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Full text of the Budget speech by JK Finance Minister , Haseeb Drabu

Full text of the Budget speech by Finance Minister of JK, Haseeb Drabu

1. I rise to present the Annual Financial Statements relating to the Receipts and Expenditure for the current financial year.

1. This budget, the first of this new PDP-BJP Government, has been formulated as a tribute to Jenab Mufti Mohammed Sayeed. Having had the privilege of being his Finance Minister, I have, in this budget, attempted to put into a framework the “Mufti Model of Governance”.

1. As I understand it, it is the art and practice of politics and public service by combining personal integrity, political inclusivity and governance legitimacy. As such, these three themes are recurrent in the budget.
2. First and foremost, drawing from his impeccable track record of six decades of personal integrity and honesty, an effort has been made in this budget to put in place systems and processes which will reduce and eventually eliminate corruption in our system and society.

1. The second draws from his ideology of inclusivity. This budget will try to promote inclusivity across all sections and segments of our society, especially the marginalized and vulnerable; build a safety net and give a human face to Government without becoming a subsidy State.

1. And, third drawing from his belief in democratic legitimacy of Government, an attempt has been made to restore the administrative will and institutional mechanisms for plugging the loopholes in enforcing regulations. In doing so, it is hoped that the State budget will become the most important tool for and of governance.

Budget Restructuring and Reforms:

1. In my first Budget, I changed the entire classificatory framework of the budget. By abolishing the plan and the non-plan bifurcations, we moved to a revenue and capital accounting system. Being a systemic change, it is still a work in process. This year we have refined the classification further and hopefully the accounts are now a more accurate reflection of the reality in terms of developmental and non-developmental expenditures.

1. I propose to make a few more changes to the accounting structure in the budget. These changes have been made with a view to cleaning up the accounts further and giving an actual picture of the state of affairs. First is the budgetary treatment of General Provident Fund. Since 1984, the State Government started the practice of debiting from the gross salary the required provident fund contribution of the employee and paying the net amount to the employee. Normally the amount deducted should have been earmarked and invested in long term financial instruments, so that the Government gets a return on the corpus to fund the interest it pays to employees. This was not done.

1. Instead, the Government has been utilizing the net accruals on account of Provident Fund as captive resources to finance its day to day expenditure. To make matters worse, instead of accounting what it had borrowed from its employees, the net GPF was grossly understated in the budget

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    so as to get a higher allocation of market borrowings. This fiscal hara-kiri has been committed year after year for the last 30 years or so.

1. The net result of this incorrect budgetary practice has meant that the total liability on account of provident fund, which is completely un-provided for, is Rs. 14,058 crore as on      March 31^st, 2015. This is not all. The same procedure has been followed for State Life Insurance Scheme for Government employees for which the liability is another Rs. 588 crore.

1. With no cash in the PF kitty, the outflows which get crystallized year after year, are being paid from current inflows. It is a classic version of what in financial circles is called a “Ponzi game”!

1. The real threat of fiscal crisis, which I am raising now, should have been highlighted in 2009 when the New Pension Scheme was introduced in the State. For, post the NPS, the new inflows have stopped while the old outflows are continuing. Unless quick corrective action is taken now, in a few years, the State Government will not be in any financial position to pay back what it has borrowed from its own employees. I will leave it to this house to debate and decide whether it was a fraud perpetuated by earlier Governments or a primitive accounting error.

1. Be that as it may, I want to assure all our employees that this Government will overhaul the PF accounting system, make provisions and address this issue at the RE stage. It needs a major, painstaking and a creative clean up. If need be we will put in place a line of credit to pay what is due to our employees. Let there not be any panic.

1. Already we have improved the system. Not so long ago, the withdrawal of part or full GPF by our employees used to be a nightmare as their bills would remain pending in the treasuries for six to eight months. Today, and I am sure the employees will vouch for this, they are receiving their GPF dues within a day or so of their presentation of the bill.

