While in 1998-99 the percentage of interest payments to total revenue expenditure stood at 13.54, in 2006-07 it was at 14.03 per cent. The budgets have hardly contained this growing liability. Even as the liabilities as percentage of gross domestic product have seen a decline from 81 per cent yet in 2006-07 it was at 60.1 per cent. From the gross fiscal deficit of Rs 96.6 crores in 1995-96, it escalated to over Rs 1200 2006-07.
 The recent economic survey has rightly underlined the main areas of concern viz. unemployment, high power deficit, law rate of investment in agriculture. The finance minister recently said more than the fiscal deficit what concerns “us all is the huge infrastructure deficit.”
 To have an idea of our infrastructure deficiency, two examples would do: When it comes to the road length – an enhancement of 1000 kilometers road length augments the income of the people by Rs 1000 – J&K has just 35.17 kilometers road length per 100 square kilometers. Similarly the state is facing the health infrastructure deficiency that the previous budgets have hardly sought to make up. We have just 111 hospital beds for the one lakh population and the ratio of doctors is 48:100,000.
 It is not just that low outlays have gone into infrastructure development, we have also been lagging in social sector development. While in 1996-97 the social sector expenditure to total expenditure was 34.6 per cent, it declined to 28.2 per cent in 2006-07. When it comes to agri-sector, the position is no encouraging. With our failure to transform our archaic agri-based industry into a modernized one, the state’s production capacity has come down considerably. Not that alone, we have quite little to celebrate about other allied sectors including animal husbandry, milk supply, diary, forest and soil conservation and fisheries.
 While over past some time the government has sought to mobilize the resources within the state, yet the populist compulsions have restrained it from going a whole hog. The entertainment industry for example, which indeed is buzzing in the current world has hardly added anything to the state kitty. Over the years the realization in this sector has dwindled. While in 1998-99 the entertainment tax realized by the state was Rs 3.27 crore in 2004-05 it was just Rs 86,000.