Budget Bravado

If, as the Chief Minister, Omar Abdullah is the Vice Captain of the J&K UT team, then as the Finance Minister he is the 12th man. He will be constrained by two procedural requirements unknown to earlier finance ministers of J&K. First, he needs “Prior Permission”; a prior sanction of the Lieutenant Governor (LG) for legislative proposals which include Bills or amendments that fall in the State List as well as the Concurrent List.

Second, it is binding upon the finance minister to seek a “recommendation” of the LG before moving the Finance Bill, which spells out the “financial obligations undertaken or to be undertaken that impact the Consolidated Fund of the UT”. Also, for any changes proposed to the “imposition, abolition, remission, alteration or regulation of any tax”.

The Finance Bill being the crux of the budget, it effectively means that the LG has to give the nod before the budget is proposed as well as after it is passed by the legislature. Only then do the budgetary proposals come into effect. Hence there is no legislative guarantee to the Budget or any part of it. For even after the Assembly has passed a Bill, the LG can either grant or withhold his assent; or reserve it for the consideration of the President. He can also send it back to the Assembly for reconsideration in line with the Rules of Business.

With such stringent restrictions on authority, it is indeed curious that the Chief Minister should promise to present “Budget by the people, for the people”. Attractive as it sounds, it is hackneyed besides being fanciful. Even if there were no new legislative requirements, J&K’s budget has historically been fiscally very constraining.

The arithmetic of the budget is very simple. J&K government currently earns around Rs 1,00,000 crores annually. It spends Rs 30,000 crores to pay its current employees who are four lakhs plus in number. Another Rs 15,000 crore it pays as pensions to the retired government servants. Rs 10,000 crore is spent on meeting their other requirements: office, housing, car, and other expenses, etc.

Having spent Rs 65,000 crore on its own upkeep, the government must pay Rs 22,000 crore as interest on and repayment of what it has borrowed in the past. So, on salaries, pensions and debt servicing, known as primary expenditure in budgetary parlance, the government spends Rs 77,000 crore every year. In other words, almost 75 to 80 per cent of what the government earns it spends on itself.

The remaining 20 per cent of the budgetary kitty is available “for the people”. Half of which goes to pay for the purchase of power. This leaves the government with Rs 10,000 crores for developmental works in the form of infrastructure like roads, bridges, hospitals, schools, colleges, etc. Ideally, a government spend 25 to 33 per cent on itself and the rest on development.

So, at best the FM has control over 10 per cent of the budget for developmental expenditure. Even that is constrained because a lot of the allocation is linked to the source of financing. It is to be funded by earmarked institutional borrowings like those from the Power or Housing corporations. The point being that there is hardly any policy room to manoeuvre and make changes. Given that the budget can only be incremental on the allocative side, makes it important to be innovative on the policy side.

To talk of formulating an industrial policy and visit states to gather tourists, as Omar Abdullah did on his BBC talk show, Hard Talk with Stephen Sucker, is unimaginative. To position J&K as a potential “industrial hub of India” as was said in the CII summit in Srinagar is a misplaced development strategy. Assuming for a moment that J&K can become the industrial hub of India, should it become so? The strategy of bringing in manufacturing capital into Kashmir, set up industrial estates, build physical assets is flawed. Besides not being lined with where the world is headed. The drivers of today’s economic growth and business prosperity are not physical assets but knowledge products. Value is not being created in production but in distribution. Wealth is being created on digital platforms, not on construction sites.

In a world where Environmental, Social and Governance rule the investment roost, where the carbon credit market is offering better returns than the stock markets, why is Kashmir being dragged back to the age of manufacturing corporates. In the age of fintech and regtech, why is there a premium being placed on industrial units? Especially so, when the J&K economy is “custom-built” for the new-age sustainable economy paradigm.

Unlike the state of government finances, J&K is a resilient rural economy generating Rs 2.5 trillion of income per annum. More than two thirds of this income comes from an egalitarian subsistence agricultural sector, a vibrant commercial farm economy, a diversified artisanal eco-system and a thriving trade sector. All except the first being export oriented. The crafts economy has urban agglomerations which together with the rural artisans drive the tourism related retail trade as well as domestic and international exports from the Valley. No denying the fact that a key driver of the economy continues to be public expenditure.

Instead of becoming a part of the national and global network in the future-centric and value-accretive sectors, why should one choose to make an industrial policy, give incentives and forgo revenue to retrofit the structure of the economy to an industrial economy? In a recent column, “Tale of two deals”, I had highlighted how a horticultural enterprise gets better valued than a manufacturing factory because it is sustainable. The investment market places a premium on sustainable sectors and discounts manufacturing that pollutes.

As such, more than yet another “new” industrial policy what is needed is a macroeconomic growth strategy. There is a serious and significant difference between the way in which economic growth and development of J&K has been pursued for the better part of 70 years and the way it should be done in the interest of the local stakeholders. It is the responsibility of the elected government to make the local stakeholders the prime movers of the economy.

When Omar Abdullah rises to present the Budget on the 7th of March, he should talk less about the budgetary numbers which are largely predetermined. Instead, he should articulate a governance for growth strategy with initiatives which test, nudge, and enlarge the boundaries of the UT government’s legislative competence. To push for dramatic confrontations that are newsworthy and call attention to themselves is the job of the opposition. When the ship of state has been aground, the elected government’s attention must be directed to the shipwreck not to the acts and actors that did it. It is not a clash of personalities, but a conflict of ideologies and interests.

The author is Contributing Editor Greater Kashmir