Industrial Policy-2016

Implementation real challenge

BILAL HUSSAIN

The recent Industrial policy-2016 aimed at ten years from now, encompasses many such initiatives that normally should be part of any policy, which should be considered as half job done, however, the challenge that Jammu and Kashmir faces is the implementation of these strategic documents. Most won’t disagree that non-serious approach by the concerned departments and agencies are the main reasons for the failure of these vision papers.

Over the years the state has crafted and drafted many such policies for lots of sectors however, the lack of monitoring and control mechanism on regular basis on ground dashes them to zero. The present industrial policy could go a long way provided the inclusion of monitoring and control mechanism could have been laid down in the strategic document.

What has to be transformed is the way government departments function in the state as the result of which the industrial sector has suffered in Jammu and Kashmir. The state officials at the helm of affairs have to rethink and work on fixing responsibilities in the concerned departments and then expect the desired results according to the new policy.

Another tragic arrangement that mars the industries in the region is the inter-departmental functioning in the Industries and Commerce Department of the state.  The Industries and Commerce Department of Jammu and Kashmir came into existence in the year 1970 with four Directorates, eight Corporations and four training institutes. The Directorates are as Directorate of Industries and Commerce, Directorate of Handicrafts Development Department, Directorate of Handloom Development Department, and Directorate of Geology and Mining.

The Directorate of Industries and Commerce was further bifurcated in the year 2007 into two Directorates i.e One for Jammu Division & other for Kashmir Division. The corporations/Boards are SIDCO, SICOP, J&K Handicrafts (S&E) Corporation, J&K Handloom Development Corporation, J&K Cement Ltd, J&K Minerals ltd., J&K Industries, J&K Khadi & Village Industry Board. Training Institutes are: Craft Development Institute, Indian Institute of Carpet Technology, J&K Entrepreneurship Development Institute, School of Designs. The policy makers have to ensure that the concerned departments work cohesively in order to make the new policy successful on the ground else like other vision documents it will meet the same fate.

Besides non-seriousness, lack of monitoring and control mechanism, improper implementation and missing cohesion among the concerned departments; what astonishes anyone is the manner policy targets are set like: ‘To increase the share of manufacturing, services and trade sector in Gross state Domestic Product’ the document misses to mention by how much percentile? Likewise, to attract an investment of at least Rs 2,000 crore per annum in the industrial sector including services, and creation of 15,000 direct and indirect employment, however, the policy document misses how it will be achieved and why Rs 2,000 crore and 15,000 jobs only or why not settle with lesser number,  what is the basis for such calculations? It will be hard to palpitate but the fact is the policy makers have to learn to be honest and truthful with the figures and should be convinced with what they are talking about, not merely to fill blanks with the magic numbers which then never sees the light of day and fool around the commoners.

Agreed that the state has come a long way for decades now however, still long has to be achieved; I am not being cynical or pessimist, however, over the years I have learnt that the society and the state at large can only be developed when proper foundation are laid in the system and the system is to be followed by one and all. And the leaders have to lead by examples.

Commit CSR Spending to J&K

BILAL HUSSAIN

With the India Inc. gearing up for mandatory Corporate Social Responsibility (CSR) regulated by Ministry of Corporate Affairs, the nonexistence of corporates in Jammu and Kashmir makes it lackluster here.  Like other developmental phenomenon in rest of India, Kashmir will hardly get its share and benefited from the CSR activities.

It is estimated that a massive amount of about two billion dollars will be involved in the CSR spending. CSR spending is expected to reflect values of a corporate while fulfilling the societal and environmental requirements.

In late February 2014, the Ministry of Corporate Affairs, Government of India notified rules under the Section 135 of Companies Act 2013 for CSR spending which will be effective from 1st April 2014. Under the current legislation, certain classes of companies have to shell out at least 2 per cent of their three year annual average net profit towards social welfare activities.

As per the provisions of section 135, a company with turnover of INR 1000 crore or more or a net-worth of INR 500 crore or more or net profit of INR 5 crore or more in any financial year shall constitute a CSR Committee and would be required to spend at least 2 per cent of their average net profits of the past three years on CSR activities. If for any reason a company is unable to do so, they would be required to explain the reason for that. An annual report on CSR activities must be included in the Board Report of a company spending on CSR.

According to an estimate by the Ministry of Corporate Affairs, companies could end up spending up to INR 30,000 crore on CSR activities following the new recommendations. While, Ernst & Young, the audit and advisory company, estimates that the law would cover about 3,000 companies in India and about $2 billion of expenditures on CSR activities. Even at that rough estimate, the BSE-500 companies would have to shell out around INR 8,000 crore.

The type of CSR programs a company should focus on could be based on its core competencies and institutional capacity, and its ability to excel in either philanthropic activities or transformative ecosystem CSR efforts.

Given the scenario, the corporates that fall in this ambit should take due care of left out geographies while drafting the CSR strategy and achieve all inclusive growth and sustainability across India.

The top executives in the corporates have to understand that success is difficult to evaluate, especially when corporates try to connect the CSR initiatives with company’s profit-driven goals. The various decision makers initiating CSR programs will face these difficulties while trying to make that connection, because attempting to measure the business advantage of charitable endeavors would decline their authenticity. However, the corporates in India have to realize that CSR initiatives may be more important than quantitative measurements of their effectiveness.

Mention to be made, there are only few global humanitarian aid organizations operating in Kashmir: Actionaid International, Médecins Sans Frontières [MSF], Handicap International [HI], Save The Children [STC], International Committee of the Red Cross [ICRC] to name a few. Coupled with not so good financial wellbeing of developmental organizations here worsens the situation.

A regulatory rider by Ministry of Corporate Affairs for equitable distribution of CSR spending in terms of geographies would have ensured all-encompassing support to ignored regions like: Jammu and Kashmir. However, in the prevailing legislation legally none of the companies is bound to have CSR spending as per geographies. Now, the onus is on top executives of these corporates to see that Kashmir gets its due share as the state is considered as consumer market for many of their products and services.

Kashmir and Child Friendly Schools

BILAL HUSSAIN

For many children schooling is not always a progressive experience, some face tough conditions like missing or inadequate teaching resources or poor sanitation facilities, while others lack competent teachers and appropriate curriculum. Still others may be forced to struggle with discrimination, and harassment. These conditions are not conducive to learning or development, and no child should have to experience them.

In such a scenario, there is little point in providing the opportunity for a child to enroll in school if the quality of the education is so poor that the child will not become literate or numerate, or will fail to acquire critical life skills.

Future success of the child-friendly schooling initiative depends on whether it truly lives up to the ideal of extending quality education: schools with child-centered teaching practices; a safe, healthy, protective, inclusive and gender-sensitive environment; academically effective and involving of children, parents, teachers and the community at large in a more comprehensive and coordinated manner.

Current Situation

According to District Information System for Education (DISE) Survey 2011-12 and Annual Status of Education Report (ASER) State Report:  14 percent of schools in Jammu and Kashmir comply with the norm of Pupil-Teacher Ratio that is 30:1, the best in class is 11 for Sikkim and the worst is 59 for Bihar. While Pupil-Teacher Ratio for All India average is 30.

The state is also ranked worst by the report (2011-12) that reveals that 52 per cent of schools in the state have facility of toilets and only 32.7 percent have toilets facility for girl students which is considered as worst in the class at all India level.

