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Receipts 1996-97 1997-98 1998-99 1999-00 2000-01 Percentagechange from1996-97 to2000-01

Revenue Receipts 3223 4642 4509 5514 5660 + (76)

Tax revenue 294

(911!

"68

(792!

4"7

(968!

#78

(1047!

746

(1"14! $(1#"!%on-tax Revenue 18"

(#67!248

(#""!28"

(627!40#

(7""!444

(782! $(14"!

&tate share of uniontaxes an' 'uties 626

(1940!8"4

(179#!1212

(268#!12"2

(22"2!67#

(1189! $(8!

rants-in-ai' fromgovernment of )n'ia 2120

(6#71!"192

(6870!2#77

(#710!"299

(#977!"79#

(6688! $(79!

Recovery of loansand advances

3(0.09)

4(0.0)

4(0.0)

5(0.09)

14(0.24)

Total 3226 4646 4513 5519 5674 +76!Source: Compiled from the report of Comptroller < Auditor 9eneral of 'ndia# *++$.

2 3 = > of total# ? = increase# ) = decrease

Table V.$ reeals that the total receipts of the state hae increased from Rs.

#**, crore in $%%,)%- to Rs. 4#,-/ crore in *+++)+$# indicating thereby an increase of

-, per cent. The share of ta" reenue !as %.$ per cent in $%%,)%- but has steadily

increased oer the past years and !as $.* per cent in *+++)+$. 't reeals that there is

enough scope for ta" reenue being the ma6or reenue contributor in future as !ell.

The net increase in ta" reenue has been to the tune of $4 per cent during the years

$%%,)%- to *+++)+$. As regards non)ta" reenue the share has increased from 4.- per

cent in $%%,)%- to -.& per cent in *+++)+$. Though the increase is steady# but not to the

leel of increase of ta" reenue share. The amount of non)ta" reenue has increased

from $& crore in $%%,)%- to Rs. /// crore in *+++)+$# registering thereby an increase

of $/ per cent.

The state1s share of union ta"es and duties has been fluctuating oer the past

years. The absolute reenue under this head has increased from Rs. ,*, crore in $%%,)

%- to Rs. ,-4 crore in *+++)+$ sho!ing an increase of & per cent. Ho!eer# the state1s

share of union ta"es and duties decreased from Rs. $** crore in the year $%%%)++ to

Rs. ,-4 crore in the year *+++)+$# reflecting a decrease of /4.*$ per cent. This calls for

an in depth inestigation in collection and distribution procedures. 9rant)in)aid from

goernment of 'ndia has increased from Rs. *$*+ crore in $%%,)%- to Rs. -%4 crore in

*+++)+$# sho!ing thereby an increase of -% per cent oer these fie years. 9rant)in)aid

forms almost t!o third of total receipt in the past fie years e"cept for the years $%%&)

%% and $%%%)++ !here it !as less than ,+ per cent. The share of recoery of @loans and

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adances1 has been 6ust less than +. per cent oer the last fie years# though in absolute

terms the amount had increased from Rs. crore in $%%,)%- to Rs. $/ crore in *+++)+$.

Thus the state has not been able to generate enough reenue at its o!n leel and has

been mostly depending on the grant)in)aid from the central goernment !hich

contributes about -+ per cent of the total receipts of the state.

or discharging its Constitutional obligations and for carrying out its legitimate

functions# the state goernment spends money on arious actiities ranging from

maintenance of la! and order and regulatory functions to arious deelopmental

actiitiesBprogrammes. The goernment e"penditure is broadly classified into PlanBnon)

Plan and reenueBcapital. The plan and capital e"penditures are meant for asset creation

that eentually help to generate reenue stream directly or indirectly !hereas the non)

plan and reenue e"penditures are associated !ith e"penditure on establishment#

maintenance and serices. The total e"penditure of the state for the past fie years is

reflected in the Table V.*.

Ta"le#$%2& Total Expenditure of the State 2Rs. in crore)

*xpen'iture 1996-1997 1997-1998 1998-1999 1999-2000

2000-2001

Percentageincrease+'ecrease

(,ase ear1996-97!

Revenue !"penditure. 3129 4191 4909 6055 6621 + 111.60

P/an "48(8"2!

44#(864!

#26(944!

704(1026!

7"#(97"! $(11120!

%on-P/an 2781(66#"!

"746(7278!

4"8"(787"!

#"#1(780"!

#886(7799! $(1116#!

#apital !"penditure$ 1000 9 596 711 67 % (13.30)

P/an 924(2210!

908(1764!

608(1092!

791(11#"!

802(1062! - (1"20!

%on-P/an 76(181!

-19(0"6!

-12(021!

-80(116!

6#(086! - (1447!

