SRINAGAR: The Jammu and Kashmir government has turned bankrupt. Though the current financial year has just begun it is unable to pay for Plan and non-Plan expenditure including the salaries of its employees. Such is the magnitude of the crisis that the Center will have to pump in several hundred crores to avert a chaotic situation.

The signs of unrest attendant on a collapsing economy are already showing. The road transport corporation employees struck work demanding their pay for June. A large number of government employees had not drawn their salaries till recently.

The state’s budget for 1992-93 shows a staggering deficit of Rs 602.73 crore which is almost 25% of the total Plan and non-Plan expenditure estimated this year. Finance ministry sources say the budget deficit will rise to Rs 1265 crore by the end of March 1993 because the targeted tax and nontax receipts are unlikely to be actually realized in view of the “civil disobedience” going on in the Valley. For the last three years people in the trouble-torn Valley have at the instance of the separatist militants refused to pay electricity charges sale tax and the like. These officials admit is not reflected in the estimated receipts shown in the budget.

Officials say that apart from a shortfall in the collection of revenue the huge budget deficit is primarily due to the additional expenditure on security and related matters which include relief to migrants food shelter and other facilities and perks to the paramilitary forces and also the expenditure on the thousands of detainees This expenditure which is over and above the direct allocation of Rs 146 crore for the home department is said to be of the order of Rs 152 crore and may be even more. The recent pay version of government employees with retrospective effect he added to the crisis.

‘The state government is looking to the Center to cover the huge deficit. After the entire budget has been passed by Parliament says the state’s additional chief secretary (finance) Jalil Ahmed Klan.

However the Center is yet to come forward with any special assistance. All that it has done says Khan is to release payments to the state before they fall due. He admits that while providing immediate relief this may make   things more difficult for the state in the coming months.

As of now a complete collapse of the economy has been averted with the help of the Jammu and Kashmir Bank which has in blatant violation of RBI norms advanced an overdraft varying from Rs 350croreto Rs 491 crore to the government which bank officials say is “unprecedented in the history of banking” in the country. ‘The Reserve Bank has fixed a limit of Rs 375 crore for “normal ways and means assistance” and Rs 10 crore for “special ways and means assistance” which the bank can provide to the state government at any time. In the past the overdraft has in no circumstances risen above Rs 100 crore. But now the RBI is “conniving” at the extraordinary “indiscipline” at a time when strict financial discipline is the catchword of the country’s economic policy.

 

The government has to pay an interest of 20% to the bank on the huge overdraft. On June 30 when the Center released Rs 49 crore to the state the bank adjusted Rs 27 crore out of it against quarterly interest. Yet the bank officials who have any say in the management’s decisions feel concerned. Recently the bank had to borrow money from the open market at an interest rate of 65% and 40% respectively in order to maintain the statutory liquidity ratio (SLR). Sources say that it had also to withdraw participation loan from another bank for the same purpose. Thus the J and K Bank which hitherto was a lender in the money market has become a borrower.

Bank officials say that despite the RBI-fixed norms there would be nothing abnormal about a huge overdraft to the government. But the worrying factor they say is that the overdraft has remained unadjusted for over four months at a stretch. “We are financing the government’s budget deficit” a bank official said He also pointed out that the huge overdraft to the government is likely to affect the bank’s public lending. If the bank suspends public lending its reputation will suffer and the depositions might withdraw their money than bringing the bank to a collapse. In this context the bank officials also point that the overdraft to the government is not supported by any guarantee as is the case with the Rs 1375 crore under“ ‘ways and means assistance” which is advanced under a proper agreement. In other words the bank cannot have the money back on demand they explain.

It was probably in view of these considerations that the bank has been refusing to go beyond a certain limit in giving further overdraft to the government.

It is reported that on the eve of the Union home minister S.B.Chavan’s recent visit to Kashmir the hospitality and protocol department here drew a check for Rs 20000 on the J and K Branch but the check bounced. However the bank was persuaded rather forced to help the government out of the difficulty in paying salaries to its employees. But for how long?

The resource crunch is also affecting the developmental works in the state as the treasury is not able to pay the bills of contractors and the like. This may spell disaster to the overall economy of the state. ‘There is talk in the corridors of the civil secretariat here that the state may opt for a “Plan holiday” for two years to divert the Plan assistance to non-Plan expenditures. But no such decision has been taken.

Article extracted from this publication >> July 24, 1992