Gautam Sen
The Fifteenth Finance Commission (FFC) was to visit Jammu & Kashmir this month-end. That was before the cataclysmic events of 5th August, 2019, altering the constitutional position of this erstwhile state of the Indian Union. Now, there are to be two Union Territories (UTs) – Jammu & Kashmir and Ladakh-Kargil, in place of a full-fledged state of Jammu & Kashmir with Ladakh-Kargil as its constituent. The finance commissions normally do not visit UTs and restrict their consultative process to the states as part of their mechanism to appraise the latters` demands, unless specially mandated in its terms of reference, to do so. This is because the finance commissions are to recommend on needs of the federated states, as against the requirement of the Union or the Centre to which initially the entire proceeds of the divisible tax resources accrue.
However, now, there is a strong and unique case for an independent holistic assessment of the prospective needs of the two regions of Jammu – Kashmir and Ladakh-Kargil in the interest of their people and the nation at large. In view of the present unusual or unique circumstances, the FFC should have a role towards recommending some normative guidelines, if not actual specific quantum of funds from what could be a notional share of the just bifurcated state, from the divisible pool of Central fiscal resources or, as a share to be set aside by the Union Ministry of Home Affairs (MHA) from its next five years` allocations.
It is noteworthy and speaks volumes of the Governor controlled and less-than-expedient Jammu & Kashmir administration that, the memorandum outlining the former state`s profile and financial resource needs, was not submitted till the constitutional metamorphosis of the former state occurred on 5th August, 2019. Normally such a memorandum should have been placed before the FFC at least six months ago.
The needs of Jammu & Kashmir have always been unique in many respect. Its geophysical terrain, historical backwardness – particularly during Maharajah Hari Singh`s rule, economic constraints arising from the closure of natural outlets for trade and commerce through Pakistan-occupied Kashmir, and finally, the negative overhang of security threats from foreign-induced militancy and constant India-Pakistan military skirmishes and bombardment along the virtually entire line of control from Thakur Chak in southern Jammu to NJ9842 (where the LOC ends near Siachen), have undermined the economic condition of the former state. It is now to be seen, as to how the Centre or Union Government initiates the process of upgrading the region`s less-than-adequate economic status, particularly when it has chosen to assume direct responsibility of governance of the former state with its transformation into two UTs. The contours and content of the Jammu & Kashmir Act to be eventually enacted by Parliament apropos the newly created UT entity of Jammu & Kashmir with a legislative assembly, will have an import of its own.
A traditional approach in appraising Jammu & Kashmir and Ladakh-Kargil, as a typical special category state region like the eight north-eastern states, Uttarakhand and Himachal Pradesh, may not be appropriate. First and foremost, the Governmental delivery systems pertaining to basic public needs, requirement for upgrading them, and augmenting the region`s resource generating capacity, improvement of infrastructure and need for effective decentralized governance, should be key areas of concern. MHA, which would be overseeing the two new UTs, should strongly pitch in for the FFC recommending distribution from the Central tax proceeds giving due weightage to infrastructure deficit eg. the extent of availability of all-weather roads per square km, for Jammu & Kashmir`s benefit.
Of late, Jammu & Kashmir has become virtually a region under siege. It is unlikely that the overall scenario will alter drastically soon. Need for maintaining a high level of internal security, but which allows for local administration to reach the people for providing the requisite services for survival, employment opportunities, etc, are needed. While the operating capacity of the police of the Jammu & Kashmir UT will have to be further enhanced, it is necessary that their personnel and resources are well protected and adequately spreadout. The police modernization programmes pursued over the years under the earlier Non-Plan dispensation and the present arrangements with emphasis on equipment and logistics, have not been adequate. MHA should try to convince the FFC on the optimum amount it requires to takes care of the welfare of the police personnel and their families in a dispersed and effective manner. The spate of militant attacks on the police and defence forces personnel and their families as soft targets when off-duty and at home, will have to be kept in mind.
A realistic assessment indicates that, the resource position of both the new UTs on the overall, will remain highly dependent on the Centre, for quite some time. More than 60 % of the former Jammu & Kashmir state`s revenue was obtained from the Centre through grants under Central and sponsored schemes and funds from the divisible pool of Central resources ie. the finance commission recommended grants. Jammu & Kashmir was no exception as compared to the other special category hill states and even many general states. However, there was definite scope for gradually reducing this dependence. The former state`s revenue from sale of goods was gradually increasing till the middle of this decade. The implementation of the unified Goods and Services Tax regime in this territory, does not seem to have been efficacious. While the overall compensation to the states for the states` taxes subsumed under GST, for the period (2015-20) is practically over, the FFC may consider some capacity building grant for the new UTs of Jammu & Kashmir and Ladakh-Kargil to execute the GST institution better.
An area which requires definite improvement is the enhancement of revenue generation by the Power Development Department. This non-tax revenue of the former state from power tariffs, was Rs. 1477 crore in (2015-16), and per se inordinately low, vis-à-vis expenditure of Rs. 4659 crore that year. If the FFC has an opportunity to examine and recommend on fiscal capacity of the two new UT entities and grants-in-aid of their revenue, it should stipulate at least five per cent annual increase in the power tariff revenue on a cumulative basis over its award period of (2020-25) while assessing its non-tax revenue realizable on an optimum basis. Now, with the Union Government`s new-found political will, working out a viable option in this respect, should be feasible. Though Jammu & Kashmir may not be a power surplus state if the desired consumption level is achieved, the reality is that, it can presently earn revenue by selling power from its utilities to the other states in the national grid by displacement method. This is because its internal consumption capacity is low owing to weakness in the state`s distribution network.
The FFC could have a role to play towards realistically appraising the fiscal needs of the region. This depends on whether the Centre is interested or allows it to do so.
(The author is a retired IDAS officer, served in senior appointments of Govt. of India and as Adviser 14th and 15th Finance Commission matters to Nagaland and Arunachal Pradesh Governments.)
The views are personal.
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