1. Second, relates to power sector accounting. Year after year, budgets have shown huge and mounting power losses emanating from the power sector. To address this issue, I have altered the entire power purchase and power receipts accounting system. I will explain this in the second part of my budget, the power budget.

1. Third, relates to the treatment of wages of the DRWs, casual, seasonal, need based and other categories of workers. The significant reform that has been introduced is the treatment of wages. In many departments, especially after engagement of casual workers being banned in 1994, wages have been paid from O&M component of capital expenditure or from maintenance and repairs.

1. There are three consequences of this; first, the wages are paid irregularly which is completely unethical. Second, is that it conceals the amount Government spends on wages. Third, it leaves no money for maintenance of our capital assets. We have now changed this system by insisting on paying wages from the head of accounts where it is to be paid from. As a result there has been an increase in our total revenue expenditure. Going forward, we will see some more increase as departments make this transition from concealing to revealing fully the wages that they actually pay.

1. The result of this accounting irregularity has been that no one has been able to keep track of the ad hoc and casual recruitment in the Government till it has reached unmanageable proportions. To be honest, even if it may sound harsh, the short sightedness of our policymakers and ad hocism of our accountants has hurt our society through a “casualization” of our youth.    It is no longer a financial problem. It is a social issue.

1. Indeed, this is how the Government has approached, and declared its intent to find a solution to the issue of estimated 61,000 people engaged in various ways, in different forms and at different times. I am confident that with the guidance and support of the Hon’ble Chief Minister, we will be able to address it with empathy and understanding.

1. Fourth, relates to the rather incestuous relation of PSUs with the State Government. Just two examples, will give you an idea of what is happening. The State Road Transport Corporation (SRTC), which is a on a budgetary support, is the exclusive transporting agency for CAPD. The Government, by virtue of an order gave SRTC a contract to carry food grains to various parts of the State for a mutually agreed price. The SRTC in turn sub-contracts it to private transporters with a commission/margin as high as 56 per cent. Whether this is poor contracting or inefficient pricing or plain corruption, I leave it to you to decide.

1. Similarly, when the R&B department gives a contract for a road, it supplies bitumen procured from private players or cement procured from a State corporation. Not only is the price invariably higher than the market, it breeds and perpetuates inefficiencies and transactional corruption in the system. This system was created when commodities like cement, steel and bitumen were controlled commodities. That era is long over but the same system continues to survive, indeed thrive. A change is needed.
2. It is imperative that procurement systems need to be made not only transparent but also market friendly. For instance, by permitting contractors to source their own key materials be it bitumen, cement or steel. Also, for all such departments, the civil accounting system has to be instituted.

1. As a matter of policy and budgetary reform, I am happy to provide budgetary support to corporations wherever needed to cover their extra employment burden on the condition that they will compete for business, including Government business, in the open market.            I assure the house that the efficiency gains of this will be much higher and will be shared across the system.

1. The fifth and final budgetary reform is the reclassification and a liquidation plan of all existing liabilities. A major initiative to clear the power liabilities is underway. By the end of this year, we would have cleared all our power dues. I will give you details of the plan in the power budget.

Public Expenditure Management & Monitoring:

1. The ever increasing liabilities of various kinds – authorized, unauthorized, departmental or at the treasury and the cost overruns are a major indicator of our poor system of expenditure management.

1. In the last one month or so, institutional arrangements have been made and are being proposed to address the source of this malaise. First is the streamlining of cost estimates. At the moment, there are no standard specifications laid down for the infrastructure projects in the State. The estimated cost for building a            Sub-District Hospital, for instance, ranges from Rs. 10 crore to Rs. 60 crore. The designs and drawings are governed by the availability of land rather than the public health standards. The interiors are determined by the stock available with contractors than by functionality and aesthetics.

1. Be it the construction of roads, bridges, educational institutions, courts, office buildings there are hardly any norms and standards which are being followed. We have buildings taken up during the 1990s which are still incomplete.The five year plans are more of contractor’s plans than connectivity or developmental plans for delivery of public services. Frankly, in our system buildings and constructions have become an end in themselves.