&is'urseent of loans andadvances

51(1.22)

67(1.30)

62(1.11)

91(1.32)

59(0.7) + (15.6)

otal 410 5147 5567 657 7547 + (0.50)Source:Compiled from the Report of Comptroller < Auditor 9eneral of 'ndia# *++$.

23 = percentage of total ? = 'ncrease ) = ecrease

Table V.* depicts that the total e"penditure of the state has increased from

Rs./$&+ crore in $%%,)%- to Rs. -4/- crore in *+++)+$# thereby sho!ing an increase of

&+.4 per cent. The reenue e"penditure has increased from Rs. $*% crore in the $%%,)

%- to Rs. ,,*$ crore in the *+++)+$ constituting an increase of $$$.,+ per cent. The

results reflect that the goernment had made no efforts to arrest the increasing trend in

the reenue e"penditure# !hich had increased from -4 per cent of the total e"penditure

$++

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in $%%,)%- to && per cent in $%%&)%% and remained constant thereafter. As against this#

the capital e"penditure has registered a decreasing trend# from Rs. $+++ crore in the

year $%%,)%- to Rs. &,- crore in *+++)+$# amounting to a percentage decrease of $.

per cent. This indicates that the state has gien less emphasis on inestments and

gro!th)oriented deelopmental e"penditure. The disbursement of loans and adances

has increased marginally from Rs.4$ crore in the year $%%,)%- to Rs. 4% crore in the

year *+++)+$# recording an increase of $4.,- per cent.

Ta"le#$%3& 'rea(#up of the Expenditure(Rs. in crore)

*xpen'iture 1996-97 1997-98 1998-99 1999-00 2000-01 Percentageincrease+'ecrease,ase ear

96-97

Revenue !"penditure 3129 4191 4909 6055 6621 +(111.60)

enera/ &ervices()nc/u'ing interestpament!

994 (2"77! 1717("""#!

1907("42#!

2414("#20!

2448("24"!

$14628

&ocia/ services 929 (2222! 1048 (20"6! 1241(2229!

1#26(222#!

16#0(2186! $ 7761

*conomic &ervices 1206(288#!

1426 (2770! 1761("16"!

211#("084!

2#2"(""4"! $10920

rants in ai's an'contri,ution

004 -- -- -- -- --

#apital !"penditure 1000 9 596 711 67 % (13.30)

enera/ &ervices 2#(0#9!

"9(07#!

"#(062!

49(071!

"2(042! $2800

&ocia/ &ervices 241(#76!

2"6(4#8!

210 ("77! 208("0"!

240("18! -041

*conomic &ervices 7"4 (17##! 614 (1192! "#1 (6"0! 4#4(662!

#9#(788! -1894

&is'urseent ofloans and advances

51(1.22)

67(1.30)

62(1.11)

91(1.32)

59(0.7) +15.6

otal 410 5147 5567 657 7547 +0.5

Source:D Compiled from the Report of Comptroller < Auditor 9eneral of 'ndia# *++$2 3 = percentage of total

? = 'ncrease ) = ecrease

The brea7)up of the total e"penditure reflected in the Table V. reeals that in

case of reenue e"penditure# economic serices has receied priority# as ,.%- per cent

of total reenue e"penditure has been spent on it. 't is follo!ed by general serices

2,.%- per cent3 and social serices 2*/.%* per cent3. As against this# in case of capital

e"penditure ,&., per cent has been spent on economic serices follo!ed by *-.,& per

cent on social serices and only .,% per cent on general serices. 'n case of reenue

e"penditure the e"penditure on general serices# social serices and economic serices

$+$

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The table also sho!s the reenue and fiscal deficitBsurplus of the state for the

past fie years. The reenue deficit is the difference bet!een reenue receipts and

reenue e"penditure !hereas fiscal deficit basically sho!s the difference bet!een the

total income of the state and its total e"penditure. The results indicate that for the years

$%%,)%- and $%%-)% there !as reenue surplus but from the years $%%&)%% on!ards#

not only there !as a reenue deficit but that too in an increasing trend. Reenue deficit

increased from Rs. /++ crore in $%%&)%% to Rs. %,$ crore in the year *+++)+$#

reflecting an increase of $/+.*4 per cent. Fimilarly# the fiscal deficit recorded an

increasing trend. 't increased from Rs. %4/ crore in the year $%%,)%- to Rs. $&- crores

in the year *+++)*++$# registering an increase of %,. per cent.

A more disturbing feature of state finances emerging from Table V./ is that the

reenue deficit as a percentage of fiscal deficit has been gro!ing ery fast. 't increased

from -.%4 per cent in the year $%%&)%% to 4$.$ per cent in the year *+++)+$. This

reeals that borro!ed funds or grants from the Centre are being increasingly used to

meet reenue e"penses and not used for productie purposes. This can lead the state to

a debt trap and may arrest the pace of deelopment. The primary reason for increasing

trend in reenue and fiscal deficit has been that the state has not been able to generate

additional reenue from its o!n sources and there has been a phenomenal increase in

the reenue e"penditure during the last decade. The reenue e"penditure# !hich !as

-4 per cent of the total e"penditure in $%%,)%-# rose to && per cent in $%%&)%% and

remained constant thereafter. The factors mainly responsible for enormous increase in

e"penditure !ere;

Phenomenal increase in e"penditure under security)related items. This e"penditure

is not fully reimbursed by the central goernment.

