Drabu Direction

Economist Haseeb Drabu’s maiden budget as Finance Minister is being projected as the new Bible of the PDP-BJP coalition. Given the rudimentary shifts effected, the two parties need to gear up to manage the issues that reforms are expected to create for a better J&K, argues R S Gull

Dr Haseeb Drabu being congratultaed by CM Mufti after presenting budget in JK assembly.
Dr Haseeb Drabu being congratultaed by CM Mufti after presenting budget in JK assembly.

“The budget talks about the peace dividend but I fail to understand where the peace is,” cried the independent lawmaker Engineer Rashid, who incidentally voted for Congress in Rajya Sabha and for PDP in Legislative Council polls. “The budget is corporate centric and an eyewash.”

NC veteran Mohammad Shafi Uri has immensely contributed to the new economic narrative in his heydays. But his era as finance minister left people gasping for fresh air as he taxed almost everything excepting the use of toilet. He termed Drabu’s budget as “pro-capitalist”.

“It is a fairy tale woven by an able economist in post-dated bank cheques,” was the instant response to the budget. Critique to Drabu’s budget drafts was shallow, political and, in certain cases, personal. The real message got messed up somewhere in between.

On the structure of the budget, one thing was dictated by the change in Delhi. After Planning Commission was re-designated as NITI Ayog and its role as resource provider for developmental budgets of the state was done away with, the Finance Commission got empowered. Under the new mechanism, the 14th Finance Commission accepted a long term concern of the state governments that they should have more untied grants so that they are able to manage their requirements which usually vary from state to state. However, it will not have any bearing on the centrally sponsored schemes which are devised by respective central ministries. The state, however, will have to abide by the minimum fiscal deficit norms that the FC has fixed.

With the abolition of the Planning Commission grants, reclassification of the technicalities that go into public finance system of the state needed changes. Punjab did a bit on March 18 and then Haseeb Drabu affected rudimentary shifts four days later by converting the basic accounting system into an income and expenditure statement. This has added to his challenges. Till now, government was spending nearly three-fourth of its resources on implementing developmental activities worth the remaining one fourth! Will that get changed as he has promised? Only the next budget will offer some idea!

By insisting that he would not be going to Delhi with a begging bowl, as former Chief Minister Omar Abdullah once famously stated, Drabu has created a new milestone for himself. He in fact flew to Delhi and told the Prime Minister that he would be managing J&K’s resources within the means already identified and available.

Drabu anticipates an expenditure of Rs 46,473 crore for the 12 months starting April 1, 2015. His proposals are zero-deficit but will require a resource of Rs 4336 crore from the FC award in anticipation, an issue he suggests has been not objected to. On the income side, J&K will have 19 per cent as its own tax revenue, 8 per cent non-tax revenue and, 19 per cent is the share of central taxes, 44 per cent the central grant and balance 10 per cent the borrowing. On the expenditure side, the budget suggests, 40 per cent will go to salaries and pensions, 8 per cent each will go to interest payments and the power purchase, and 22 per cent each to others and developmental activities.

Technicalities apart, the core focus of the budget is on four key issues: rightsizing the government, helping private sector grow better so that it accommodates part of the youth bulge, interventions in key processes to eliminate corruption and increasing stake-holding in key areas.

 J&K government employees are a huge army that manages itself and the scanty services it offers. There were 3,72,277 employees in non-plan, 55,678 under special plan and central sponsored schemes, 15,597 in various PSUs, 11,724 in aided institutions other than local bodies and 11,277 in local bodies. Budget proposals put the requirement of the human resource in 2015-16 at 3,92,917.

While Drabu has remained assertive on the fact that bad quality of services is the main criticism to the numbers that manage government, he also understands the reality that J&K has more than 2.5 per cent of its population on its rolls, which is above All India average.

In fact before he presented the budget, Drabu had directed transferring all the revenue parts of the expenditure in plan side to the revenue side to get a much clearer picture of the ‘fiscal sin’ the J&K is living in. Now he wants to build on that.

 Dr-Haseeb-Drabu-in-AssemblyAfter having monitored various PSUs in different capacities, Drabu was part of the idea that suggests most of them should be closed. After having a much closer look, Drabu then said all the PSUs can be restructured and brought back to rails. He feels this is the right time to do that. He wants to detach all the PSUs and bring them under two separate entities where they can be recapitalized, have their balance sheets cleaned and sent back to business. And in the second stage, the state will start divesting gradually from these business concerns. He told the state assembly that within three years, he will be in a position to get every one of them contribute Rs 50 to Rs 100 crore a year to the public kitty.

Drabu has identified two specific institutions for reforms. Firstly, he wants to privatize the Lakhanpur toll collection centre and secondly, he wants to convert the state motor garages into a commercial entity. The government expects resistance in both the cases. In Toll Plaza case, the idea is to reduce corruption and improve management for a faster clearance to help business grow. His dictum is that private sector growth being crucial to managing unemployment and improving tax kitty of the state must dictate an efficient handling of the business. He even said he will do away with some of the restrictive business related laws still in vogue. In Garages’ case he thinks a fleet of 400 cars with it and another 1400 with other departments makes it a major transport outfit that is more corrupt and less efficient as the fleet is exclusive.

But this government will also have to be slightly innovative in creating more jobs within the government. Extension in services of government employees by two years has reduced the number of retirements – usually 9000 a year and blocked equal number of berths. At the same time, however, the preceding government that Omar Abdullah led for six complete years appointed 60323 employees using established formal means. Insiders say many thousands more went to various financial institutions and corporations bypassing the routine entries. How will PDP-BJP manage this especially at a time when it believes in making private sector jobs more attractive?

Entrepreneurship, however, got a big boost. While the budget acknowledged the contributions that J&K EDI has been making by adding to its responsibilities, Drabu crafted a new scheme particularly for the Hindu minority of the state. In fact an archaic scheme aimed at helping unemployed to earn their livelihoods – the J&K Self Employment Scheme (SES), in vogue since 1974 was subsumed. It was being implemented by the Employment Department through its newly set up District Employment and Counselling Centres but the government made them redundant as this money will be channelized through Seed Capital Scheme (SCS). Interestingly, the Voluntary Service Allowance (VSA) being paid in cash to youth and was consumed as ‘political pocket money’ stands stopped and will now be used to build the capacities of the youth for entrepreneurship.

Hoping that the primary sector will come out of its decades old stagnation, Drabu aims at leveraging regional business potential with local youth entrepreneurship by floating the idea of model business villages. While half a dozen villages across the state will get the basic infrastructure for marketing various crops and fruits they produce, the idea is to prevent migration and seek solutions within.

Drabu introduced Venture Capital Fund (VCF) with a corpus of Rs 100 crore but placed it with the Development Finance Corporation – a government of India entity. It has confused the concerned as to whether the state government can tweak a concern that Delhi owns partly and that has been doing nothing, at least for last one decade.

On increasing the stake-holding, Drabu has floated a Dal Development Bond with seven per cent yield for 12 years. His ideation suggests that the emotional equity of non-resident J&K state subjects in J&K and its natural resources can be leveraged to involve them financially and professionally in a business model that will have Dal restored as a by-product. But will a fast silting up lake, that was otherwise a bottomless pit over decades for various investments made into it, take the Drabu Bond serious?


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