1. To lay down norms and guidelines for creation of public infrastructure and assets, the recently restructured Planning, Development and Monitoring Department shall review the system of preparation of cost-estimates through standardization of designs and other building specifications to bring about cost savings and efficiencies.  This will be the start of normative public expenditure planning and will ensure the much needed administrative, financial and technical discipline. All these changes will ensure a matching of the cost estimates with the funding available and that in turn will improve project financing and also the overall financing of public infrastructure.

1. The absence of norms is not true only of developmental expenditure. The system is no better in current expenditures where components like travelling expenses, office expenses, and establishment expenditure are allotted on incremental basis without any norms.  For instance it has been noticed that the handling and carriage charges incurred on transportation of food grains to different points of sale in the State are not being carried out on a proper normative basis.

1. It is imperative that there be proper tendering for determination of carriage charges to different locations of the State from current financial year, so that excess charging by the transporters is avoided in future, proper norms are in place and there is parity according to distance of the locations. In the course of this year, we will introduce normative budgeting which will bring a semblance of order and ensure judicious and efficient allocation and spending of public money.

1. Civil Accounting in Forest and Engineering departments which was put in abeyance has already been made operative in respect of revenue expenditure. In the case of              capital expenditure it will take effect from         1^st April, 2017. Departments shall have to take necessary measures to shift to new system during the intervening period so that migration to new system is smooth.

1. While systems are being tightened, it is also important that institutions are financially empowered. Towards this end, a significant decision aimed at granting financial autonomy to the State’s Universities to ensure efficient utilization of resources has been taken. Not only do the Universities now decide about the amount of tuition fees, they retain all internally generated resources. The Universities have also been given the freedom to generate and retain funding from sources other than the Government and to allocate it independently. The same principle of authority with accountability shall be followed with other autonomous bodies and institutions.

1. In addition to a funding constraint, we also are often faced with a liquidity problem manifested in terms of unpaid bills at the treasury and the departments. While a part of it originates in the violation of systems mentioned above, some of it is due to inefficiencies in our management of public funds.

1. For example a review of the cash and liquidity management systems revealed that over the years an abnormally large number of bank accounts have been opened by various departments of the Government. The number of Government accounts in J&K Bank alone is a staggering 2.31 lakh accounts. There will be a few thousands in other banks too!

1. Amidst serious and severe shortage of liquidity, these accounts have been having a two            year average balance of around Rs. 3,000 crore to Rs. 4,000 crore. This idle parking of funds shows lax control as these monies ought to have been transferred to the Government account as required under norms.

1. We have initiated a process of consolidation and rationalization of all Government accounts so that this inefficient situation of unpaid salaries, contractor payments and other liabilities doesn’t coexist with bulging bank balances of a few departments! A system of leveraging financial resources is being put in place.                            This rationalization initiative will help the Government in improving the financial discipline as well as ensure better liquidity management.

1. It may not be inappropriate to say that at times unethical behavior and petty corruption has been a consequence, undoubtedly an unintended one, of budgetary announcements. For instance, during one of the austerity drives, the big cut that Finance Department enforced was on tea served in offices. The tea never actually stopped but its financing changed!          The tea that Hon’ble Ministers and officers had was paid, if whispers in the secretariat are to be believed, from faking printer cartridge bills! This to me sanctifies unethical behavior and breeds corruption at the lowest level and the system not only condones it but also internalizes it as acceptable behavior.

1. Even as we speak, no police station, the primary interface with the citizens for resolution of law and order issues, has ever been provided any specific financial resources to meet the routine expenditure such as the cost of investigation of crimes. This includes basic things like petrol or stationary.

