India’s Fastest Growing State in Tax Revenues; J & K

                                         

The state of Jammu and Kashmir rarely makes news for its economy. And yet, asIndiaSpend’s Dhritiman Gupta finds out in a snapshot study of the state’s Budget for 2012, not only have tax revenues been begun zooming but the State is also budgeting aggressively ahead. The numbers are obviously lower (Table 2)than most states but J&K could well beat all states to post the fastest tax-revenue growth in coming years. Needless to add, the growth also comes on a low base. Incidentally, State Finance Minister Abdul Rahim Rather did point out his state’s achievement to media persons in March 2012 after he presented the Budget. A key takeaway – particularly if you did not know – is that almost three-quarters or 74% of the state’s revenue comes from the Central Government. At least that was the case in 2011-12. By way of background, revenue account involves receipt and expenditure of tax revenues, non tax revenues and central grants; while capital account involves flow of loans from centre or institutions like the RBI.  Good Revenue Management? A glance at the state’s numbers (Table 1) shows that J&K manages its revenues quite well - posting surpluses. But on the other hand, as we will see later in detail, the state depends mostly on grants from the centre. In fact revenue receipts in 2011-12 were less than budgeted because of lesser than budgeted resources from the centre. The revenue surplus in 2011-12 was to the tune of Rs 2,659 crore. It is slated to go up to Rs 4,958 crore in 2012-13. The surplus on the revenue account helps finance the excess capital expenditure (investments). Capital receipts however are a cause for worry. They are slated to fall from Rs 5,509 crore in 2011-12 to Rs 3,905 crore in 2012-13; a fall of around 30%. Table 1 2010-11 2011-12(BE) 2011-12(RE) 2012-13(BE) 1. Revenue Receipts 22,235 26,701 25,513 29,948 2. Revenue Expenditure 18,467 22,752 22,854 24,990 Revenue Deficit(-)/Surplus(+) 3,768 3,949 2,659 4,958 3. Capital Receipts 3,334 4,511 5,509 3,905 4. Capital Expenditure 7,102 8,460 8,168 8,863 Capital Deficit(-)/Surplus(+) -3,768 -3,949 -2,659 -4,958 (Figures in Rs. Crore) Source: Jammu and Kashmir Budget 2012-13 Now let’s look into the composition of revenues. You can also see here how the state’s tax revenues are growing. Table 2 2010-11 2011-12(BE) 2011-12(RE) 2012-13(BE) Revenue Receipts(RR) 22,235 26,701 25,513 29,948 1. Own Tax Revenue 3,483 4,183 4,791 5,419 2. Non-tax Revenue 1,093 1,620 1,851 2,118 3. Share in Central Taxes 3,067 3,328 3,691 4,245 4. Resources from the Centre 14,592 17,570 15,180 18,166 Share of Central resources in RR (3+4/RR) (%) 79.4 78.2 73.9 74.8 Resource from Centre in RR (4/RR) (%) 65.6 65.8 59.4 60.6 Source: Jammu and Kashmir Budget 2012-13 High Dependence On Centre It can be easily seen from the table that Jammu and Kashmir depends heavily on the centre for its resources. The revenue receipts in 2011-12 was less than budgeted by Rs 1,188 crore mainly because central resources were less than budgeted by Rs 2,390 crore. The good thing is that the state’s own taxes have been growing. In 2010-11, own taxes were Rs 3,483 crore. It grew to Rs 4,791 crore in 2011-12; a growth of 37.5%. During that period non-tax revenue grew by 69.3%. To look at how states own tax revenue has grown, we referred to the Reserve Bank of India (RBI) state budget studies. State tax revenues in 2009-10 were Rs 3,074 crore. The growth from 2009-10 to 2010-11 was just about 13.3%. Hence the growth rate has picked up only in the last year. Depends On Central Grants However, one cannot overlook the fact that the state survives on central grants. If we combine share in central taxes and central grants then almost 74% of revenues of the state came from the centre. The figure is budgeted to go up to 74.8% in 2012-13. If we leave aside central taxes, to get a measure of grants from centre, we find that almost 60% of the states revenues were in form of grants in 2011-12. The figure was 65.6% in 2010-11. Hence the state has been able to marginally reduce its dependence on the centre. This was possible due to the good growth in states own revenues and non tax revenues. Another indicator of the state of finances is the debt-GSDP ratio. Let’s look into the debt figures for the state. Table 3 Total Liabilities(in Rs Crore) GSDP (in Rs Crore) Liability as (%) of GSDP 2007-08 21,355 37,099 58 2008-09 24,275 42,315 57 2009-10 28,724 48,197 60 2010-11 29,972 54,731 54.8 Source: Jammu and Kashmir Budget 2012-13 Bad Debt Situation The debt situation of Jammu and Kashmir is quite bad. From 2007-08 to 2010-11 the debt has grown by 40.3%. The debt-GSDP ratio has been above 50% consistently. It touched 60% in 2009-10. In 2010-11 the state did well to reduce the figure to 54.8%. Jammu and Kashmir is a special category state- with larger resources from the centre and larger leeway when it comes to fiscal indicators. If we were to compare Jammu and Kashmir to the worst performing state among non-special category state, we will get an idea of the tight situation Jammu and Kashmir could be in if the centre does not stand by it. West Bengal has the worst debt figures among non-special category states, with its debt-GSDP ratio being 39.5% in 2010-11. The debt-GSDP ratio for Jammu and Kashmir in the same year was 54.8%. Proposed Sectoral Outlays Let’s now look at the proposed outlays by sectors. Table 4 Sector 2011-12(RE) (In Rs Crore) 2012-13(BE) (In Rs Crore) Change % 1. Agriculture and Allied Activities 255 343 34.5 2. Rural Development 200 198 -1.0 3. Special Area Program 399 395 -1.0 4. Irrigation and Flood Control 483 446 -7.6 5. Energy 496 455 -8.2 6. Industries and Minerals 152 153 0.6 7. Transport 876 823 -6.0 8. Communication 15 10 -33 9. Science, Technology and Environment 6 5 -16 10. General Economic Services 714 1,231 72.4 11. Social Services 2,328 2,532 8.7 12. General Services 672 706 5.0 TOTAL 6,600 7,300 10.6 Source: Jammu and Kashmir Budget 2012-13 Total outlays are up 10.6% from 2011-12 to budget estimates of 2012-13. However, this masks the fact that many important departments will have reduced outlays. Energy, Transport and Irrigation and Flood control are the worst sufferers receiving Rs 41 crore, Rs 53 crore and Rs 37 crore less respectively. Agriculture and social services will however have increased outlays by Rs 88 crore and Rs 204 crore respectively. In percentage terms, general economic services received the maximum hike of 72.4%. Jammu & Kashmir’s increased tax collection has come on the back of a rise in collections under commercial taxes, up 42% or Rs 1,057 crore. Subsequent IndiaSpend reports will delve deeper into tax collections in specific and J&K’s finances in general. And thus assess the state’s ability to self finance future growth and development. For now, J&K can claim a fiscal victory. A small, but enviable one.