The State has received Rs.1.14 lakh crore in grants over sixteen years

Jammu and Kashmir has received 10 per cent of all Central grants given to states over the 2000-2016 period, despite having only one per cent of the country’s population, analysis by The Hindu of Central and State finances shows.

In contrast, Uttar Pradesh makes up about 13 per cent of the country’s population but received only 8.2 per cent of Central grants in 2000-16. That means J&K, with a population of 12.55 million according to the 2011 Census, received Rs.91,300 per person over the last sixteen years while Uttar Pradesh only received Rs.4,300 per person over the same period.

Even among the special category states, Jammu and Kashmir receives a disproportionate amount of Central assistance.

The state received Rs.1.14 lakh crore in grants over the sixteen years under review, according to the Union Finance Ministry’s data, which is more than a quarter of the Central funds disbursed to the 11 special category states in that period.

“In general, the special category states get a higher share of central grants, and Jammu and Kashmir being one of them will also get such treatment,” Tapas Sen, a professor at the National Institute of Public Finance and Policy (NIPFP), and a long-time researcher on state finances, told The Hindu. “But even among them, Jammu and Kashmir is getting a higher share due to its disturbed status and its border with Pakistan.”

Experts on the subject also say that this larger share could work as an incentive to ensure that the state remains with India.

CAG report

This seeming imbalance in Jammu and Kashmir’s finances — with Central grants accounting for 54 per cent of the state’s total revenue and 44 per cent of its expenditure in FY16 — assumes significance in light of the fact that the Comptroller and Auditor General of India in 2015 castigated the Jammu and Kashmir government for the pendency of a large number of inspection reports and observations highlighting “serious financial irregularities” in the state.

“There were persistent errors in budgeting, savings, excess expenditure and expenditure without provision,” the CAG report on the State’s finances for the year ended March 31, 2014, said. “Anticipated savings were either not surrendered or surrendered at the end of the year leaving no scope for utilising these funds for other development purposes.”

The report has entire sub-heads titled ‘errors in budgeting process’, and ‘unrealistic forecasting of resources’.

Apart from the political reasons, there are also some fiscal reasons for Jammu and Kashmir receiving a larger share of Central grants.

Fiscal reasons

“Service Tax is not levied in Jammu and Kashmir and hence the state does not get a share of the same in the devolution of central taxes to states,” Ranen Banerjee, Leader – Public Finance and Economics at PwC India said.

This has led to a ballooning of Jammu and Kashmir’s share in the total non-plan revenue deficit of all states, Mr. Banerjee said, which has, in turn, meant that the Centre has had to send it more money to finance this deficit.

Another reason lies in the Centre’s treatment of the north-eastern and hilly states.

“Plan Grants were stopped by the Twelfth Finance Commission except for the north-east states and hilly states including Jammu and Kashmir,” Mr. Banerjee said. “Thus, Jammu and Kashmir and other hilly states continue to get the Plan grants while others do not get it.”

However, this aspect does not explain Jammu and Kashmir’s larger share of grants even when compared to other hilly states.

According to the CAG report, 32,625 audit observations containing 8,518 inspection reports pertaining to the period 1998-2014 were outstanding as of March 31, 2014.

“Even though there might be legitimate reasons for Jammu and Kashmir receiving more Central grants, there is no call for such a large number of audit observations and questions lying unanswered with the state government,” another professor from NIPFP said. “Ignoring CAG’s warnings is a sure sign of trouble.”