Jammu and Kashmir Finance Minister Haseeb Drabu today accused the previous regime of grossly understating the provident fund of the state government employees, saying it was a classic case of "Ponzi game".
The government has been utilising the net accruals on account of Provident Fund as captive resources to finance its day to day expenditure, Drabu said in his budget speech in the state assembly here.
"To make matters worse, instead of accounting what it had borrowed from its employees, the net general provident fund (GPF) was grossly understated in the budget so as to get a higher allocation of market borrowings. This fiscal hara-kiri has been committed year after year for the last 30 years or so.
"With no cash in the PF kitty, the outflows which get crystallised year after year, are being paid from current inflows. It is a classic version of what in financial circles is called a Ponzi game," Drabu said.
The finance minister warned if the changes to the accounting system were not affected now, the state government may not be in a position to pay out the provident fund to the employees.
"The real threat of fiscal crisis, which I am raising now, should have been highlighted in 2009 when the New Pension Scheme was introduced in the state.
For, post the NPS, the new inflows have stopped while the old outflows are continuing.
"Unless quick corrective action is taken now, in a few years, the state government will not be in any financial position to pay back what it has borrowed from its own employees," he said.
Drabu said he would leave it to the house to debate and decide whether it was a "fraud perpetuated by earlier governments or a primitive accounting error".
He said normally the amount deducted as provident fund contribution should have been earmarked and invested in long term financial instruments, so that the government got a return on the corpus to fund the interest it pays to employees.
But "this was not done", he said adding "the net result of this incorrect budgetary practice has meant that the total liability on account of provident fund, which is completely unprovided for, is Rs 14,058 crore as on March 31, 2015.
"The same procedure has been followed for State Life Insurance Scheme for government employees for which the liability is another Rs 588 crore," he added.
The finance minister assured the employees that the present government will overhaul the PF accounting system, make provisions and address this issue.
"It needs a major, painstaking and a creative clean up. If need be we will put in place a line of credit to pay what is due to our employees. Let there not be any panic," he said.
He said the PDP-BJP government, which took over in March last year, has already improved the system.
"Not so long ago, the withdrawal of part or full PF by our employees used to be a nightmare as their bills would remain pending in the treasuries for six to eight months.
"Today, and I am sure the employees will vouch for this, they are receiving their PF dues within a day or so of their presentation of the bill," he said.
