Squeezed Expenditures?

After 2018, Jammu and Kashmir is witnessing a fall in income to the government which is resulting in comparatively low expenditures in asset creation, the CAG has highlighted in at least, three of its last audits, reports Masood Hussain

Union Finance Minister Nirmala Sitharaman, flanked by her deputy Anurag Thakur (L) and other officials pose for a group photograph at Parliament House in New Delhi

Regardless of the House, they present their budgets to, the Finance Ministers at the centre or in the states are used to being known by the volume of the estimates they make. In the case of Jammu and Kashmir, it has always been the size that newspaper front pages talked about.

The last budget that was presented for Jammu and Kashmir state was in January 2018, when the then Finance Minister, Dr Haseeb Drabu presented an Rs 80313 crore budget. In 2018 spring, he was sacked and the berth was filled by Syed Altaf  Bukhari. The BJPDP government collapsed under its own weight and Bukhari could not present any budget.

The 2020-21 budget was drafted by the bureaucracy in Jammu and Kashmir and presented in Lok Sabha by Finance Minister, Nirmala Sitharaman. The key feature of its volume was that for the first time in history, it was Rs 101428 crore. In her second budget for 2021-22, the budget estimates were put at Rs 108621 crore. For the current fiscal 2022-23, Sitharaman’s third consecutive budget, the budget estimates were put at a historic high of Rs 112290 crore (the media reported 1.42 lakh crore).

Jammu and Kashmir: Income
2017-18 2018-19 2019-20 2020-21
Up to October 30, 2019 Upto March 31, 2021 Total
Own Tax
Taxes on Sales, Trade etc 7104.37 1757 3483.23 782.43 6381.41 1,495.61
SGST 5134 2,115.75 4,839.35
State Excise 833.16 1291 766.05 587.67 1353.72 1,347.42
Taxes on Vehicles 228.11 239 162.59 246.08 408.67 488.38
Stamp duty and Registration fees 307.43 265 240.78 117.54 358.32 325.54
Land Revenue 29.07 41 86.06 48.32 134.38 60.57
Taxes and Duties on electricity 179.2 189 97.74 0.23 97.97
Taxes on Goods and Passengers 852.62 574.06 158.47 732.53 0.9
Other Taxes 2.44 910 0.0003 0.23 319.22
Total 9536.4 9826 4,056.49 9467 8,876.99
Own Non Tax
Interest Receipts 19.44 21 9.58 9.24 18.82 17.86
Power Development Department 3150.94 3246 1692.97 1,196.66 2889.63 2,349.74
Medium Irrigation 606.73 996.66
Non-Ferrous Mining and Metallurgical Industries 47.46 28.37 14.61 42.98 227.91
Water Supply and Sanitation 93.07 15.54 59.54 75.08 93.89
Education, Sports , Art and Culture 41.33
Police 32.7 39.44 35.85 75.29 39.91
other Misc. 926.63 962 365.46 77.41 309.08
Pension and Misc. Gen Service 62.73
Forestry and Wildlife 18.12 20 14.25
Public Works 47.96 14.31
Medical and Public Health 26.02 16.91
Total Non Tax 4362.34 4349 2196.83 2062.77 4259.6 4076.38
From Centre
Share from Central tax Pool 11911.65 13989.8 6801.81 0 6801.81 0
Grants In Aid 22701.49 23066 15642.83 16438.08 32080.91 39,542
Total 34613.14 37055.8 22444.64 16438.08 38882.72 39542
Borrowings 10350 10,693
Source: Audit reports of the Comptroller and Auditor General of India.

 

Budgets are presented and the public interest is over as the expectations start about the next one. Though every budget offers details about what happened last year, nobody takes it more seriously than the Comptroller and Auditor General (CAG), the constitutional authority to audit public funds. There have been protracted issues between the finance ministries of states and the country and the CAG but it is eventually the latter that prevails.

