Not a crisis, it is a humiliation

Not a crisis, it is a humiliation

Jammu & Kashmir’s present financial situation demands an urgent political response to address three fundamental issues: financial autonomy, economic policy and administrative reforms

In a book project of the US Institute of Peace in early 2000s, an Indian-origin co-author disagreed with my view that financial collapse could be one of the possible scenarios that could undermine peace and stability in Jammu & Kashmir. He recommended deletion of portions of my essay, leaving the analysis weak and hollow. In disagreement, I walked out of the project.

Today, in 2015, J&K is facing a dire financial situation, bordering a systemic collapse. This is not an unexpected situation; it was only about time for this to happen.  

To be clear this is not an entirely new situation. The flow of plan funds from the Government of India (GoI) to J&K for a while now has remained erratic. The reasons are political as well as systemic. But if the structural reasons are glossed over for symptoms for a longer time, a complete collapse is not too far. 

Today’s situation is that the state needs money to run its normal business, but its treasuries are dry. In the first 10 months of the financial year, the state is said to have received only 40 percent of the funds from the GoI. While some of the withheld money may constitute retrospective liabilities, quite naturally, a significant chunk would remain unspent. For a state hard pressed for finances this is a terrible loss. 

The structural contours of the financial relationship between New Delhi and Srinagar are highly questionable for its quality and rationale. The cycle of plan projections, proposals, approvals, spending and financial disbursement is highly flawed. While political judgment in the process does play a role in the malfunctioning of the cycle, it is also the quality of the proposals, the details and the quality of the delivery within our state that doesn’t help the process. 

So what are the options? J&K today wants the union government to release the money due to it, but political and systemic reasons don’t allow that. Short-term borrowing would not be possible because it has been clipped of the powers to do so. This situation – even if it is short term – represents a collapse. It is a collapse of the political contract between J&K state and the union of India. It is a collapse of the financial system that is flawed to the core. 

J&K state cannot afford to go with this situation indefinitely. It is a humiliation for a people of dignity and self-respect. For changing this situation our political parties must demonstrate an agenda of action to address three critical areas – financial autonomy, economic policy and administrative reforms. 

Financial autonomy

It is not unusual for countries and federal constituents to face a mismatch between income and expenditure. Jammu & Kashmir is no exception. However, countries and federal constituents are normally supposed to have various instruments at hand to overcome the mismatch. Jammu & Kashmir state is in a crunch situation today because its autonomy to explore alternatives has been taken away, leaving it with little or no room to maneuver. Its taxation powers have been constrained. Its ability to raise money from financial markets has been significantly curtailed. The option of borrowing short-term money from J&K Bank doesn’t exist anymore because that option has been taken away by the Reserve Bank of India. 

There are some gentlemen who say that ending the J&K Bank arrangement was “necessary” because it had created a situation of gross financial indiscipline. Although that is partly true but centralization of powers is no substitute to systemic corrections. 

This is a highly difficult situation. While a section of policy makers and political establishment in New Delhi see this situation “essential” in political micro-management” in the state, it is not going to help in establishing a workable Srinagar-New Delhi relationship that is based on mutual respect and dignity. 

Today Jammu & Kashmir is a special state within the Indian union in that it doesn’t even enjoy the powers that normal states in India have. It is in a state of statelessness. It is a moment of truth for the state’s political parties, especially those that are poised to form the new government. The key political agenda before the political parties today will have to be the redemption of the political autonomy necessary to end this situation of humiliation.  

Economic policy 

Despite a sea change in the structure of Jammu & Kashmir’s economy and the socio-economic landscape, successive state governments have shown little inclination for policies that suit our economic situation. Our economic policies continue to revolve around creating conditions of people’s dependence on the state. Our economic policies need to be focused on facilitating economic activities that encourage innovation, greater productivity and limited government control and ted-tape. The latter course is our only choice because we will not be able to create job and economic opportunities for the ever-increasing educated youth in the government system. That course is also necessary because as much as we need jobs we need greater tax revenues for the state. 

In the last days, the NC-Congress coalition went for an overkill of freebies. In an era where governments are supposed to be lean and efficient, creation of additional administrative units was a regressive step. It has added a huge fiscal burden to the state, with little or no positive impact on economic productivity. J&K’s political parties must disengage from such policy course, and try to make our government administrative systems leaner. 

Administrative reforms 

One of the reasons, we learn, that financial disbursements from the GoI to J&K state are delayed is because the state is unable to produce Detailed Project Reports (DPRs) and Utilization Certificates (UCs) in time. J&K needs a government administrative system where targets are meant to be achieved in time and efficiency. We need to re-focus emphasis on quality delivery and say good-bye to the culture of seeking waivers based on lame excuses. Efficient delivery is always treated with respect. Excuses may gain sympathy, but they are humiliating.

We need to create conditions in which our government systems are able to produce cutting edge detailed project reports (DPRs) in tight situations. We need a system that thrives on robust and evidence-based delivery reporting.  It is a pity that much of the Rs 1000 crore sanctioned by the GoI for the flood-victims could not be used because the State government did not send any Detailed Project Reports (DPRs) to the GoI in time.

This situation, in a nutshell, demands a paradigm shift. Business as usual is no option anymore.