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J&K relied on loans to meet expenses: Study

A study by National Institute of Public Finance & Policy (NIPFP) found also that the funds allocated to local bodies were inadequate

, ET Bureau|
Updated: Sep 20, 2019, 10.48 AM IST
NEW DELHI: A decadal study on Jammu & Kashmir’s financial health has pointed out that its debt-state GDP ratio had been persistently high compared with other special category states, and that it relied far too heavily on borrowings to meet its expenditure and fund developmental work.

The study by National Institute of Public Finance & Policy (NIPFP) found also that the funds allocated to local bodies were inadequate, partly because elections to these were not conducted on time.

The study—commissioned by the 15th Finance Commission — evaluates the state’s finances over 10 years, from 2006-07 to 2015-16.

The study, accessed by ET, has frowned upon the state’s dependence on borrowings, the “degradation of infrastructure” in the “absence of adequate maintenance grants”, and increasing liabilities which “distorted fiscal management principles” and “culminated into deficit”.

It observes that being a special category state, J&K had a high share in taxes and grants from the central government- an average 74% of the state’s revenue receipt. While this dependence on the centre was on a declining trend —74% of revenue in 2006-07 to 69% in 2015-16—the state was heavily relying on borrowings to meet expenditure needs.

The loans and advances from the Union government, market borrowing and institutional finance have crossed Rs 4,902 cr during 2016-17 and the ways and means advances and overdraft touched Rs 15,848 cr.

It noted the state’s increasing dependence on loans with high interest rate and adopting the “the easy way out” of borrowing funds rather than improving revenue to meet developmental requirements.

It further underlines the high debt to GSDP ratio during 2005-16. It stood at 45.5% in 2015-16. The study further states that Himachal Pradesh, Tripura and Uttarakhand were able to bring down their debt to GSDP ratio.

The report makes special mention of inadequate fund flow to the panchayati raj institutions and urban local bodies. It points out how no funds to them were released during 2013-14 and 2014-15, as elections to these were not conducted after 2010.

Further, even though the state government enacted the J&K State Finance Commission for Panchayats and Municipalities Act 2011 in April 2011 and was to constitute a State Finance Commission to review the financial position of the local bodies but the same was not done even after four years, notes the report.

It has projected that the current scenario will land J&K into a revenue deficit of 6% and fiscal deficit of 11.96% by 2024-25 and a 26% increase in its outstanding liabilities—all of which is ‘clearly not sustainable’, says the report accessed by ET.

It points out how the state maintained revenue surplus during 2010-2014 but this declined sharply and reduced to revenue deficit of Rs 640 crore during 2015-16.

The takeover of Discom related debts under UDAY scheme has also affected the state's finances- like it has done in several other states.

The report has recommended identifying new revenue sources for the state, restriction of fiscal deficit at 3% and limiting debt-GDP to 25%, constitution of the State Finance Commission for Panchayats and Municipalities, reform in the power sector, closure of non working PSUs (three of them), review of property tax system and allowing local bodies to explore innovative financing mechanism like PPP, crowd funding and municipal bonds.

It is being examined by the 15th FC.

Key concerns
State’s wage bill at 40.02%

Fiscal deficit through the decade stayed high at 5.5%.

Developmental Capital expenditure persistent decreasing trend from 2011-12 to 2014-15 and increased during 2015-16 “indicating that the developmental works were getting inadequate resources up to 2014-15’

J&K’s debt/GSDP ratio highest during 2005-16, stood at 45.5% and in 2015-16
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