1.  The CAG has pointed out that during 2009-10 to 2013-14, allotment of fuel to district police stations for running their police vehicles was virtually non-existent. Such is the inefficiency of the system, that one third of the fuel quota was being consumed in to and fro journeys by vehicles from police stations to petrol pumps located at district headquarters. With this kind of a setup, the SHO has nowhere but to look for manna from heaven! This has often resulted in the perception of police station and its personnel being corrupt.

1. This can be resolved and the system improved without much administrative effort and/or financial burden. By way of an example,                 I propose to do so by allocating Rs. 1 lakh each in favor of all the 193 Police Stations of the State as “Cost of Investigation”.  Having the legitimate financial resource will certainly uplift the image of police stations in the minds of common masses.

1. In the non-core activities of the Government, irrespective of our overall resources position, we must follow the global trends of alternate systems of delivery of developmental programs and public services. For a more effective delivery of public services, the State Government needs to lay stress on Public Private Partnerships.          In our case, apart from improving the delivery of services, it will also help the nascent local private sector in its otherwise stunted growth. In key sectors with lumpy frontloaded investments, the Government will consider providing Viability Gap Funding so as to make it remunerative for the private partner.

BUDGET ESTIMATES FOR 2016-17

1. This fiscal, the total receipts are estimated at     Rs. 61,681 crore. Of these, Rs. 51,460 crore are revenues and Rs. 10,221 crore are in the form of borrowings. The State’s own revenues are estimated to be Rs. 23,739 crore while the share of Rs. 9,500 crore is the share of the State in central taxes. In addition to this, Rs. 27,721 crore are to flow as other central transfers.

1. Given these receipts, the total expenditure is estimated to be Rs. 64,669 crore during 2016-17. Of this, capital expenditure would be Rs. 19,694 crore and revenue expenditure Rs. 44,975 crore. What these large numbers mean is that we are spending Rs. 2.50 in order to be able to spend     Rs. 1.00 on development. To reduce this ratio from 2.5:1 and at least bring it at par with the development spend is the first big challenge.     We have made a good beginning in this budget. But the road ahead is difficult as salaries                         and pensions alone account for more than                 Rs. 23,000 crore which is more than the total developmental expenditure in the year!

1. The other challenge is to spend the budgeted money well. We are budgeting to spend about Rs. 180 crore a day. Apart from the much spoken about limited working season, our institutional capacity to spend is limited. Be it the time taken to do the documentation or tendering, or the installed and available capacity of the private sector the actual execution of works takes inordinately long to start and even longer to end.

1. The total capital expenditure during the year is Rs. 19,694 crore, of which State capital expenditure is Rs. 4,362. While capital expenditure under centrally sponsored schemes is Rs 6,200 crore, the overall capital budget has got a leg up because of the additional resource allocation of Rs. 6,000 crore from the             Prime Minister’s Development Plan (PMDP).

Relief and Rehabilitation

1. The capital expenditure which forms a large part of the Prime Minister’s economic rehabilitation plan, has been designed as a critical link between relief and development. Underlying the plan is an intermediate strategy of institutional reform and reinforcement, of reconstruction and improvement of infrastructure and services initiating and supporting sustainable development.

1. Even though PM’s plan has been formulated in the aftermath of the devastating flood of September 2014, in this plan, disasters have not been looked upon as singular events unrelated to development processes. The Prime Minister’s Development Plan (PMDP) is based on the understanding that relief, rehabilitation and development do not chronologically succeed each other but have to be simultaneous and are strongly interlinked.

1. The size of the PMDP which is an aggregate of sectoral initiatives, is Rs. 80,000 crore. It is fully funded and expected to be executed over the next five years. The annual phasing of the plan will be based on the absorptive capacity and spending capability of the State Government and its implementing agencies.

1. Under the PMDP, an amount of Rs. 1197 crore has been received for providing of assistance in respect of completely/severely and partially damaged houses. The release of funds has been provided to individual beneficiaries under the Direct Benefit Transfer mode through DDCs concerned. An amount of Rs. 957 crore has been disbursed till date.

