J&K: The Economics of Dependency

J&K’s Budget for 2025–26 provides an important window into the region’s fiscal stance and the broader dynamics of economic governance. On the face of it, the macro-fiscal aggregates suggest relative stability. There is an estimated Gross State Domestic Product (GSDP) of ₹2.88 lakh crore, a revenue surplus of ₹10,826 crore. However, the fiscal deficit warrants careful interpretation. While the Budget Analysis places the deficit at 5.6% of GSDP, the Budget Speech reports a substantially lower estimate of approximately 3.0%. This gap indicates differing interpretations of deficit components, and therefore the fiscal position should be understood with these methodological variations in mind.

Yet under this apparent discipline lies a structural imbalance. We witness a public finance model heavily sustained by central grants and deeply constrained by the rising cost of governance.

A Budget of Two Natures

The budgeted net expenditure for 2025–26 stands at around ₹1,06,641 crore. Of this, ₹79,703 crore, which accounts for roughly 75%, is allocated to revenue expenditure. These are funds that cover the day-to-day running of government machinery: salaries, pensions, interest payments, subsidies, and upkeep. Only ₹26,836 crore (approx.) is dedicated to capital outlay, which includes investments in infrastructure, social services, and public assets. The tilt toward revenue expenditure persists under the post-Article 370 UT administration, even as fiscal autonomy remains limited.

According to data from PRS Legislative Research, committed expenditure in the form of salaries (₹23,894 crore), pensions (₹15,300 crore), and interest payments (₹11,518 crore) totals ₹50,712 crore. This is about 56% of the J&K’s total revenue receipts. In plain terms, more than half of J&K’s total revenue receipts are consumed before a single rupee is spent on development.

The Central Lifeline

A key feature of J&K’s budget is the overwhelming role of the Centre in keeping the financial engine running. For 2025–26, J&K expects to generate ₹31,905 crore through its own taxes and non-tax revenues. This is a modest 35% of total receipts. The remaining ₹58,624 crore is to come from central grants which is roughly around 65% of total revenue. This support includes routine grants, special assistance, and centrally sponsored schemes (CSS), which collectively form the financial backbone of the Union Territory.

An additional ₹17,000 crore in one-time central assistance was allocated in 2024–25, including ₹12,000 crore for police modernization and ₹5,000 crore as a special grant. These allocations are welcome but they underscore the absence of fiscal self-sufficiency and the dependence on Delhi not just for big-ticket investments, but also for basic administrative continuity.

The CSS framework plays a significant role in J&K’s social sector expansion. Flagship schemes like PMGSY (rural roads), Jal Jeevan Mission (household tap connections), and PMAY (housing) have driven visible change. However, several CSS projects face bottlenecks in timely implementation, owing to weak administrative capacity, delays in matching contributions, and inconsistent monitoring.

The Price of Bureaucratic Governance

J&K has long carried a reputation as a bureaucratic economy. This is not a criticism of its civil servants, many of whom operate under demanding circumstances, but a reflection of how governance has evolved in the absence of vibrant private sector growth. The public sector remains the largest employer, and the salary-pension bill reflects that.

More than a third of the entire budget (35%) is spent solely on employee compensation. While this ensures a stable income base for thousands of families, it also creates a fiscal drag. New investment opportunities, infrastructure needs, and social sector gaps are frequently left underfunded because the operational costs of the state consume most of the resources.

The electricity sector is another clear example. Despite annual allocations of thousands of crores, the UT still imports power heavily, and power purchase dues accumulate. In the 2025–26 budget, around 8% of total spending goes to servicing power bills. Unless generation and distribution are restructured, this will continue to be a recurring liability.

Revenue Improvements and Reforms

The administration has introduced measures to widen the revenue base. Improved GST compliance, digital property registrations, and excise reforms have contributed to a rise in own-tax revenue. The rollout of e-stamping and expansion of municipal taxes has further enhanced collections. However, these reforms, though effective in form, have yet to bridge the fundamental revenue-expenditure gap.

The current strategy seems to be one of controlled dependency. While capital spending remains constrained, J&K has managed to maintain a revenue surplus and limit fiscal deficit within the Fiscal Responsibility and Budget Management (FRBM) target. That’s not a small achievement in a centrally-administered territory still sailing through political transitions.

The Development Dilemma

The trade-off between immediate operational stability and long-term development is at the heart of the budget’s tension. In theory, capital expenditure should be prioritized. It builds roads, hospitals, schools, irrigation networks, and internet infrastructure. It generates jobs, boosts productivity, and creates public wealth. In contrast, revenue expenditure, while essential for functioning, rarely leaves behind assets.

But in practice, for J&K, cutting revenue expenditure is not easy. Reducing salaries or pensions is politically unviable and socially destabilizing. Skipping interest payments risks downgrading borrowing capacity. Slashing power subsidies affects already fragile rural incomes.

So, what’s the way out?

J&K’s path to a more development-friendly budget lies in two parallel tracks. One is internal revenue strengthening and rational expenditure control. This includes expanding the tax base (especially property and professional taxes), modernizing utility billing systems, incentivizing private investment in tourism and horticulture, and pursuing public-private partnerships in infrastructure.

At the same time, administrative reforms including leaner bureaucracy, better procurement processes, and digitized monitoring can bring down the cost of governance without harming public services.

The 2025–26 budget doesn’t present a transformational shift, but it reflects a UT in transition. The fundamentals are under control. There is no reckless borrowing, and revenue leakages are being plugged. But the bigger concern that remains is how to shift from a consumption-heavy fiscal model to a productive, investment-oriented one.

With central support likely to continue for the foreseeable future, the administration has a window of opportunity to gradually rebalance its priorities. The ultimate test will not be fiscal compliance or accounting neatness, but the ability to create visible, meaningful improvements in people’s lives.

This budget may not be a game-changer, but it is an important mirror. It reflects where J&K stands today—dependent, functioning, yet fiscally constrained. The coming years will test whether Jammu and Kashmir can shift from merely sustaining governance to actively driving development. That will require not just better budgets, but better delivery.

A state’s economy grows not from balance sheets alone, but from the confidence it inspires in its people and the opportunities it creates in its streets, schools, farms, and factories. The next budget must show whether it can pivot toward something more ambitious or continue this path.

Malik Daniyal is a final year Economics student at Delhi University. He regularly writes on J&K’s economic issues.