What is needed is right to quality education that will work for every child and enables all children to reach to their full potential. Educational institutions in Jammu and Kashmir should study various educational models – Child Friendly Schools – globally having multi-dimensional concept of quality and addresses the total needs of the child as a learner.

Recently, a survey by the Jammu and Kashmir’s Education department has revealed that a large number of children in Kashmir have never attended a school while many have dropped out due to poor economic conditions of their families.

The survey has found that in Kashmir, children especially girls continue to remain engaged in domestic chores while several families desist from enrolling their children in schools due to poor economic conditions. According to government officials, there are nearly 15062 children in the age group of 6-14 years who have never enrolled in schools while 11925 children have dropped out.

Existing schemes

The state government is running schemes like Kasturba Gandhi Balika Vidyalaya(KGBV) and Beti Anmol scheme to improve the retention rate in the schools. Under the KGBV scheme the girl students are provided free boarding and lodging facilities besides day-to-day expenses as an incentive to continue their studies. And under the Beti Anmol scheme a girl child is given Rs 5000 each for continuing with the post-matric education.

In addition to it the government is also running mid-day meal scheme under which students are provided nutrition to retain them in the schools. However, despite these schemes people continue to evade sending their children to the schools. Need of the hour is credible organization like UNICEF and STC should undertake a research and study the implementation of such schemes and loopholes in them.

Major challenge

The state government has to sees this as a major challenge to their efforts to improve the literacy rate in the State. The children continue to evade schools despite many government schemes under which incentives are provided to them to continue education. What is needed is find answers and reasons for such a behavior. And I think child friendly schooling model can address the challenge.

Fading food in J&K

Next govt: reducing imports to half by 2020

Bilal Hussain

Though it might seem sarcastic to most that food security of Jammu and Kashmir is at serious threat however, patterns and figures present a gloomy picture of the state. Apparently there are almost negligible signs of starvation deaths and malnutrition widely here which gives a false sense of food security.

According to the World Food Summit of 1996 that defines food security as existing “when all people at all times have access to sufficient, safe, nutritious food to maintain a healthy and active life”. Commonly, the concept of food security is defined as including both physical and economic access to food that meets people's dietary needs as well as their food preferences.

According to an estimate that puts the quantum of annual imports of mutton, milk and poultry to the tune of Rs 700 crore, which gives a notion about the quantum of imports particularly food items to the state. This huge dependence on the food imports makes the state most vulnerable in terms of food security.

The imports are not limited to mutton, milk and poultry items only but the state gets bulk of agricultural produce as well. The main reason for this is due to the decline in the share of agriculture and allied sectors towards GSDP that has gone down from 56.64 per cent in 1970-71 to 32.58 per cent in 2000-01 and 21.12 per cent in 2009-10 and further to only 19.36per cent at constant prices. Less contribution of agriculture towards state economy is attributed to the factors like: Low Seed Replacement Ratio (SRR) in case of High Yielding Verities (HYV) of major crops is yet to surpass 15 per cent in comparison to the national level SRR of above 25 per cent . To sustain continuous growth in productivity, seed management plays a crucial role.

The agriculture sector faces challenges on many fronts. On the supply side: the yield of most crops is not improving. It needs to mention that yield of food grains is stagnant at around 16 quintals per hectare based on last four years average figure. Regarding some cases it fluctuates downwards. The cultivable area is about 8 per cent of geographical area and 34 per cent of the reporting area, net area sown constitutes only 30 per cent of the reporting area. The scope for increase in the net area sown is limited rather bleak. Farm size is continuously shrinking.

Availability of irrigation facility is restricted to 44 per cent of the net area sown and 56 per cent is still a rain fed area. A major constraint to the development of agriculture in J&K is the fact that only 50 per cent of the ultimate irrigation potential of the state has been harnessed.

J&K is also deficient in rainfall: development of irrigation potential in the state becomes necessary for reducing dependence on import of food-grains and other agricultural products.

Inadequate double cropping- due to lack of irrigation facility in some areas and climatic difficulty in others places. Only 56% of the net area is sown more than once.

Small size of land holdings: 94 per cent of the land holdings fall in the size class of less than 2 hectare. More importantly the average holding size is 0.67 hectares as compared to 1.23 hectares in India as per latest agriculture census. Inadequate research in the field of agriculture in the state and inadequate Agricultural Finance facilities further aggravates the problem.

As a part of food habit, per capita consumption of meat, poultry items and milk is higher in J&K state than all India, but the state is deficient in meat, poultry, eggs and milk production thus making state to heavily rely on imports from other states. Due to mismatch in demand and supply of mutton, the import of sheep and goat is continuously increasing. The import of sheep & goat has increased by 71 per cent when compared with such import figures of 1995-96.

The state spends annually an average Rs 700 cr on the import of mutton and poultry from other states. Given the resources constraint nature of the economy, the state cannot bear this flight of capital.

The Jammu-Srinagar Highway is the only lifeline that connects the state to the rest of India. Of late the government has taken the initiative of creating an alternate highway via Shopian-Bufliaz popularly known as Mughal road. The project is expected to be completed by 2013 under the Prime Ministers Reconstruction Plan (PMRP), lets be optimistic on it.

All I could think of that the state on priority should do is to employee latest technology for of high yielding varieties to different crops like Paddy, Wheat, Maize etc. Organic Farming needs to be encouraged. Increasing seed replacement rate from the current rate level of less than 15 per cent to national average of 25 per cent. Promoting dry land farming in Kandi area. Ensuring Hassle free credit facilities to farmers and insurance for all crops. Consolidation of land holdings by way of legislation and its strict implementation. Increasing agricultural research by way of establishing of seed testing and quality control system in agriculture. Optimum utilization of existing irrigation potential and creation of additional irrigation potential will define the future course of growth of our agriculture.

The state incurs huge sum on import of meat, poultry, eggs etc annually. If the whooping sum gets pumped back into the economy, it would change the complexion of the state economy. Therefore, there is an urgent need for improving the production and productivity of mutton and poultry to eliminate the gap between the supply and demand in the state.

To promote organized farming and institutions of dairy, poultry and sheep cooperatives, appropriate policy measures and development interventions for promoting livestock sector in the state are required. Extension facilities to far off and backward places, genetic improvement, introduction of hi-tech commercial broiler for enhancing white meat production and dropper breed of sheep to increase the mutton production, proper health cover can help a lot in the pursuit of this goal. Livestock is a fast growing sector and to boost it further, new initiatives in the pipe line need to be addressed with more determination.

The World Food Summit goal is to reduce, between 1990–92 and 2015, the number of undernourished people by half. Millennium Development Goal 1, target 1C, is to halve, between 1990 and 2015, the proportion of people who suffer from hunger. On the similar pattern the state government in J&K should have targets for their respective electoral terms like: reducing imports to half by 2020 at least that would ensure food security for the state.

Top elected officials should ensure 'quality expenditure'

BILAL HUSSAIN

The fact that public expenditure —government spending— has tendency to increase overtime making it imperative to have better spending by ensuring quality expenditure. In a state like: Jammu and Kashmir (J&K) where the public expenditure far exceeds the state revenue, to have quality spending is a must.

