The finance minister of the state of Jammu and Kashmir either out of genuine exasperation or feigned helplessness to shift the onus of blame to his detractors, after delivering Budget 2016, stated that the mess of 60 years cannot be undone in a year. Perhaps at the risk of over analysis, the sub text of Drabus statement appears to suggest that the lack lustre pedestrian nature of the budget despite his reputation as a stellar economist is not his fault. In essence then, Drabu is exonerating himself for the drab budget. It may be stated here that the aim here is not to personalize criticism but to make a larger point.
Drabus budget is as drab as can be. We will neither go into a qualitative nor quantitative assessment and analysis of Budget 2016; what we will be doing is to make broad inferences about what Budget 2016 indicates. Our analyses then is not in the nature of analysing the minutiae of the Budget but admittedly in the nature of broad generalisations and inferences thereof.
Government Budgets profoundly and significantly affect the lives of people, economies and societies. As such , budgeting is both an art and a craft. Budgets and budgeting are not merely about balancing books, evening out or smoothening revenues and expenditures; budgets are critical and key instruments of public policies. They are also about resource allocation, debt sustainability and economic stability and even growth.
While axiomatically, there are trade offs involved in budgeting and resource allocation, ideally, an optimal budget should and must induce a degree of certainty stability and stable equilibrium . Drabus budget does neither. Premised on what may be called fiscal illusion , Budget 2016 does not appear to have factored in the trade cycle in the state and beyond and glosses over the link between taxes and government spending. The Budget also appears to create an impression of fiscal sustainability , that is, balance between revenue, expenditure , levels of debt and other aggregates in a way that promotes economic growth and stability. But it is not real; the edifice of alleged fiscal sustainability in Budget 2016 appears to correspond to what in the parlance of modern corporate finance is called financial engineering. Or , in plain words, fuzzy maths.
All in all then the Budget is as lame as it is pedestrian.
This assumes poignancy given the condition and state of the economy of Kashmir division of the state of Jammu and Kashmir. Our economy is in a parlous state. Theres very little money in circulation; government coffers are not full and business activity has plummeted. This has affected the purchasing power of the people and their incomes. Income growth, roughly speaking, depends upon the broader economic growth, investment and savings level, capital stock owned by people and productivity of capital, among other things. But almost all components of this equation are either negligible or missing in Kashmir. Overlaying these rather abysmal conditions are a government defined by inertia and malfunctioning markets and their poor scope and depth. Given all this, what could have been done to increase incomes of the people?
The government given the structural conditions that obtain in Kashmir does not have much latitude and leeway in promoting economic growth. However, this does not exonerate the government. What could have been done is to draft a budget whose focus lay in improving incomes and thereby economic growth. One way to generate income growth could have been to generate returns from Government assets and factors of production. Given that land is the major factor of production, this would have meant leasing out land to investors but the major problem with this would have been outsider interest in land and then the gradual erosion of whatever remains of the autonomy of the state. This then precludes returns from assets option. What is left is devising a budget structure where government behaviour would be determined by the nature and structure of government expenditure and investment. This, alas, appears not to have been done.
Another option for the government would have been to promote both manufacturing and services sectors in Kashmir. Critic would point out that the land locked nature of Kashmir and distance from ports would give short shrift to this option but as the cliché goes, where there is a will, there is a way. If the Government were really serious and intent upon expanding the scope of manufacturing in Kashmir, it would have subsidized through tariff reductions the transport and logistics costs of inputs into the production process and perhaps also helped through an industrial policy that accorded cross subsidies, marketing and market outlet support and other forms of support in the nature of the infant industry idea. Moreover, in a globalized world, where time and space stand compressed, Kashmir could have developed a service(s) industry that catered to niches in the global economy. Here Government support in terms of being an enabler and facilitator would have helped but again , as the Budget indicates, the Government is remiss.
All in all then Drabus Budget 2016 , is more of the same , in a different permutation and combination. It may have had some impact if and only if the structures and processes of both Government and governance would have been streamlined and aligned to the demands and requirements of economic growth and various other stakeholders. But, alas, this has not even been attempted. Tweaking and financial jugglery underpinned by fuzzy maths can only do so much. While there were no real great expectations from the Budget by the people of Kashmir, but hopes of a respite from a financial crunch will be dashed. Unless and until, a massive fiscal stimulus is devised for and disbursed in Kashmir, hopes of a broad based economic recovery will all be in vain. Budget 2016 merely validates this point.
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