In J&K Assembly elections, welfare promises face a fiscal reality check

As Assembly elections in Jammu & Kashmir, the first in a decade, draw to a close with the third and final phase of polling on Tuesday, political parties have centered their campaigns around a range of welfare promises.

From free LPG cylinders to subsidised public utilities and cash transfers to the eldest woman in a household, manifestos highlight a mix of populist measures aimed at improving the socio-economic landscape of the Union Territory (UT).

Irrespective of who wins the elections, the region’s ability to generate its own tax revenue to finance such poll promises may pose a challenge.

J&K’s ability to raise taxes is much smaller compared to the average across states, where almost half of the generated revenue comes from taxes.

While the total revenue generated by the UT is expected to almost double to Rs 99,000 crore in FY25 (Budget Estimates) from about Rs 52,600 crore in FY20, just a fifth of this revenue is raised from the region’s own tax collections. The ratio had peaked at 24 percent in FY22 (chart 1).

The majority of the UT’s revenue receipts, about 68 per cent, come from central grants. J&K does not receive devolution of central taxes after being carved out as a UT.

Moreover, its ability to spend on development is also limited by its obligations towards committed expenditures, which include salaries, pensions, and interest payments. Over 54 per cent of its revenue receipts in FY25 are likely to be tied up in such expenditures.

Despite this, the region directs a larger chunk of its economic resources to generating capital assets compared to other states. 

Actual capex averaged 7.6 per cent of the gross state domestic product (GSDP) in J&K between FY20 and FY22, compared to 3.9 per cent across states.

Capex as a ratio of GSDP is expected to double from 7.4 per cent in FY20 to 14 per cent in FY25 for J&K.  

However, the utilisation of capex in the UT has always fallen short of the Budget Estimates, averaging just 40 per cent of the allocated amount.

Meanwhile, apart from infrastructural development, parties have promised employment in the region, where joblessness has consistently exceeded the national figures.

In 2019-20, while the unemployment rate across India was 4.8 per cent, it was 6.7 per cent in J&K. 

And despite declining in the subsequent years, the unemployment rate in the UT has increased again to 6.1 per cent in FY24, according to the latest Periodic Labour Force Survey annual report. Female unemployment in J&K, meanwhile, has worsened.

Those with a higher degree are more likely to be unemployed in J&K than anywhere in the country. In 2023-24, the unemployment rate among graduates of J&K was 22.3 per cent, and 23.9 per cent among postgraduates, almost twice the national average.

Among those who have a job, almost 67 per cent are self-employed in the UT compared to 58 per cent in India. While the share of those with a regular/salaried job is almost the same in the region and nationally at 22 per cent, fewer people are employed as casual labor in J&K.