The availability of better social and physical infrastructure in the state generally reflects the quality of its expenditure. The improvement in the quality of expenditure basically involves three aspects: adequacy of the expenditure (adequate provisions for providing public services), efficiency of expenditure (use), and the effectiveness (assessment of outlay-outcome relationships for select services).

Efficiency

In view of the importance of public expenditure on development heads from the point of view of social and economic development, it is important for the state governments to take appropriate expenditure rationalization measures and lay emphasis on provision of core public and merit goods.

Apart from improving the allocation towards development expenditure, particularly in view of the fiscal space being created on account of decline in debt servicing in recent years, the efficiency of expenditure use is also reflected by the ratio of capital expenditure to total expenditure (and/or Gross State Domestic Product) and proportion of revenue expenditure being spent on operation and maintenance of the existing social and economic services. The higher the ratio of these components to total expenditure (and/or Gross State Domestic Product), the better would be the quality of expenditure.

In J&K the aggregate of development expenditure under both Revenue and Capital heads varied between 63 and 69 per cent. In absolute terms, it increased from Rs 14874 crore in 2009-10 to Rs 16296 crore in 2010-11 registering an increase of Rs 1422 crore (10 per cent).

The Comptroller and Auditor General (CAG) of India in its latest report mentions that “the reasons for huge variations of Development Capital Expenditure (DCE) with budget estimates was not intimated by the state government.”

The ratio of capital expenditure to total expenditure in Social and Economic Service Sectors during 2010-11 showed a decrease over the previous year. In the revenue expenditure the salary and wages formed the major component within the Social and Economic Services. The share of salary and wage in these sectors instead of coming down had increased during 2010-11 as compared to the previous year. However, the share of operation and maintenance expenditure within the sectors had increased over the previous year which was encouraging, the CAG report reveals.

Effectiveness

The outlay-outcome relationship besides stepping up the expenditure on key social and economic services, enhancing human development requires the state to improve the delivery mechanism to obtain the desired outcomes.

The state government is expected to relate expenditure to outcomes in terms of quality, reach and the impact of government expenditure.

Control

To ensure control of and insight into the performance of agencies, controller units need to be established in most departments. Controlling includes activities such as analysing efficiency, assessing quality, internal and external benchmarking, evaluating user satisfaction and implementing management information systems. Consequently, controlling is an important instrument in rectifying information imbalances between various departments and agencies.

Relationship

The focal point in the state government should be results-based management to have better relationship between various departments, the focus on objectives should not be limited to relationships only. The state ministries should draft explicit mission statements that apply to both departments and subordinate agencies. These statements should serve as a point of reference when agency performance contracts are formed and negotiated. The ministerial mission statements would help in ensuring that agency targets are mutually compatible and supportive, and in line with overall government objectives.

While much is done to co-ordinate and consolidate performance targets at the department level, additional improvements are possible. One approach under consideration is setting outcome targets for departments. Such targets should make it easier to convert intended effects on society into performance contracts for subordinate agencies.

Accountability

An important instrument for holding agencies accountable is the use of departmental head contracts that should contain performance targets focused on three dimensions: agency output, innovation and internal management. Setting targets for these areas of focus means that a broad range of managerial tasks and obligations are taken into account when the performance of a heads are evaluated.

The terms and conditions of the contracts should be negotiated between the secretaries in each ministry and the head of a subordinate agency. Among others, a maximum amount of performance pay should be agreed upon before the contract is finalised. It should be the responsibility of the secretary to ensure that there is a reasonable connection between the level of difficulty in fulfilling the performance targets set and the final performance pay.

The performance pay should be computed on the basis of the degree to which targets and objectives are achieved. An amount may be added to this calculated amount at the discretion of the secretary if s/he deems that the results achieved by the heads are extraordinary.

Framework

To improve the dialogue between agencies and users, targets for government-citizen interaction should be incorporated into the majority of performance contracts. This would ensure both political demand and the use of holistic quality frameworks.

Targets for greater citizen involvement often require agencies to conduct user surveys to determine the level of satisfaction with provided services. The information collected is used to decide how operations should be adjusted to better serve the needs of users. In addition, the views of citizens and users are taken into account when services are developed and public organisations restructured.

The ministry of finance should makes an effort to ensure that user surveys meet high methodological standards and are used to achieve organisational learning; one of its initiatives should be publishing guidelines on how to design, implement and use surveys. In addition, the ministry of finance promotes better management, also stressing the need to make systematic use of responses from citizens to promote organisational learning and innovation.

No more bullying!!! please

Property tax: consult all before taking it forward

BILAL HUSSAIN

The state government habitual of passing legislation without consulting stakeholders which otherwise should have been the priority has acted in similar manner with property tax legislations as well. The government should first have a wide publicity to the draft bill and sought suggestions from the general public.
The controversial bill concerning imposition of property tax —imposed by municipalities upon owners of real property within their jurisdiction based on the value of such property— in Jammu and Kashmir was finally referred to a Joint Select Committee in the Upper House following public outcry over the issue. The bills was aimed at amending J&K Municipal Act 2000 and J&K Municipal Corporation Act 2000 and establishing a Property Tax Board in the state which were already passed by the Legislative Assembly, amid stiff resistance by the opposition.
The Property Tax Board would look into the matters related to the property tax assessments in Urban Local bodies in J&K. The Board is supposed to enumerate all properties in municipalities in the state, develop database, review property tax system, recommend modalities, collect taxes, the Bill said.
The opposition political parties has termed the move as a tax regime that wants to extract money from the people in capital cities and towns. Also, most people in municipal areas believe that there should be uniform tax and it should not be based on the property.
While, valley’s apex chamber and industrial bodies, the Federation Chamber of Industries Kashmir and Kashmir Chamber of Commerce and Industry, too came down heavily on the government for passing a bill for introducing property tax in J&K. Both these apex bodies believe that people in the state are not able to pay routine taxes; paying property tax is far off a cry.
Taxing people for living in their own house that too at times of high inflation and economic downturn in Kashmir is noting but an anti-people move. To own a house in the valley is not luxury but a necessity in Kashmir, the government should realize it.
Although there is a need for financial strengthening of the local bodies in the state to ensure better civic facilities to general public, yet the present economic condition of the general masses didn't allow the government to go for such a legislation.
Instead of the property tax the government could levy taxes on number of service like water tax, drainage tax, conservancy (sanitation) tax, lighting tax, and many others. Going through other municipal experiences what I could sense is that by all accounts, the property tax is under-utilized in the municipalities and not effectively used in the panchayats, mainly due to tax payer resistance.
Like Brihanmumbai Municipal Corporation (BMC) which is lagging far behind when it comes to collecting property taxes. Despite property tax being amongst its major sources of tax collection, along with octroi. Over Rs 6,350 crore of property tax is outstanding in BMC’s accounts as of March 2010. The amount is a whopping 28 per cent of the BMC’s 2011-12 budget.
According to the new legislation, the state government will impose tax on commercial and residential properties across the state. While 10 percent tax will be levied on all commercial properties, 4 percent tax would be imposed on residential properties falling within the Municipal Corporations of Srinagar and Jammu. However, lands up to 10 marlas and residential construction thereon is exempted from tax.
In Municipal Committees only commercial properties will be charged tax with maximum ceiling up to 3 percent. The commercial properties in Municipal Councils will be charged up to 7 percent while residential properties up to maximum of 3 percent.
It is believed that the government earlier in compliance to the 13the Finance Commission recommendations, has introduced the bill to set up a Property Tax Board for valuation, revision and other matters related to the property tax.
The move is also seen as a means to meet the budgetary deficit of the state. The legislation to impose tax on properties is unethical and an anti-Kashmir move. “We oppose it tooth and nail and urge the state government to revoke it forthwith or else face action,” a senior members of the Kashmir Economic Alliance (KEA) —an amalgam of traders and industry bodies, at a press conference omn record has said. “It will cripple the already crippled economy of the state. The implementation of the legislation will not be in the interest people,” he added.
Sensing “regional discrimination” in the legislation, Siraj Ahmad who led the KEA said it is seen that in Jammu people own land of five to 10 Marlas “which has been exempted from tax.” “Therefore it is an anti-Kashmir legislation,” he said. “The Government wants to crush Kashmiris and their economy.”
What needs to be given a serious thought is that are Kashmiris in a position to pay the property tax? The economy of Jammu and Ladakh is better than that of Kashmir. Lakdah has income tax exception which should have been otherwise the case with Kashmir. It is not being against development of any region, but let there be equitable development for all the regions.
Among many other ramification that the legislation is expected to cast shadow on realty sector, which employees huge populace in the state. It would be irrational to go ahead with such a decision without discussing it with all the concerned stakeholders.