In a series of audit reports, the CAG has busted the myth that Jammu and Kashmir has ever crossed one lakh crore spending in its history. Off late, however, the CAG has pointed out that the administration has not been able to raise all the resources identified by the Finance Minister of the Government of India and voted by the Lok Sabah. This has almost emerged sort of a trend after the erstwhile state of Jammu and Kashmir was converted into two Union Territories. The CAG data is based on actual income and actual expenditure, though it also mentions that a chunk of funds does move from the federal pool to Jammu and Kashmir directly under various schemes, a system that existed in the pre-2019 era as well. However, it does not take into account the expenditure booked by the Government of India on projects of national importance being executed in Jammu and Kashmir in communication, energy and other sectors.

The slide in revenue generation eventually witnesses a nosedive in the expenditure booked for asset creation and developmental activities. This is the key catch in a series of reports that CAG placed before the parliament in 2022.

Union Finance Minister Nirmala Sitharaman along with Jammu and Kashmir Lt Governor Manoj Sinha lighting a lamp during the inauguration of the new Income Tax Office ‘Chinar’, in Srinagar on Monday, November 22, 2021. KL Image by Bilal Bahadur

Fiscal 2019-20

In the five months starting October 31, 2019, to March 31, 2020, the Jammu and Kashmir administration was supposed to spend Rs 46292 crore. It could only spend Rs 28179 crore, which is 40 per cent less.

Interestingly, however, the first seven months of fiscal 2019-20 were better as the erstwhile state led by the then governor, had managed to mobilise the resources and spend them. The CAG reported that between April 1, 2019, and October 30, 2019, the administration was tasked to spend Rs 34131 crore and it ended up spending Rs 34782 crore, thus overachieving the target. The pace could not be retained after Jammu and Kashmir became the UT.

The shift witnessed two major changes in the public finance system. On one hand, the administration could not mobilise all the resources and on the other end, it failed to spend much on developmental activities.

The CAG pointed out that certain expenditures incurred lacked the authority of law. “No money shall be withdrawn from the Consolidated Fund except under appropriation made by law passed in accordance with the provisions of Section 43 of J&K Reorganisation Act 2019,” the CAG audit report reads. “An expenditure of  Rs 257.71 crore was incurred under 79 schemes/ Sub Heads in 15 Grants without Budgetary Provisions during 2019-20 (31 October 2019 to 31 March 2020) which needs to be regularised.”

Besides, it pointed out that the administration changes the classification of certain revenue expenditures to capital expenditures and vice versa, which “results in overstatement/understatement of revenue expenditure and revenue deficit/surplus”. It located Rs 271.31 crore of revenue expenditure that was disbursed as capital expenditure.

Pre-August Scene

In the first seven months of the financial year, the administration mobilised all the income resources. Though the budget estimates suggested the administration to get Rs 27738 crore of non-debt creating incomes, it ended up getting Rs 30052 crore. This included Rs 5410 crore of own tax, Rs 2197 crore on own non-tax from various services that government provides, Rs 6802 crore as its share from the federal tax poll and Rs 15643 crore of grant in aid from the central government. This helped the administration, raise less debt than it was supposed to. The budget approved by the parliament had permitted it to raise Rs 6424 crore loan and it lifted only Rs 4728 crore.

With this strategy, it could spend Rs 4538 crore on asset creation (capex) against a target of Rs 5960 crore. The achievement was 76 per cent, according to a CAG audit.

The situation changed in the next five months. Resource mobilisation took the main hit. It could barely manage to recover the tax and non-tax locally (Kashmir was closed for most of the time and there was no business activity). Against estimated earnings of Rs 7894 crore from own tax and Rs 3432 from non-tax, the Jammu and Kashmir administration could get only Rs 40546 crore and Rs 2063 crore, respectively, thus achieving the targets barely halfway. This was acknowledged by the Finance Minister in the next year’s budget speech as well.

