State Finances of Jammu and Kashmir since 1980/81: Problems and Prospects

Purpose: There is abundance of studies examining the finances of the centre as well as combined finances of the states but there are very few studies analyzing the finances of the state governments hence state level studies are essential to have a comprehensive analysis of stability, sustainability and the financial constraints faced by the state. The present study is an attempt to look at the general fiscal trend and patterns in the state of Jammu and Kashmir. The study uses time series data from 1980/81 to 2014/15 on various variables like receipt and expenditure and their components, fiscal and revenue deficit, outstanding liabilities, market borrowing and borrowing from the central government. The data used in the study is collected from the audit reports of Comptroller and Auditor General of India on state finances. Methodology: The paper observed that own tax revenue of the state along with state’s share in central taxes has increased significantly whereas non tax revenue has remained more or less static with mild fluctuations. Grants in Aid from the central government though lessening but still contribute more than 50 percent of revenue receipts of the state. (iii) Revenue expenditure is the major component of expenditure of the state and more than 70 percent of it goes in salaries and pensions, purchase of power and interest payments. Capital expenditure shares a very minor part of total public expenditure (less than 20 percent) and majority of it is dominated by power sector and transport. Findings: Both revenue and capital expenditure observed a steep fall especially in economic services while expenditure on social services under both revenue and capital head remained almost constant. Expenditure on education and police has increased comparatively while expenditure on health has decreased significantly. State enjoys revenue surplus which is shrinking significantly after 2010-11. Fiscal deficit though above 5.0 percent but has shown a decreasing trend after 2009-10. Recommendations: Though the outstanding debt and liabilities to GSDP ratio is high but is decreasing. The study concludes that state needs to diversity its revenue sources and invest more in productive purposes to enhance growth and fiscal prudence.