HIGHLIGHTS
* 10% property tax on commercial properties falling in Municipal Corporation limits of Srinagar and Jammu cities
* 4% tax on residential properties constructed on land area beyond 10 marlas in Municipal Corporations jurisdiction
* 7% tax on commercial properties falling in the jurisdiction of Municipal Councils
* 3% tax on residential properties in Municipal Councils jurisdiction beyond 12 marls of land
* 3% tax on commercial properties in Municipal Committees jurisdiction

Where is our share? Dammit

Some 30 years ago, J&K was promised a share in the spoils in return for providing land for Thein Dam project. Punjab is yet to honour the promise.


BILAL HUSSAIN

IT IS a classic case of a rich state trampling over the rights of a poor state. Rich Punjab has denied economically poor, but resource rich, Jammu and Kashmir its share in Thein Dam.

Thein Dam, also known as Ranjit Sagar Dam, is located on river Ravi near Thein village and straddles the border of Punjab and J&K about 24 km upstream of Madhopur.

The dam is the product of an agreement signed by then chief ministers of Jammu and Kashmir and Punjab, Sheikh Muhammad Abdullah and Surjeet Singh Barnala, respectively, on January 20, 1979.

The Centre approved the project in 1982 and construction began in November 1985.

The project was initially estimated to cost Rs 500 crore, but by the time it was completed in June 2000 it had consumed Rs 3800 crore. The project began generating power in August 2000.

As per the 1979 agreement, Punjab was to share 1,100 cusecs of water, 20 per cent of the electricity, and 15 per cent of the jobs the project would generate to Jammu and Kashmir. Nearly 30 years on, Punjab is yet to honour the agreement. This despite the fact that J&K provided about 40 per cent of land for the project. On the other hand, Himachal Pradesh, which provided five to six per cent of land for the project, is getting its share of the electricity.

J&K’s share of water would have irrigated 32,000 hectares of land in Jammu and help produce an additional 2,066 lakh tonnes of food grain, besides helping solve the acute power crises. By not honoring the agreement, Punjab inflicts an estimated loss of Rs 1,000 crore annually on Kashmir. Some Rs 100 crore spent by the state on the construction of a canal system have also gone waste. Besides, Punjab owes J&K Rs 2,200 crore on account of compensation for the land, spread over 22 villages, submerged by the dam.

And rubbing salt into Kashmir’s wounds, Punjab canceled all bilateral agreements on sharing of water and electricity with J&K through legislation in 2004.

So now, the J&K government is contemplating legal action against Punjab. However, Punjab, it is believed, could possibly counter Kashmir’s claim on the grounds that it spends money on the dam and also that the latter has not paid its share of Rs 15 crore. But what will come out of the legal action remains to be seen.

Step towards state of dependence

BILAL HUSSAIN

What should be concern for one and all in Kashmir is how New Delhi actively perpetuate a state of dependence by using various means. This influence is multifaceted, involving economics, media control, politics, banking and finance, education, culture, sport, and all aspects of human resource development. The JK government and RBI pact is latest tool that would ensure more economic dependence on New Delhi.

It is not that the pact would bring any kind of fiscal discipline in the state but it is all how J&K is forced to integrate into the New Delhi system. It is doesn't hold any logic as well why the state needs RBI to police them for bringing in fiscal discipline, as is being argued by the state government.

The other argument the state gives for the pact is under the cash management agreement with RBI, the interest rate on Rs 315 crore Ways and Means Advance [WMA] would be only 6 per cent against an interest rate of 10 per cent on an over draft of Rs 950 crore from the J&K Bank. Similarly, under the new cash arrangement, the government has to pay only 8 per cent interest rate above Rs 315 crore WAP and 11 per cent for Rs 630 crore whereas JKB was charging 10 per cent rate of interest for Over Draft [OD] of Rs 950 to Rs 1500 crore and 17.25 per cent for OD above Rs 2000 crores. According to the Finance minister of the state, Abdul Rahim Rather, the government had to pay an interest of Rs 202.40 crore to JKB on over draft in 2006-07, Rs 220.97 crore in 2007-08, Rs 218.86 crore in 2008-09 and Rs 235.17 crore in 2009-10 and Rs 176.10 crore up to ending December 2010-2011. He also claims that under new cash management, the state would be in a position to save upto Rs 3000 crore upto 2015. In short now the government would manage its debt at cheaper rates. However, the cheaper debt to the state is coming at a cost of profitability of its premier financial institution, JKB, wherein JK government is a major stakeholder.

The financial repercussion of the agreement would not only cast shadows on the profitability of JKB alone but it will have implications on the state as well. See how: Few months back the present Chairman and CEO J&K Bank Mushtaq Ahmad presented Dividend cheque for an amount of Rs 56.70 crores to its largest shareholder, state government, the amount was paid as dividend for the year 2009-10. With this payment the state government, which owns over 53 per cent of bank’s stock, has earned a total dividend income of Rs 284.44 crores on its investments. While, in the year 2007, then CEO JKB, Dr Haseeb A Drabu, presented a dividend cheques for Rs 29.64 crores to the state government. As the profitability of JKB is expected to shrinks by the recent move, it would have a corresponding effect on the divident inflow to the state government.

As per the current market price, the investment amount of Rs 53 crore in the JK Bank by the government has appreciated to Rs 2005 crore, which is almost 40 folds increase. To my knowledge, none of the state's investment has yielded as much returns as investment in JKB has achieved. Now, any kind of move that would affect financial health of JKB would in turn mean loss to the state's investment. So, I believe in short run it could mean cheaper debt to state however, the pact in long run is net loss to both state and JKB.

We should not forget significant aspect that the bank is also partnering with the JK government’s economic initiatives for peoples empowerment which includes promotion of entrepreneurship, skill development and employment generation programmes. JKB is also playing a pivotal role in strengthening the economy of the state. The pact could possibly have daunting effect on its economic role here.