1. Financial assistance to certain category of uninsured and small traders affected by the floods, who had not received any assistance either from banks or other financial institutions, was provided assistance through the Chief Minister’s Flood Relief Fund.    A total amount of Rs. 101.89 crore has been distributed till date among around 40,000 small traders whose turnover is up to Rs. 5.00 lac.

1. The PMDP also included an amount of Rs. 800 crore for extending interest subvention support to the trading and manufacturing units whose borrowal accounts have been restructured by banks after the September, 2014 floods.

1. These funds stand transferred by the Central Government. The interest subvention support will be provided through banks/financial institutions to the affected units very soon.      The interest subvention scheme has been approved by the cabinet.

1. For the displaced persons of PoK and Chamb, necessary scheme has been drawn up by the State Government and submitted to the Central Government for approval and release of financial assistance of Rs. 2,000 crore for its onward distribution among the identified 36,348 families. Cash Assistance to Jammu province migrants has been also recently enhanced and brought at par with Kashmiri migrants with effect from 18^th November, 2015.

Industrial Policy Initiatives:

1. There is a considerable uncertainty about the Industrial Policy in all the States that offer tax exemptions and other fiscal incentives to industry in view of the uncertainty about finalization of the GST. J&K is a little more complicated case as we have to carve out our space within the national tax regime while protecting our unique privilege of the right to tax services.

1. Till such time as there is clarity on the implementation of GST and its applicability to the State, it will be difficult to formulate a long term Industrial Policy. However, prior to the formation of the new Government, an industrial policy for the State has been notified. This will require substantive changes once the GST regime is implemented. For the moment, few changes are required. Industrial associations of the State will be encouraged to develop, on their own or in partnership, private industrial estates/parks on commercial lines.

1. While the Government will go all out to attract investments in industrial estates or elsewhere in the states by providing an enabling environment and incentives, it will be ensured that these are governed by and are in compliance of our existing administrative practices, regulatory norms and the Constitution of J&K.

1. The industrial estates in the State, will be reorganized to function as a corporate entity within the aegis of SIDCO/SICOP. The idea is to make each one of them a profit centre. These estates shall become SPVs of the corporations or operating companies be it SIDCO or SICOP.

1. In essence, the estates will effectively be corporatized and each estate will have an estates manager who will be the CEO of the industrial estate. All the unit holders within the estate will form its management committee. Each industrial estate will then have an income and expenditure statement and a balance sheet which will be audited annually.

1. Further, one third of the earnings of the industrial estate by way of rents and other earnings shall be mandatorily deployed for the upkeep, maintenance and up gradation of the assets and infrastructure of the estates.

1. Information Technology is an important sunrise industry in the State. To facilitate growth of this sector and to help the local IT companies reach certain economies of scale, the Government shall offer Joint Venture opportunity to State’s Top 10 IT companies in terms of audited top line. The State Government will invest through        J&K E-Governance Agency (JAKEGA) or an SPV created for this purpose. The proposed initiative shall also help speed up e-governance projects in the State. For capitalization of the Joint Venture (JV), I have earmarked Rs. 10 crore.

1. Our new breed of young entrepreneurs needs support for them to grow. Instead of giving them subsidies, I propose to set up Business Incubators for sunrise industries in the capital cities of Srinagar and Jammu. The Business Incubators will provide finances, branding, and marketing support to the entrepreneurs.            To begin with, I propose a start-up fund of Rs. 5 crore.

Fiscal Initiatives:

1. In the last one decade or so, no new industrial estate has been created in the State. To enable the Industries & Commerce Department to create a Land Bank across the State for acquisition and development of the new Industrial Estates, I am earmarking an amount of Rs. 40 crore.

1. The Government is working out modalities to grant some specific relief to sick industries on account of arrears of power surcharge.

1. In order to provide fillip to the local IT start-ups,   I propose the following set of incentives:

1. Waiver of permission fee for sanctioning “right of way” for laying optic fibre cables

    

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