By R. Suryamurthy
New Delhi, Apr 4: Flagging a widening gap between economic growth and fiscal capacity of Jammu and Kashmir, the Comptroller and Auditor General (CAG), has signalled that without structural corrections in revenue mobilisation and expenditure management, the Union Territory’a public finances may face increasing strain even as headline growth remains intact.
The CAG, in its latest audit report of Jammu and Kashmir tabled in the Assembly, shows that the UT’s economy expanded by 11.18% to ₹2.62 lakh crore.
However, this growth has not translated into commensurate fiscal strength, raising questions about the sustainability of the current model where expansion is underpinned more by public spending and central transfers than by endogenous revenue generation, says the report.
Revenue receipts rose by a modest 6.12% to ₹74,401 crore, reflecting a clear decoupling from economic growth, with own tax revenue increasing by just 2.5%, far below both projections and the pace of GSDP expansion.
The shortfall—nearly one-third against budget estimates—suggests not only conservative tax buoyancy but also systemic weaknesses in assessment, compliance, and forecasting, which, if unaddressed, could constrain the government’s ability to finance developmental priorities without resorting to higher borrowing.
This structural weakness is compounded by a continued dependence on central support, with grants-in-aid accounting for about 72% of total revenue receipts, a ratio that has remained broadly unchanged over recent years.
While such transfers provide stability in the short term, they also limit fiscal autonomy and expose the UT’s finances to policy shifts at the Union level, underscoring the urgency of broadening the local revenue base.
On the expenditure side, the imbalance is more pronounced.
Total spending rose to ₹82,547 crore, but its composition reveals a persistent tilt towards revenue expenditure, which absorbed over 85% of total outlay, largely driven by salaries, pensions, interest payments, and subsidies.
Capital expenditure, at just ₹12,060 crore, remained well below budgeted levels, indicating that fiscal pressures are increasingly crowding out long-term investments in infrastructure and productive capacity—an imbalance that, if prolonged, could dampen future growth prospects.
Although the UT reported a revenue surplus of ₹3,929 crore, the broader fiscal picture remains under strain, with a fiscal deficit of ₹8,146 crore, exceeding budget projections and highlighting the structural gap between receipts and total expenditure.
The persistence of deficit financing, even in the presence of a revenue surplus, points to the limited elasticity in fiscal space, where capital spending continues to rely on borrowings rather than internally generated surpluses.
The audit also draws attention to a steady accumulation of liabilities, with outstanding debt rising to 17.21% of GSDP, and significantly higher—48.47%—when legacy liabilities are included, alongside off-budget borrowings of over ₹23,000 crore, which remain outside the conventional fiscal framework.
Such trends, coupled with undischarged liabilities and gaps in reserve fund provisioning, suggest that fiscal risks are building beneath the surface, even if headline indicators remain within manageable limits.
Equally concerning are issues of budget credibility and financial discipline, with revenue projections overshooting actuals by a wide margin, capital expenditure falling short by more than half, and thousands of utilisation certificates and contingent bills remaining pending, collectively pointing to weaknesses in expenditure planning, monitoring, and accounting practices. These gaps not only affect transparency but also impede the efficient deployment of public resources.
Taken together, the findings suggest that Jammu and Kashmir’s fiscal trajectory is approaching a critical juncture: while growth remains steady and the services sector continues to dominate the economy, the underlying fiscal architecture—marked by high committed expenditure, weak own-revenue mobilisation, and dependence on external support—appears increasingly unsuited to sustain long-term development ambitions.
Going forward, the report implicitly points to the need for a recalibrated strategy—one that prioritises realistic budgeting, strengthens tax administration, rationalises expenditure, and enhances transparency in off-budget liabilities—if the UT is to transition from a transfer-dependent framework to a more resilient, investment-driven fiscal model capable of supporting durable and inclusive growth. (BVI)