Now as far as the JKB's is concerned they say that the state government continues to be the main stakeholder with 53 per cent equity holding. The arrangement between the state government and the central government or between JKB and RBI or the state government in no way dilutes the status of state government or JKB. It must be added that JKB has strong national presence and global recognition as 23 per cent of its equity is held by Foreign Institutional Investors (FIIs). This is could be a step towards dilution of the state's share in the bank, which should be a concern for the top JKB management.

As per the JKB the revised banking arrangement entrusted by RBI to JKB to manage the general banking business of the central government and the state government is in fact the continuation of the existing arrangement. A direct consequence of the revision in the arrangement, all state departments, constituents of the state government shall necessarily have to maintain their official accounts with the bank only, JKB claims. Through this arrangement RBI has, in a way, expanded the role of Bank in managing the banking business of the state government exclusively with the J&K bank and has entrusted the bank with more responsibility, which I doubt. Why should JKB act as agent of someone else while they were doing it well of their own.

The move could also mean outflow of government deposits from JKB in subsequent years that would be a real tough challenge for the bank to live without government support. I think the bank has to re-strategies now and think of a situation where the management has to foresee bank's financial minus government business that would present a true picture of the bank. To mention, as on September 30, 2010 the deposits of JK Bank were Rs 39687.93 crores and advance stood at Rs 23183.34, which would include government advances and deposits as well, which needs to be taken care of.

I would like to conclude it by saying that the pact is not in favor of JKB nor does it provide any long term relief to the state government, the state should rethink over it and then take a call.

Managing debt and economic subjugation

BILAL HUSSAIN

The much talked about agreement between the Jammu and Kashmir government and Reserve Bank of India has two dimensions to be analyzed through: one financial and other political aspect attached to the pact.

The Reserve Bank of India, Central Bank, entered into a supplementary agreement under Section 21A of the Reserve Bank of India Act, 1934 with the Jammu and Kashmir government to carry banking business of the state government. The agreement shall be effective from April 1, 2011. The RBI shall carry on the general banking business of the government of Jammu and Kashmir and act as the sole agent for investment of government’s funds.

It is being said that on the recommendation of the state government, the Reserve Bank of India has entered into an agreement with J&K Bank Ltd. whereby J&K Bank —state’s premier financial institution— would act as an agent of the Reserve Bank of India, for conduct of general banking business of the state government. Earlier, the operations were being transacted and managed through J&K Bank.

Financial aspect

Lets us understand what kind of financial repercussions the agreement would have on the Jammu and Kashmir: now onwards the Reserve Bank of India would grant advances which are repayable within stipulated time frame, thereby enabling the state government to bridge the temporary mismatches in its receipts and expenditures.

While, the existing system was the unique route available to J&K government only, as the JK Bank [JKB] used to provide comfortable position to the state to get overdraft and to bridge the mismatches on account of funds as it usually takes time for the state to receive funds from New Delhi on varied accounts.

In accordance to the RBI Act, 1934 there is mention of that the RBI to transact government business of states on agreement. The Bank may by agreement with the government of any , all its money, remittance, exchange and banking transactions in India, including in particular, the deposit, free of interest, of all its cash balances with the bank; and the management of the public debt of, and the issue of any new loans by, that state, which would mean further dependence on New Delhi.

At present J&K Bank provides an over draft of about Rs 2300 crores to the J&K government. The present move would put the state government in a tight financial position in the long run, as ours is a resource deficient sate, so revenue flow is too little to even serve debt.

Pertinently, as on March 31, 2010 the Jammu and Kashmir government has an outstanding public debt of Rs 25692.05 crores and outstanding Non Interest Bearing Debt as on March 31, 2008 Rs 2834.26 crores and outstanding NSSF loans as on March 31, 2009 was Rs 3158.90 crores.

More importantly the present pact was not something done hastily but it has started at the time the 13th finance commission has recommended conditional fiscal reform grant of Rs 1000 crore for Jammu and Kashmir against the request of the state government for providing it revenue gap grant of Rs 2300 crore to liquidate existing overdraft with Jammu and Kashmir Bank.

The commission's report was tabled by union finance minister Pranab Mukherjee in the Parliament on Feb 25, 2010. It has referred to the fiscal reform proposal of state government wherein it has pledged to invoke ways and means regime of Reserve Bank of India (RBI). For this, the state had requested commission to recommend revenue gap grant of Rs 2300 crore to liquidate existing overdraft with JKB.

From JKB side the agreement would mean an immediate short-run problem. The bank would be in pressing need to look for the means to deploy about Rs 2000 crores in one go. However, at the same time bearing it in mind that the JKB is private bank though having state's major stakeholder, is professionally run and should be capable enough to sail this tide.

The move could also mean outflow of government deposits from J&K bank in subsequent years that would be a real tough challenge for the bank to live without government support. I think the bank has to re-strategies now and think of a situation where the management has to foresee bank's financials minus government that would present a true picture of the bank.

To mention, as on September 30, 2010 the deposits of JK Bank were Rs 39687.93 crores and advance stood at Rs 23183.34, which would include government advances and deposits as well, which needs to be taken care of.

Political aspect

The other dimension to look at the agreement is that it would push the state towards ‘total dependence’ on New Delhi and is a kind of economic subjugation. The state now would have to frequently go to New Delhi with a begging bowl for petty finances as well.

The main opposition party, Peoples Democratic Party (PDP), of the state while reacting sharply on handing of the general banking business and conceding debt management of the state to RBI has said this is the latest and most lethal nail in the coffin of state’s autonomy by National Conference (NC).

According to the party president PDP, Mehbooba Mufti, “the decision is an enslaving mechanism for the state government that is already reeling under the economic deprivation and begging bowl syndrome caused by the sell out of resources by successive NC governments.”

“J&K Bank is not only a flagship financial institution of the state but it represents the ability of our professionals to script great success story” she said expressing her apprehensions that the new arrangement could be the first step towards its liquidation as a state owned company.

Lambasting NC for the move she said, chief minister of the state Omar Abdulaha seems to be dedicated to give up the remaining resources and feared that the banking changeover could prove a huge setback to the state in terms of achieving self sufficiency and economic self sufficiency.

Mehbooba said NC's political history can hardly boast anything by way of institution building, but J&K Bank was perhaps the only prime institution that professionals from the state developed and could be proud of. Not only would the viability and growth prospects of the bank be restricted by this decision, she said there was no doubt that state’s financial position would be massively compromised.

The RBI in its recently issued statement said that the Reserve Bank of India has already been acting as a debt manager to the government of Jammu & Kashmir pursuant to an agreement entered into with the state government under Section 21 A of the Reserve Bank of India Act, 1934, with effect from September 1, 1972.

However, contradicting its own statement, the Reserve Bank manages the public debt of the central and the state governments and also acts as a banker to them under the provisions of the Reserve Bank of India Act, 1934. While these functions become obligatory in the case of the central government (under the Sections 20 and 21), the Reserve Bank undertakes similar functions for the state governments by agreement with the government of the respective state (under Section 21 A). All state governments, with the exception of Jammu and Kashmir and Sikkim, had entered into agreements with the Reserve Bank for the purpose of both the aforesaid functions. These two states have agreements only for the limited purpose of the management of their public debt.

End Piece

The state is in a severe debt trap, the agreements like the recent one would mean further financial dependence. However, what is needed is reformative measures were by the state can at least bring down the public debt to a sustainable levels.

