J&K gets tax-free Budget

With its focus on the power sector, Jammu and Kashmir Finance Minister Muzaffar Hussain Baig, who is also the deputy chief minister of the state, presented a revenue-surplus budget for 2006-2007 in the legislative assembly in Jammu.

Stating the budget to be tax-free, Baig said the budget was aimed at stabilising state revenues.

"My endeavour is not only to continue with the fiscal and budgetary policy that has been outlined over the past three years but also to pursue economic reforms with a new direction. This year, government is adding two very vital elements of information to the budget. One is the scheme of financing of the plan and second is the treatment of overdraft in the budget," Baig said in his budget speech.

The aggregate non-plan expenditure during 2006-07, Mr Baig said is estimated to be Rs.9,488 crore of which Rs 8,857 is on the revenue account. This represents a 2 per cent increase in non-plan revenue expenditure over the previous year.

During the last three years, I have made it a point not to increase non-plan revenue expenditure and I continue to do so which enables me to spend more on developmental works.

According to Baig, the biggest relief for the state government is central government's agreement to fund the losses of the power sector in the state.

Baig said that the government had a tremendous flexibility in expenditure management and resources to the tune of Rs 5600 crore had been allocated for the development, of which Rs 4738 crore was capital component. In its first budget in 2002-03, the coalition government had started with a plan allocation of Rs 2500 crore with a capital component of only Rs 1627 crore.

The State has now got an overall revenue surplus of almost Rs 2800 crore which is more than the total plan size of 2002-03, when Baig took over as the Finance Minister in the coalition government headed by Mufti Mohammad Sayeed. 

Rs 150 crore were earmarked for the payment of Dearness Allowance (DA) of the state government employees and pensioners. He also announced a far-reaching pension reforms scheme based on the contributory system to carry forward the government's fiscal reforms program.

The Finance Minister said the state's revenues had far exceeded its expectations and this increase in revenues was heading towards stabilization. "The state's own revenues are expected to be Rs 1500 crore for the year 2005-06 but the same have exceeded to Rs 1700 crore."

He said that implementation of value added tax (VAT) last year had proved to be big success with 40 percent growth in the state's own commercial taxes.

"As compared to the last year's commercial receipts of Rs 804 crore, the state has already collected Rs 900 crore under VAT till end of January 2006. The department expects this year's collection to end up at around Rs1100 crore, an increase of 37 percent over the last year."

The aggregate Non-Plan expenditure, which was budgeted at Rs 8,395 crore for 2005-2006, has now been revised to Rs 9,157 crore. While expenditure on Revenue Account will increase from Rs 7,871 crore to Rs 8,675 crore registering an increase of Rs 804 crore, the expenditure on Capital Account will be up by Rs 606 crore to Rs 3,871 crore in the revised estimates.

Baig said that the fiscal reformation was mainly negated by the abysmal performance of power receipts, which were budgeted to be Rs 632 crore.

"On revised estimates, it is hoped that the shortfall will be only Rs 101 crore. Such a large hit on account of one item of revenues distorts the entire revenue performance in general and the non-tax revenue collection in particular. The non-tax revenues for 2005-06 have now been revised downward by Rs 93 crore to Rs 727 crore, as against the budgeted figure of Rs 820 crore."

According to Baig, the increase in expenditure was mainly on account of purchase of power and on the expenditure on restoration of utilities and providing relief to victims of devastating earthquake in October 2005. The power expenditure was estimated at Rs1,300 crore, which is likely to surge to about Rs1600 crore thus registering an increase of Rs 300 crore over the estimates.

"In the current year, the expenditure that the state has already incurred is about Rs 400 crore. The central government has announced an assistance of Rs 642 crore, of which only Rs.300 crore have been received so far. The state government has sent a memorandum for an estimated central assistance of Rs 1,342 crore on account of losses caused to life, property and infrastructure in the state due to the earthquake. A snow tsunami also hit the state in February-March 2005 and the impact of large part of expenditure on account of restoration of works has fallen on the state resources during the current financial year. As a result of these expenditures, the Non-Plan Revenue deficit has increased from projected level of Rs 878 crore to Rs 1,142 crore in Revised Estimates for 2005-06."