A financial crunch

Print edition : December 11, 1999

IF, in metaphorical terms, the road to peace in Jammu and Kashmir is riddled with potholes, an economic crisis has ensured that its highways are not in any better shape in the physical sense. All but the most token development activity, mostly in the for m of a few central government schemes, has come to a halt. And if something is not done to solve the problem soon, says Chief Secretary Ashok Jaitley, things will get worse. He said: "After February, we will be unable to repay debts, or give government e mployees their salaries."

The problem is straightforward. There is this year a gap of some Rs.1,200 crores between revenue and expenditure. Of this, Rs.550 crores is needed for pay hikes prescribed by the Fifth Pay Commission, and another Rs.675 crore is accounted for by losses f rom electricity supplies. The State has taken an overdraft of Rs.950 crores from the Jammu and Kashmir Bank, on which it is paying interest at rates ranging from 14 per cent to 17 per cent annually.

The State also has several additional liabilities imposed by its special security-related circumstances, which it wants the Union Government to meet. Since 1988, Rs.300 crore has been paid out in salaries to the Kashmir Pandit employees who left their jo bs in the Kashmir Valley and are living elsewhere. And another Rs.400 crore has had to be paid to employees of public sector units in the State which closed down amidst the violence.

State Government officials argue that the problem is not one of their making. The overdraft, for example, rose from Rs.80 crores in 1989-1990 to Rs.650 crores in October 1996, when the National Conference came to power. Then, State Government employees w ere granted salary parity with their Central counterparts in 1992, when Governor's Rule was in place. "I'm not saying that we haven't contributed to the problem," says Jaitley, "but when New Delhi says this is a crisis of our own creation, it's just not true."

The Chief Secretary points to losses on account of electricity supplies, for example. For ten years, when this government was not in power, people weren't made to pay their bills. Jammu and Kashmir has hiked power tariffs three times in three years, more than any other State in the Union. Consumers are reluctant to pay, in part driven by habit, but also because supplies remain unpredictable and voltage is erratic. Supplies cannot be improved until the State can buy more electricity, which it can do only if it receives aid.

UNION Finance Ministry officials, however, insist that the Jammu and Kashmir Government can do more than it has been doing in order to ensure efficiency and end corruption. The report of the Comptroller and Auditor General of India, presented in October 1999, is a depressing chronicle of just how endemic financial mismanagement and outright fraud are in the Jammu and Kashmir Government. The State Government did not help its own case by refusing to share, during earlier negotiations, accounts for securit y-related expenditure, a move which fuelled suspicion in New Delhi.

Incidents such as the recent crash of a State Government helicopter, which will cost some Rs.22 crores to replace, have not helped matters either. It turned out that the helicopter was flying without insurance cover, carrying private visitors to the Stat e on a pleasure trip. Even the pilot's professional credentials have come under question. And Farooq Abdullah's decision to spend some Rs.50 lakhs on improving the facilities of Srinagar Golf Club at a time of financial hardship has not won the Chief Mi nister many friends.

State Government officials believe that New Delhi will help Srinagar tide over the immediate Rs.1,200 crore-deficit, and claim to have Union Finance Minister Yashwant Sinha's support for this. But a short-term bailout will not solve the central problem o f poor revenues. Sharp increases in excise levies and taxes have already fuelled widespread protests, and further increases on this front seem improbable. Recommendations for a drastic downsizing of the bureaucracy and public sector units, made by an off icial committee headed by Madhav Godbole, do not appear politically workable either.

One solution being discussed is for a dramatic increase in Jammu and Kashmir's huge hydroelectric capacity, which would make it possible for the State to sell power. Officials in New Delhi had been reluctant to grant counter-guarantees for four proposed projects, pointing to the somewhat opaque credentials of the State Government's proposed overseas collaborators. Matters appear to be progressing on this front, with proposals having been put out for the projects to be jointly managed by the Jammu and Ka shmir Power Development Corporation and the National Hydro Power Corporation. Revenues from such projects, however, are obviously some distance away.

MEANWHILE, Jammu and Kashmir is demanding that its status as a Special Category state, as designated in 1990, be given retrospective effect. In the case of Special Category States, 90 per cent of their Central assistance is treated as grant, and the rema ining 10 per cent as loan. Until 1990, Jammu and Kashmir received just 30 per cent of its assistance as a grant. Special Category status was granted to other States in the mid-1970s, and the demand for Jammu and Kashmir to be given the status with retros pective effect was endorsed by the Assembly. It unanimously passed a private member's bill moved by CPI(M) leader Mohammed Yusuf Tarigami.

Whether any assistance will materialise at all, however, is unclear. The Bharatiya Janata Party MP for Udhampur, Chaman Lal Gupta, has been insisting that the National Democratic Alliance Government will not underwrite inefficiency, and Union Home Minist er L.K. Advani announced on November 31 that no special package had been framed for the State. Chief Minister Farooq Abdullah's Government has been no model of economic competence, but it is also clear that its problems are neither unique to the State no r all of its own making. Should Jammu and Kashmir be made hostage to the BJP's factional compulsions, its consequences are certain to be more serious than those that any number of Lashkar-e-Taiba terrorists can impose.

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