Few years back in one of my writeup I had suggested for setting of a Public Debt Management Office [PDMO] here where the public debt issues pertaining to state could be looked at. It could have meant setting of a separate debt management office which not only would ensure the management of public debt but would look at the acquiring low cost, less riskier debt, portfolio management of the state.

Debt management office would ensure low cost debt to state. This would at least bring down the present unsustainable debt level of the state. PDMO will generate internal sources of funds for state government, which would not only be cheaper but would be risk free as well.

A mess of its own making

BILAL HUSSAIN
The state financial liabilities have long crossed the manageable level, pushing the economy deeper into red. And the government has only itself to blame
Debt ridden Jammu and Kashmir is on the verge of drowning in the sea of financial liabilities. A recent report of the Comptroller and Auditor General of India has revealed that the state fiscal liability for 2008-09 was a whopping Rs 24,287 crore.
Almost every state and country has fiscal liability. However, it becomes a matter of deep financial concern when liabilities grow at a high rate and touch an unsustainable level, as is the case with J&K. The fiscal liabilities of the state increased from Rs 13,038 crore in 2003-04 to Rs 24,287 crore in 2008-09. The growth rate was 13.67 per cent during 2008-09 over the pervious year, which should be a matter of much worry. The ratio of fiscal liabilities to GSDP also increased from 58.82 per cent in 2003-04 to 69.78 per cent in 2008-09. To put the figures in perspective, J&K has crossed the sustainable debt level.
While the buoyancy of these liabilities with respect to GSDP during the year was 1.44, indicating that for each one per cent increase in GSDP, fiscal liabilities grew by 1.44 per cent. The liabilities are 1.70 times the stat’s revenue receipts and 6.90 times its own resources. The financial policy makers and think-tanks of the state at this critical junction should strive for fiscal consolidation, which would involve growth in revenue, reduction in expenditure or at least expenditure growth and other receipts, like disinvestment, smart investments, etc.
A closer look at the investment patterns and returns of the state government presents a gloomy image. As of March 31, 2009, the state government had invested Rs 364.61 crore in statutory corporations, rural banks, joint stock companies and co-operatives. The average return on this investment was 8.60 percent while the government paid an average interest rate 9.7 per cent on its borrowings during 2007-2009. Return on the investment made in these PSUs ranged between Rs 20.62 crore and Rs 40.85 crore during 2004-2009. Returns on investment amounting to Rs 40.85 crore in J&K Bank during 2008-09 was Rs 39.95 crore, on investments in Jammu and Kashmir Cement Limited was Rs 60 lakh and on investments in Jammu and Kashmir Projects Construction Limited was Rs 30.40 lakh. With an average interest rate of 6.91 percent paid by the government on its borrowings, the return on these investments during 2008-09 was 11.20 per cent.
There were 20 government companies (17 working and 3 non-working) and three statutory corporations (all working) under the control of the state government. The total investment made by the state in the working PSUs till the end of March 2009 was Rs 333.24 crore. Out of the 17 working companies, only J&K Bank had finalized its accounts for 2008-09 (September 2009) and earned profit of Rs 409.84 crore for the year. Of the fifteen other working companies, which finalized their accounts for previous years by September 2009, only three companies earned an aggregate profit of Rs 2.51 crore. Of the 12 loss-incurring working government companies, nine ran losses totaling Rs 524.01 crore, which exceeds their aggregate paid-up capital of Rs 67.05 crore.

But despite their poor performance and complete erosion of paid-up capital, the state government continues to provide financial support to these companies in the form of contribution towards equity, further grants of loans, subsidy, grants, etc. According to available information, the total financial support provided by the state to eight of these nine companies during 2008-09 amounted to Rs 32.10 crore.
How long will the state continue to fund the loss making companies? It is public money that is being wasted. The chief minister should without wasting much time start the disinvestment process of loss making PSUs and earn some much needed bucks for the state. Fiscal consolidation to increase revenue can be achieved by increasing taxes and putting a competent system in place to collect it.
While reviewing J&K’s transition from sales tax to VAT, the CAG reports flaks the present system. There was increase in revenue growth after the implementation of VAT in the state, however, revenue per assessee decreased from 0.03 crore in 2004-05 to 0.02 crore in the post-VAT period.
The shortage of personnel coupled with the increased workload after the introduction of VAT was not addressed by the department, which affected the proper implementation, resulting in loss of Rs. 98.10 crore in penalty on unregistered dealers collecting tax and irregularly availing input tax credit of Rs 15.21 crore in five test-checked circles.
Not levying penalty for delayed submission of returns/audit reports resulted in short realization of government revenue amounting to Rs 4.39 crore. Non-verification of the correctness of opening stock declared by the dealer as on April 1, 2005 resulted in revenue loss of Rs 48.03 lakh, including interest and penalty. Prescribed registers/records were either not maintained or were not maintained in the prescribed form, in three out of 11 commercial tax circles test checked by the CAG.
The deputy commissioner (Audit) had failed to check even the minimum prescribed percentage of tax remission cases” the report says.
Due to non-functioning of weighbridges, assessment of additional toll in respect of the 17.12 lakh vehicles that crossed the toll post was made on lump-sum basis and not on the actual laden weight, leaving every scope for loss of revenue. Absence of a provision for cross verification of the toll post records of imports and exports of goods with Commercial Taxes Department resulted in non-levy of toll amounting to Rs 55.23 lakh. Allowing vehicles carrying load in excess of the permissible limit resulted in loss of Rs 15.14 lakh in toll collection, the report says.
The CAG report also mentions that there was delay in transfer of the toll receipts to the government account by the Jammu and Kashmir Bank Ltd. Timely deposit would have saved the government Rs 69.35 lakh as interest on the overdrafts. Lack of monitoring resulted in incorrect grant of exemption from payment of additional toll to the extent of Rs 4.58 crore to various industrial units.
The report, in short, is a shrill wake-up call for the state government to put its finances in order. Will it?

Rather's Abra Kadabra

Budget 2010-11: 'Fancy Rhetoric'

BILAL HUSSAIN

The budget 2010-11 is an attempt to appease all. But unfortunately it couldn’t gather decent points on public scoreboard as this time expectation were too high. The denizens of Jammu and Kashmir were made to believe that the budget would address the hardcore issues like burgeoning unemployment, shortfall in power, price rise and like.

This is the second consecutive budget that the Finance Minister, Abdul Rahim Rather, presented in the house but, once again the budget seems more of a constitutional requirement than a financial plan for future. Like rest of the annual budgets of J&K it is another public document, which ignores the long-term perspectives.

As per preliminary estimates, the primary sector has contributed 24.60 per cent to the Gross State Domestic Product (GSDP). Secondary sector has contributed 29.60 per cent and the share of the tertiary sector has been 45.80 per cent. The contribution of the primary sector comprising of agricultural and allied sectors has slipped down from 25.82 per cent contribution registered last year. The secondary sector comprising of industry and manufacturing activities has improved from the last year’s figure of 28.29 per cent. There is a marginal lowering of contribution from the tertiary sector comprising of services from its last year’s share of 45.89 per cent. “I may point out here that during the last 20 years counted from 1980-81, the share of primary sector has come down from the level of 47.40 per cent. The secondary sector has substantially gained from 12.90 per cent and the tertiary sector improved from 39.70 per cent. While the shares of the secondary and tertiary sectors have improved because of growing number of manufacturing and service units, there is stagnancy in primary sector. This stagnancy calls for our fullest attention for possible interventions and corrections,” Finance Minister, Rather mentioned in his budget speech.

