Idealist’s Pragmatism

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Though linked directly with budgeting J&K’s economy for various years, Finance Minister Dr Haseeb Drabu’s third consecutive budget in less than two years is rich in ideas that can change many things, if implemented even partly, analyses Masood Hussain

Dr Haseeb A Drabu

Emergence of economist Dr Haseeb Drabu in J&K’s public policy making started with rudimentary loud-thinking on possibilities of catching up with the outer world in overall growth. Invoking state’s unique constitutional position to create an international financial centre to flying investors to Gulmarg in winter and create a Davos in south Asia, were some of the few ideas that played a key role in creation of his image as “dream merchant”, as NC’s Devinder Singh Rana is usually referring him as.

Then pitching the ideas from the margins of the system, as economic adviser, Drabu lacked first-hand knowledge of the men and women who run India’s most sensitive state. He did not know how opportunity-deficient system embraces status quo to resist change. Once baptized into the system, he felt legitimately compelled to get into the system repair. In his last two idea-rich budget proposals, he did face systemic resistance on many counts. He did change the classification of plan and non-plan into a better mode but faced resistance in up-rating state’s planners into controllers of expenditures. He is still driven by a garages car to office, a department he wanted to work as a privileged transporter and not a petrol dispenser.

But he deserves credit for not giving up. The only change that his thought process has witnessed is that he is gradually shifting from idealism to realism. Deep into the medulla of the system, he has given up shock-therapy. Like a seasoned doctor he is opting for minor surgeries and offering bypass to areas with maximum blockages. Drabu’s budget 2017-18 offers a range of new ideas, which, despite being basic could prove change-making and historic.

  1. Have Treasure, Not Treasury

By one sweeping decision, the department of treasuries will cease to exist by October 2017. This department worked as government’s cash-dispenser at a time when banks were not around. Now banks offer much advanced service thus reducing the treasury operations of government to mere gate-keeping. Within a few hours after the budget proposals were made, Finance Ministry received appreciative communication from the public from as remote as the Chenab Valley suggesting that the decision can help save more than one-third of the money that the system dispensed.

In place of the archaic system, Drabu introduced an IT enabled framework, already in vogue in the plains, which reduces processing time, improves transparency and almost does away with the “mischievous” human intervention that entailed a cost to the system. By the year end, a new decentralized payment and accounting system will be in place that will be semi-digital and fully global.

  1. The Winter Leverage

For most of the post-1947 era, Kashmir would listen to development music with the durbar moving to Srinagar. By the time the system would firm up and start spending, snowfall would bury the foundation stone. Next summer would have new ideas. This happened in most of the state because nearly half of the year is lost to inclement weather and no accessibility.

This budget offers a solution by bringing in proposals for the year in January. There are clear timelines attached to the developmental activities about when to conceive and when to manage DPRs and tendering. Since the allocations will be released in advance, the departments will be in a position to start implementing the projects by the first day of full sunshine from Leh to Gurez. Since most of the paper and spade work would have taken place during non-working lean days of winter, this will help manage half of the year in completing the pre-implementation processes.

Under the budgetary reforms, three vital shifts were announced. First, from now on, no new project can be considered to be taken up in the budget unless its DPR is submitted in anticipation. Secondly, all projects will have to be implemented in three years, depending on the size of the project. Thirdly, no re-appropriations can take place at the departmental level. Since allocated resources will be released in anticipation, this move will impact the developmental scenario on three fronts: timely completion without cost-overruns, doing away with the discretion of re-appropriation that essentially is political corruption and helping the state improve overall spending capacity.

  1. Reengineering Key PSUs

In absence of vibrant economic activity in private sector, the government over time had got into manufacturing and various businesses through PSUs.  Once the private sector took off and the strife and mismanagement started impacting government’s commercial activity, PSUs started bleeding. As their earnings nosedived, the government had to routinely manage resources to keep the show going. By the end of this fiscal, PSUs have 14675 employees whose salary requirements have surged from Rs 522.86 crore in 2015-16 to Rs 648.11 crore in 2016-17. Budget proposals put their requirement at Rs 741.11 crore in 2017-18. But not every PSU requires closure. Some are making profits and some need financial reengineering.