The budget had suggested that it will get Rs 5462 crore as its share from the central tax pool but not a single penny came. Against the grant-in-aid of Rs 23710 crore, the administration could barely manage to get Rs 16438 crore.

Dr Haseeb A Drabu presented his fourth budget at the assembly in January 2018.
(Image: DIPR)

This left the Jammu and Kashmir administration with a kitty of Rs 22557 crore against a budget estimation of Rs 40498 crore a fall of around 45 per cent. This led to low spending and the government lifted loans liberally. After a very long time in the history of public finances, the Jammu and Kashmir administration lifted Rs 5620 crore against a target of Rs 5691 crore. Eventually, the capital expenditure nosedived to a low of 36.68 per cent. The administration was supposed to book Rs 14885 crore on capital expenditure (asset creation) but it could only spend Rs 5460 crore.

Jammu and Kashmir: The Expenditure
2017-18 2018-19 2019-20 2020-21
Up to October 31 Upto March 31 Total
Budget Expenditure 34331 46292 80623 1,01,428
Salaries and Waages 16143 24154 13087 10708.03 23795.03 23,851.70
Pensions 5408 7519 4903 2095.31 6998.31 9,078.11
Interest payments 4663 5209 3355 2531.63 5886.63 6,372.46
Non Committed Expenditures 13,331.48
Subsidy 1306 1304 706 87.69 793.69 128.24
Capital outlay 10353 8413 5948 5422 11370 10,470
Loan and advances 25 69 12 38 50 62.00
Appropriation to Contingency Fund 25.00
Actual Expenditure 51294 64572 34782 28179 62961 63,318.99

A Year Later

Fiscal 2020-21 did not see any major shift either.

Tensions in the year remained the same – failure in a better collection of the resources already identified by the parliament in the budget, thus pushing the administration to liberally lift loans and resort to other market borrowings.

In the 12 months ending March 31, 2021, the Jammu and Kashmir administration could only collect a tax of Rs 8877 crore against the budget estimate of Rs 13241 crore – an achievement of 67 per cent. However, on the collection of non-tax, the situation improved. Against the budget estimation of collecting Rs 4065 crore, the administration actually raised Rs 4077 crore.

The budget estimates suggest that Jammu and Kashmir will draw Rs 15200 crore from the central tax pool but in reality, nothing came. Against an estimated Rs 54594 of grant in aid from the centre, only Rs39542 crore was received.

Jammu and Kashmir, it may be recalled had a fixed percentage from the central tax pool, a provision that fundamentally changed after it became a UT with the legislature. Though the central government increased the grant in aid allocations, the Jammu and Kashmir administration could not avail all of it, according to the CAG reports.

The administration had set a target of additional resource mobilisation of Rs 4000 crore but not a single penny could be mobilised.

So, against an estimated revenue receipt of Rs 91100 crore, only Rs 52496 crore would land in the consolidated fund of Jammu and Kashmir – a fall of more than 32 per cent.

This led the government to fully utilise the debts and it lifted Rs 10693 crore against the Lok Sabha permission for Rs 10240 crore only.

Most of the funds went to the committed expenditures (revenue expenditure) involving salaries, wages, pensions and interest payments, leaving only a small portion for asset creation (capital expenditure).

Eventually, against the budget estimation of Rs 101428 crore of total expenditure, Jammu and Kashmir spent only Rs 63191 crore only. Of this, Rs 52634 was spent as revenue expenditure and only Rs 10532 crore as capital expenditure.

Fiscal 2018-19

The trend started in 2018, when in June; the BJPDP government was undone. Though part of the year had passed, the direct central rule eventually could not spend the entire sum that the Jammu and Kashmir legislature had given to the government.

The budget for the year 2018-19 was of the tune of Rs 109479.22 crore but the actual expenditure that was booked was Rs 85241.37 crore. This made a saving of Rs 24237.85 crore.

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