Tax exemptions with regard to the agriculture would not do the job. The need is to ensure hassle free credit to farmers? Stress banks to increase their portfolio in agricultural lending, which would mean more investments and hence increased production.

The state government has urged the 13th Finance Commission to provide a grant of Rs 1000 crore for settling the state government’s over draft with the J&K Bank. At present the state government on an average has an over draft of over Rs 2150 crore. In longer run it is neither good for the government nor for the J&K bank’s health as well.

The government has recently decided to explore Public Private Partnership (PPP) possibilities for execution of Rs 400 crore tunnel between Vailoo and Singhpora to provide all weather connectivity between the Kishtwar in Jammu Region and the Kashmir valley. The project report for its implementation in PPP mode has been prepared. Report preparation is fine but the state government needs to be careful enough while dealing with the private entities as their main motive most of the times is to mint money.

The urban transport system for Srinagar and Jammu cities requires special focus. The government intends to engage M/S RITES to prepare reports for creating Metro systems for both these cities on the pattern of Delhi. Is it really needed? Does the state have enough of resources to create Metro systems in the state? The state is yet have smooth roads, to think of metro would be simple fancy rhetoric.

As per revised estimates, the current year’s receipts total to Rs 22,885 crore in comparison to Rs 22,739 crore adopted in the budget estimates, up by Rs 146 crore. The tax receipts are estimated at Rs 3,075 crore in comparison to budget estimates of Rs 3,011 crore showing a further improvement of Rs 64 crore. The non-tax revenue figures proposed in the RE are Rs 1,294 crore in comparison to budget estimates of Rs 1,219 crore indicating an improvement of Rs 75 crore. The fiscal deficit has been reworked at Rs 2,090 crore in comparison to the figure of Rs 2,081 crore in budget estimates indicating a very small variation of Rs 9 crore. Time and again, mentions have been made about the vicious circle the state is being trapped on account of fiscal deficit. The state, however, seems to be unmoved. The present financial plan doesn’t make any mention of reducing this fiscal deficit.

The total salary expenditure is estimated at Rs 6,629 crore as per revised estimates. The expenditure on pension payment is now estimated at Rs 1,495 crore in the revised estimates. Looking at the increasing salary bill of the state the government recruitments should have been put on halt till the state would have enough resources to sustain its employees. You can’t please people by employing and then at the same time cry for the lack of funds to meet salary bill. But at the same time, the government needs to come-up with a concrete policy on the unemployment in the state.

The total budgetary receipts have been kept at Rs 25,984 crore. Out of this, an amount of Rs 22,849 crore is expected as revenue receipts and Rs 3,135 crore as capital receipt. Out of the total expenditure, also estimated at Rs 25,984 crore, the revenue expenditure will be Rs 17,698 crore both on account of plan and non-plan. The total capital expenditure is estimated at Rs 8,286 crore both on account of plan and non-plan. The State’s own revenue comprising of tax revenue, non-tax revenue and share of central taxes totals to Rs 7,873 crore and represents over 30 per cent of the total receipts. Exclusive of state’s share of central taxes, the state’s own tax & non-tax revenue comes to Rs 4,962 crore which is about 19 per cent of the total budgetary receipts. What is needed is to look for all options whereby the state can increase the revenue.

The next year’s estimates of tax revenue are Rs 3,655 crore indicating an increase of about 19 per cent. The next year’s estimates of VAT receipts are being placed at Rs 2,611 crore indicating increase of Rs 545 crore over the current year’s budget estimates of Rs 2,066 crore. Excise revenue target for the next year is Rs 280 crore. The target of collection of taxes on goods & passengers has been kept at Rs 384 crore. Duties on electricity are likely to yield Rs 206 crore. Taxes on vehicles and stamps duties are expected to yield Rs 101 crore and Rs 67 crore respectively. The next year’s budget estimates for non-tax revenue have been kept at Rs 1,307 crore indicating a negligible growth. The main item is power receipt for which next year’s target has been kept at Rs 1,055 crore. Receipts from mining, forestry, water supply and health sectors have been kept at Rs 30 crore, Rs 38 crore, Rs 27 crore and Rs 15 crore respectively. In accordance to the revenue managed by the different sectors, why can’t state make allocations on the same basis? This would make others to perform and show fiscal prudence.
The total expenditure of Rs 25,984 crore is divided between plan Rs 6,000 crore, PMRP Rs 1,206 crore, centrally sponsored schemes Rs 850 crore and non plan expenditure of Rs 17,928 crore. In revenue & capital terms, the break up is Rs 17,698 crore on revenue account and Rs 8,286 crore on capital account. Out of the total revenue expenditure, about Rs 8,200 crore is estimated to be spent on pay and allowances of the government employees including Rs 725 crore on two new installments of DA and Rs 129 crore on migrant salaries. A provision of Rs 482 crore has been kept as grant-in-aid, mostly for government aided institutions which use it mainly for salary payments. Rs 1,800 crore have been kept for pensions and retirement benefits. Rs 2,251 crore is earmarked for payment of interest. Expenditure on power purchase is another major item and the next year’s provision on this account is Rs 2,051 crore. As far as capital expenditure is concerned, Rs 959 crore are estimated to be spent on repayment of loans and Rs 7,327 crore on various capital formation schemes including capital component of the plan. The amount of Rs 959 crore for repayment of loans amply shows how deep the state is in debt trap. It is high time for the policy makers to take initiates to take state out of this burgeoning debt.

The present restricted peak power demand is estimated at 1450 MW where-as the total availability from state’s sources comes to about 945.70 MW. The total availability of power comprises of State’s own installed capacity of 758.70 MW and 12 per cent free power available from the central projects located within the State equivalent to 187 MW. The gap between demand and supply becomes precarious during winter months when the generation from the local hydel stations, owned by State as well as the Centre, is reduced to almost one third of the installed capacity and the power demand goes up primarily because of heating needs. The 450 MW Baghlihar HEP-II is estimated to cost Rs 2800 cr and the work on execution of this project is already in progress. The next year’s power purchase budget has been kept at Rs 2050 crore. Against this figure, the revenue realization target is only Rs 1055 crore. This means a loss of Rs 1000 crore. How long will this continue? Can’t the state administration think louder and start taking steps in fortifying the JKPDC?

Disinvestment in the public sector is an area which has not been attended to so far. The government intends to make a beginning in this direction in near future. How much more time will the state need for such a step?

When the government talked about the registration of educated unemployed youth, they came forward in large numbers to get themselves registered in the District Employment and Counseling Centres. As per the latest available figures, the number of youth registered in these centres is 5.84 lakh, comprising of 3.08 lakh in Kashmir and 2.76 Lakh in Jammu division. These figures in no way will provide a fair picture of the size and nature of the problem the state is embraced with as there are lots of flaws in the registration process itself.