Though in earlier budgets, finance minister had indicated of certain measures but this year he has finally moved to implement certain things. J&K’s lone GenCo, the SPDC is the highest profit making PSU, pocketing almost Rs 500 crore a year. But it is caught in an interesting mess. As the government has been continuously offering it funds for creating new assets, the SPDC is generating power and selling it to PDD, state’s power distributing department. But the two have never reconciled their accounts which could have given a clean balance sheet to the SPDC. Now this reconciliation of accounts will give SPDC a clean balance sheet and an equity of Rs 3000 crore that will eventually pave it to go to the market and become state’s second listed company. It already has credibility, generations, assets and future – it actually lacked a good leader and a clean balance sheet.

In 21st century, government has no business to be in business. But if it is, it must be in a partnership. Most of J&K’s commercial activities can be profit making and viable ventures as long as they have a clean balance sheet and the government divests part of the equity. Governments funds to PSUs come as support, get into salaries without any strings attached. This budget wants the funds that have come should go to the equity head so that balance sheets become strong so that if eventually government dilutes the shareholding, it should fetch enough capital to turnaround the PSU.

Third intervention came as a compulsion. Owing to “serious lapses in corporate governance and management failures”, J&K Bank, off late, has been suffering losses. In the financial results for next two quarters, more bad assets will reflect in its balance sheet thus inducing loss. This could reach a level that mounting NPAs can impact the Capital Adequacy Ratio of the bank, forcing it to halt lending. Preventing that situation, the government is making equity infusion of Rs 530 crore. Though the budget suggests that it will take place in two parts, the compelling situation in the bank may force it to do well before March ends.

  1. For Its Employees

By the end of current fiscal, J&K had clear 497488 positions in its 29 departments. Its 460722 employees took home Rs 16239.26 crore home as salaries in 2015-16 and Rs 16239.26 crore in current fiscal. For the next fiscal, they will take Rs 21726.44 crore home. Though by an average a government employee takes home not less than half a million in year, the seventh pay commission is still a low hanging fruit.

On employee front, the budget has four key responses. First, let the priority go to 61000 daily-wagers who will gradually be inducted into the government as the social issue is a ticking time-bomb. Two, the government will implement the 7th  pay commission recommendations by April 2018. Three, employees will have extended health insurance cover with more benefits. Fourth, and more importantly, delinking the salary of the employees working for various central sponsored schemes from the time of resource devolutions. Since inter-governmental issues delay fund transfers from Delhi, these employees wait for half of the year to be paid. Now state will manage their resources from its own kitty though it will cost it dearly.

  1. Improved Welfare

For a very long time, Drabu has been making loud-thinking about possibility of dovetailing diverse poverty upliftment schemes run by various ministers in the state and the centre. Together, he believes it is around Rs 2000 crore corpus that can accelerate the pace of improving the lives of people living BPL, slightly less than one-fourth of state’s population. He believes if every family gets a ‘universal basic income’ from a single window which will be almost equal to all the help they get under different plans from different windows, it will help the BPL lot to change faster.

Since this plan is a laborious exercise given the number of central ministries involved, he announced creation of a module from 300 thousand labourers registered with the J&K Building and Other Construction Workers Welfare Board that he controls as the Labour minister. Board’s all registered members will get an ATM card that will be carrying a cash credit of Rs 10,000 at one year MCLR, an in-built accidental insurance cover of Rs 2.00 lakh through Pradhan Mantri Suraksha Bima Yojana at a premium of Rs 12 per annum, life insurance cover of Rs. 2.00 lakh through Pradhan Mantri Jeevan Jyoti Bima Yojana at a premium of Rs 330 per year, health insurance cover of Rs 30,000 through Rashtriya Swasthya Bima Yojana at a premium of Rs 30 per annum. Board will pay all the three premiums. This, the minister believes will give social security to three lakh families with an average of 5 members each.

Drabu’s economic prose is not devoid of the figurative poetry that is, however, dominating the documents which were laid on table. The volume of spending is slightly less than Rs 80,000 crore and the emphasis on capital expenditure (capex) makes it one of the different proposals ever. Volume of the budget has reduced employees wages and pensions to the 31 percent, which is five percent less if compared to last year. The ration of revenue expenditure per unit of capital spend is reduced phenomenally from around 5.62 in 2014-15 to 2.25 in 2016-17 and is expected to be at 1.59 percent next fiscal, the lowest ever. This will be perhaps the first budget that will take public investment in state domestic product to beyond 11 percent. This is despite the fact public spending dominates state’s SDP.

Drabu’s ideation is unmatched. As a professional, he spends his entire energy in creation a solution. A politician invests entire energy in implementing the idea. Since Drabu is wearing both the caps, he must fairly balance his energy and invest on both sides of the axis. That is vital to prevent his erstwhile friend Devinder Singh Rana from terming him a dream merchant.

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