by Ruqaya Akhter
An examination of J&K’s fiscal structure highlights dependence on central assistance, constrained own revenues, and the challenge of sustaining growth while maintaining fiscal discipline and efficiency
When the Budget for 2026–27 was presented in the Legislative Assembly on February 6, 2026, much of the public attention focused on infrastructure allocations and welfare measures. However, beneath the headline figures lies a deeper fiscal question: How sustainable is Jammu and Kashmir’s growth strategy, given its revenue structure?
The gross budget outlay for 2026–27 stands at Rs 1,27,767 crore, while the net budget estimate is Rs 1,13,767 crore. Revenue expenditure is projected at around Rs 80,640 crore and capital expenditure at Rs 33,127 crore. While the development orientation of capital spending is important, the structure of revenue mobilisation determines how far such spending can be sustained.
The government expects own revenues of approximately Rs 31,800 crore from tax and non-tax sources. In contrast, central assistance is estimated at about Rs 42,752 crore, along with Rs 13,400 crore under centrally sponsored schemes. This indicates that a substantial share of total resources continues to originate from the Union Government. In simple terms, Jammu and Kashmir raises less than one-third of its total budget from its own sources. The remaining portion depends on central transfers and borrowings. This structural dependence is not new, but it remains a critical issue for fiscal sustainability.
The Economic Survey 2025–26 notes that own tax and non-tax revenues historically cover only a limited portion of expenditure requirements. The region’s geographical constraints, difficult terrain, limited industrial base, and high administrative costs contribute to this situation. Unlike large industrial states, Jammu and Kashmir does not have a broad manufacturing base generating substantial GST and excise revenues.
Revenue expenditure at Rs 80,640 crore accounts for nearly 71 percent of the net budget. Salaries, pensions, and administrative costs consume a large share. Once these committed expenditures are met, the fiscal space available for new initiatives becomes limited. This is precisely why maintaining fiscal discipline becomes essential. The fiscal deficit is targeted at 3.69 percent of GSDP, aligning with fiscal responsibility norms. On the surface, this reflects prudent financial management. However, the challenge lies in achieving development goals without breaching fiscal limits.
If own revenues remain modest while expenditure pressures increase, the government faces three options: it can increase borrowing, reduce expenditure, or attempt to expand its revenue base. Excessive borrowing may lead to higher debt servicing costs in the future. Reducing expenditure can slow development. Therefore, broadening the revenue base becomes the most sustainable path.
One encouraging aspect is the projected economic growth rate of around 9.5 percent, with nominal GSDP expected to reach Rs 3,15,822 crore. Higher economic growth can gradually improve revenue collection through greater GST inflows and service sector expansion. However, growth projections must translate into actual revenue buoyancy. The power sector offers a revealing example. Historically, transmission and distribution losses have reduced the sector’s revenue potential. The push towards 100 percent smart metering in urban areas by December 2026 aims to curb losses and improve billing efficiency. If successfully implemented, this reform could strengthen non-tax revenues and reduce fiscal stress.
Similarly, tourism, agriculture modernisation, and industrial promotion policies are expected to expand the tax base. Yet these structural shifts require time. Revenue generation cannot expand overnight. Dependence on central assistance also has political and fiscal implications. While central support enables large infrastructure projects and welfare schemes, long-term resilience requires strengthening internal revenue mobilisation. Excessive dependence may limit financial autonomy and flexibility in policy design.
Another dimension of fiscal discipline relates to expenditure quality. Increasing revenue without improving spending efficiency will not resolve structural issues. The Economic Survey highlights improvements in project monitoring and digital financial systems. Efficient utilisation of funds ensures that limited resources generate maximum developmental impact.
At the same time, welfare expansion adds further fiscal commitments. The announcement of 32 new welfare measures, including LPG support, tuition waivers, and enhanced social assistance, increases recurring expenditure. While socially desirable, such measures must be aligned with long-term fiscal sustainability. The key fiscal question, therefore, is not whether the Budget is expansionary or conservative. The deeper issue is whether revenue growth can keep pace with expenditure commitments in the coming years.
A sustainable fiscal framework requires three parallel strategies. First, strengthen own revenue through improved compliance, digital enforcement, and economic diversification. Second, prioritise capital expenditure that enhances productivity and indirectly boosts revenue generation. Third, maintain strict discipline in non-productive expenditure.
The 2026–27 Budget reflects awareness of fiscal constraints, as indicated by the deficit target and emphasis on reforms. However, structural dependence on central transfers remains a defining feature of Jammu and Kashmir’s public finances. In the short term, central assistance provides stability and enables development projects. In the long term, fiscal sustainability will depend on building a broader tax base, reducing inefficiencies, and fostering private sector growth.
As Jammu and Kashmir pursues higher growth and improved living standards, fiscal discipline must guide development rather than restrict it. This requires strengthening own revenues through better compliance, digital monitoring, and reduced leakages, especially in the power and property sectors. Expenditure quality should improve through targeted subsidies and outcome-based budgeting. Capital spending must prioritise high-multiplier projects such as roads, energy, and irrigation. Public-private partnerships can reduce fiscal pressure while expanding infrastructure. A transparent medium-term fiscal framework will ensure that borrowing remains sustainable and that today’s development spending strengthens, rather than burdens, future finances.
(The author is an Economics research scholar at the University of Kashmir. Ideas are personal.)