The government has started a process of creating mass awareness amongst the youth about the bright prospects in self-employment programme to be undertaken under the seed capital scheme of the J&K Entrepreneurship Development Institute. A sum of Rs 50 crores has been provided as Entrepreneurship Development Fund to be operationalised through J&K Entrepreneurship Development Institute (JK EDI) for this purpose. Here the question is not only about the quantum of amount allocated to JKEDI but also about the performance of this institution. Till date, JKEDI has not been able to deliver on what they are supposed to.
The bottom line is that the present budget is nothing more than fancy rhetoric, which will put the state’s fiscal health in serious condition.

Jammu And Kashmir's Employment Policy Misses Viability Strategy

Bilal Hussain

The Jammu and Kashmir chief minister, Omar Abdullah, recently unveils the employment policy. The policy document gives a good reading, mentions exploitation of most economic sectors of the state and generation of huge employment. However, like most of the state’s policy documents it too misses the much needed viability strategy.

The document talks about rising of employment opportunities to absorb the army of educated yet unemployed youth of the state. Although it mention little about the sustenance of these tall claims and the policy finds no talk on the much need finances for supporting such initiatives. Will the state resort to its older means of putting begging bowl to New Delhi? If not then the state would raise funds internally if yes then how?

In J&K the unemployment rate currently stands over 6 percent, and the outlook for employment is poor unless labor markets are given some type of boost. To explore the opportunities to provide the needed boost, the collation government has come up with the much hyped ‘employment policy’ which talk about ‘most possible avenue for job creation.’

The divestment in various state corporations could be a way forward to absorb youth of the state. The various corporations currently run by the state government had incurred a whooping loss of Rs 1877.01 crore during the last fiscal. The financial position of most state corporations is not a good sign for economy of the state. Ten corporations had suffered a loss of Rs 1877.01 crore till March 31, 2009. However, seven corporations had managed a profit of Rs 916.93 crore during the period. Besides, other two corporations were running on loss no profit basis.

The corporations which had suffered losses include J&K Handicrafts (S&E) Corporation ltd (Rs 88.85 crore), JK Handloom Development Corporation Ltd (Rs 77.87 crore), JK Industries Ltd (Rs 340.15 crore), State Industrial Development Corporation (Rs 46 crore), Small Scale Industries Development Corporation Ltd (Rs 7.80 crore), JK Minerals Ltd (Rs 422 crore), JK SC/ST and other backward classes Ltd (Rs 100.34 crore), JK Horticulture Production and Processing Ltd (Rs 4.50 crore), JK Agro Industries Development Corporation Ltd (Rs 400.63 crore), SRTC (Rs 389.21 crore).

Those who are in profit include, JK Tourism Development Corporation, JK Cements Ltd , JK Cable Car Corporation, JK Project Construction Corporation, JK Power Development Corporation, JK Forest Corporation, JK Police Housing Corporation. And those running on no loss no-profit basis are JK Women’s Development Corporation, JK State Finance Corporation.

It is high time for the state to go for divestments of the corporations which are in RED. By the step huge sum of Rs 1877 crore could be saved and diverted for the development of other cash starving productive sectors and could generate huge employment avenues for the youth of the state. Unfortunately the ‘employment policy’ didn’t explored the option.

To mention for the fiscal 2008-09 the state spends about 60 per cent of the budget in paying salary-bill of the state. At present the state has over 3.32 lakh employees on its rolls. On the main items of expenditure, the current year’s non-plan salary provision is Rs 6,594 crore in comparison to Rs 4,973 crore of past year. Additional provision of Rs 121 crore has been kept for salaries of migrant employees. The state finds it hard to mange resources for its existing employees, now the recent decision of hiring over one lakh people in the government sector would further worsen the situation.

Power sector is another major concern for J&K, wherein the state has failed miserably in bringing deficit due to it down. Previous government managed a zero deficit budget by taking out power bill and put it separately as ‘power budget’, which hardly helped the state to bring down its electrical energy bill but could be termed as ‘good window dressing’. The state has already the gap between expenditure incurred on purchase of electrical energy and revenue collected has nearly doubled from Rs 767 crore during the year 2003-04 to Rs 1,406 crore during last year. Huge army of youth could get absorbed in this vital sector right from the generation, transmission to fee collection.

The state government has two main policy tools at its disposal which, the present government can employee through spending on goods and services and changes in taxes. Additionally, the government can also hire labor directly which is a separate category.

The tax cuts and other changes that do not involve the direct purchase of goods and services, or the direct purchase of labor, by the government to local private players would encourage private sector job creation.

These policies can increase employment, but the effect is indirect. The idea is that the tax incentive will increase the demand for goods and services and increase profits, and the increase in profits will, in turn, lead to the firm to hire more workers.

The problem with these policies is that much can go wrong along the way. For example, the tax cut may be saved instead of spent, the extra profits may be used for some other purpose than hiring new workers, and the policy may be relatively slow to unfold. Thus, the regulators job to ensure the increase in profits is used for stimulating employment.

The policies that are indirect such as tax cuts on profits to encourage new capital purchases are the most uncertain, slowest, and least effective while more direct policies such as tax cuts to encourage hiring fare much better.

The policy should involve tax changes or transfers of money of one sort or another. Another possibility is the direct purchase of goods and services by the government. These purchases can be categorized according to whether they are government consumption or government investment. The spending on a government sponsored gatherings, rallies and many other shows is an example of government consumption since there is no long run benefit beyond the memories, while spending the same amount of money on roads, infrastructure building etc. would be an investment since the benefits would persist.

Government investment, particularly investment in infrastructure, should be a major component of the stimulus package. These policies, which are aimed at stimulating the economy in the short-run output and increasing economic growth over the longer run, can increase employment, but as we have seen with the stimulus package, infrastructure projects can be slow to implement.

Given the poor state of the labor market in the state, the uncertain and apparently meager effects of the tax cuts that were part of the stimulus package, the insufficiency of the first round of government spending, and the time it would take for other polices such as more infrastructure spending to be put into place, direct employment creation policies through government purchase of labor services are worth taking seriously.

The high levels of unemployment are costly not only to the individuals and families directly affected, but also to local and regional economies and the economy as a whole. We can make a distinction between the economic costs arising from people out of work and the social costs that often result.

Unemployment causes a waste of scarce economic resources and reduces the long run growth potential of the economy. An economy with high unemployment is producing within its production possibility frontier. The hours that the unemployed do not work can never be recovered. But if unemployment can be reduced, total state output can rise leading to an improvement in economic welfare. High unemployment has an impact on government expenditure, taxation and the level of government borrowing each year

An increase in unemployment results in higher benefit payments and lower tax revenues. When individuals are unemployed, not only does the state would be forced to pay them certain benefits in form of subsidies and other allowances and would receive no income tax. As they are spending less they contribute less to the government in indirect taxes.

Rising unemployment is linked to social and economic deprivation - there is some relationship between rising unemployment and rising crime and worsening social dislocation.

Areas of high unemployment will also see a decline in real income and spending together with a rising scale of relative poverty and income inequality. As younger workers are more geographically mobile than older employees, there is a risk that areas with above average unemployment will suffer from an ageing potential workforce - making them less attractive as investment locations for new businesses.

It is not clear at this point how committed the administration is to expending the political capital it would take actually to implement such a plan, we will have to wait and see if this is all for show or if the government leads to actual policy change.

The state might get some change in employment as a result of the policy, but I don’t expect any large policy initiatives, certainly nothing like what is needed to make a large dent in the employment problem.