'ncrease in the salaries of goernment employees due to the pay reisions# !hich

has increased more than four times during the current decade. The !age bill of

the employees increased from Rs. -++ crore in $%%+)%$ to Rs. +++ crore in

$%%%)*+++. (esides# the increasing rate of dearness allo!ances paid to

goernment employees creates additional burden.

Higher leel of debt sericing due to increase in loans and oerdrafts !hich ranged

bet!een Rs. *$$ crore in $%%,)%- to Rs. &/4 crore in the year *+++)+$. The state

is in debt trap on account of central loans# mar7et borro!ings and other loans

besides the ban7 oerdrafts.

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Gosses on account of Ftate Electricity (oard 2FE(3 amounts to Rs. ,-$ crore for

$%%%)++. The state also o!es more than Rs. -++ crore to arious po!er

companies.

urther# the reenue of the state has not 7ept pace !ith the increasing

e"penditure. 'n fact# the performance of J

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the present leel of the state1s social and economic infrastructure# and the limited

reenue potential and high gro!th re0uirements# it is a difficult tas7 for the state

goernment to generate enough reenue to meet all its re0uirements. Ho!eer# it

should be able and !illing to raise a reenue income that can finance its reenue

e"penditure in full.

olic, Reco**endations

The state needs to institute improed practices of financial management and radical re)

orientation of ma6or policies for improing the efficiency of resource use in the state.

'n fact# a sound and effectie management of state finances calls for efficiency#

economy and effectieness of reenue and e"penditure operations. There are manypotentialities for improing the reenue receipts in the state The follo!ing long)term

and short)term measures are recommended for improing the financial management

practices of the state;

-on.#ter* /easures

'. The reial of tourism in the state to pre)militancy leel !ill not only increase

the contribution to FP but can be perceied as an effectie tool for broad)basing the ta"ation policy structure. Ho!eer# this option cannot be harnessed at

this stage due to the militancy and la! and order problems.

''. Attracting capital inestment# both domestic and foreign# !ould enhance the

financial strength of the state. The promotion of inestment can be strengthened

once the la! and order situation in the state is increased.

Short#ter* /easures

Fhort)term measures shall focus on enhancing reenue reali8ation# to curtail !astage of

resources and to ensure effectie sericing of the ta"ation measures.

'.Reduction in expenditure on esta"lish*ent

Reenue e"penditure is the ma6or drain on the limited financial resources of the state. 't

is a fact that initially due to the adoption of the ifth Pay Commission Report# there has

been a tremendous and immense gro!th in the reenue e"penditure but then it does not

account fully for the deterioration in financial profile of the state since $%%% on!ards.

$+4

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The total establishment is estimated to be about .*4 la7h personnel !hich# gien the

population of the state and also the need structure# is out)si8ed. This is the single most

contributory factor that has aggraated the problem. Fome of the suggestions in this

regard are;

2a3 Iost of the PF:s in the Ftate are moribund and in the red. Public sector

underta7ings li7e the JAKE# A'C# JKTC# JK Cable Car# and HPIC can

be priati8ed. Rather# some of these organi8ations o!n large assets including

cold storages# buildings# huge lands !hich can fetch good money to the

goernment for inestment in the deelopmental actiities.

2b3 9oernment institutions that hae outlied their utility can be abolished. or

instance# Agrarian Reforms iision in the Reenue rgani8ation !here the 6obcan be performed by the Territorial institution Housing (oard because of its

oerlapping interest !ith the entity of FA and JA 2as all these institutions and

JA are doing the same 6ob3. Een in the long run# the 6obs entrusted to FA

and JA can be passed on to the Iunicipal Corporations. Thus# institutions li7e

Housing (oard# Agrarian iision and Command Area eelopment Authorities

need to be abolished here!ith.

2c3 The state goernment could be assisted by the 9oernment of 'ndia or through

ban7ing arrangement for implementation of the VR scheme. This scheme can be

implemented to begin !ith for such of the !ings of the state goernment that are

re0uired to be abolished. Fimilar assistance can be gien for dispensing !ith the

serices of employees of most of the corporations that can be listed for closure.

Iost of this amount can be offset and counterailed against the reali8ation from

the sale and disposal of the assets aailable !ith these organi8ations.

2d3 There should also be specific targets for the reduction of the si8e of the bureaucracy

!ithin a definite time frame.

))% 0ontrol of oerdraft

2a3 There should be an upper limit for oerdraft that must be fi"ed 7eeping in ie! the

critical re0uirement of the state and be fully enforced through different measures

including guidelines from R('. There should be a special dispensation to coer

the oerdraft oer a period of years. This is irtual reality and has to be dealt

!ith as a malaise.

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2b3 The 9oernment of J < K should ma7e an arrangement !ith its official ban7# the J

< K (an7 Gtd.# !herein for determining the actual amount of oerdraftBloan on

a particular date# the summation of balances# credit or debit# from all the

goernment accounts in the ban7# should be used. This can be achieed by

opening a central account in the ban7 !ith its sub accounts in different branches

of the ban7. This measure has the potential of saing $+ to $4 crore of rupees

annually.

2c3 The practice of re)appropriation of funds by different officers of the goernment

beyond their competence should not be allo!ed !ithout proper permission from

higher authorities.

2d3 A proper and readily accessible record of !or7s done# under process and planned

under different heads !ith outlays should be maintained at different concerned

leels and in all s and treasury offices of the area in order to stop

completely the duplication of payments under different heads.

2e3 't should be made mandatory for all the goernment departments to close their

boo7s on $ Iarch and prepare their annual accounts on this date. These reports

should be submitted to the finance department in the first !ee7 of April. These

comparatie statements !ill reeal the position and performance of each

departments.

2f3 All the functions of the finance department and its offshoots should be

computeri8ed and lin7ed !ith one an other on a priority basis in order to

improe the management of finances of the state and bring transparency to

financial transactions.

))) oer Sector Refor*s;

The po!er sector is confronted !ith immense problems including deficit in production

and supply and huge arrears !ithin the state# particularly from the public sector

underta7ing and goernment departments. Fome of the measures that can be considered

are as follo!s;

$. To restructure the po!er sector and carry out large)scale reforms that are aimed

at; 2a3 to reduce losses# 2b3 to induce accountability# 2c3 to ensure proper account

of po!er supply and distribution.

$+-

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*. :niersal metering should be implemented !ith uniersal coerage to obiate

incidence of theft.

. The po!er distribution needs to be priati8ed.

/. An effectie system of recoery of dues !ith suitable incentie structure should

be introduced.

4. The moratorium on the recoery of dues amounting to Rs.-++ crore by the

Central agencies shall be lin7ed !ith the reformation process.

)$% Fundin. of eelop*ent pro.ra**e

To boost the economy of the state the central goernment should ensure accountability.

This !ill ensure infusion of funds for the specified areasB ob6ecties and !ill strengthen

thrust sectors for !hich there is a tremendous potentiality in the state. These sectors

include urban deelopment# rural deelopment# tourism# agriculture# drin7ing !ater#

po!er# forest# employment generation and infrastructure deelopment. 'n this conte"t#

the follo!ing steps need to be ta7en;

$. All the ongoing schemes should be ree"amined !ith reference to 8ero budgeting

and most of the schemes !hich hae the same ob6ectie can be merged or

conerged or can be !eeded out# particularly the same schemes !hich appear on

Plan and non)Plan side. Therefore# to aoid oerlapping# such schemes should

be funded only through one source.

*. Iost of the pro6ects !hich suffer from time and cost oerrun need to be reie!ed

so that the inestment decisions are ta7en in such a !ay that those pro6ects

!hich can be completed should be accorded priority and those !ith long

gestation and high inestment can be ta7en up only after the prioriti8ed schemes

are completed and consummated.

$ Special 0ate.or, State

Jammu < Kashmir# though classified as Fpecial Category Ftate# !as not accorded the

dispensation as isuali8ed for these Ftates 2!ith the e"ception of Assam3 in terms of

financing the Plan e"penditure in the ratio of %+;$+ of grant and loan respectiely.

Although this dispensation !as conceded !ith effect from $%%$# the state goernment

has been as7ing for application of this formula from the date it !as applied to all the

Fpecial Category Ftates in the country. This measure can be considered as an important

$+&

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tool to offset and counterail the debt liability. Thus by notionally !or7ing out the

financial dispensation for the state goernment# this can be ad6usted against the debt

liability as a one time settlement. This !ould reduce tremendously the debt burden and

!ould allo! for the capital e"penditure to pic7 up# commensurate !ith the

deelopmental re0uirements.

$). thers

$. Iost of the Plan e"penditure is on maintaining serices in education and health

sectors. There is a need to e"plore e"ternal funding for critical areas and to get

funds from 'nfrastructural undBLA(AR.

*. The goernment should ma7e a complete shift to 8ero base budgeting.

. The goernment should completely shift oer to the Value Added Ta" Fystem.

/. Fecurity)related e"penditure needs to be fully reimbursed. The 9oernment of 'ndia

has not been able to fully discharge the liability on this account.

$+%