Among the incoming flood of opinions, after BJP President Amit Shah announced the abrogation of Article 370, there were hot takes on the lines of ‘India spends extraordinarily disproportionate amounts of money on J&K. Now, J&K will be a normal state, and the government can restore fiscal balance’. Unfortunately, it is not happening any time soon.
The fact is that the central government’s spending in J&K and Ladakh post-Article370 would need to increase to have any chance of stabilizing the region. There are parallels to the Xinjiang region of China, where there is no guarantee of peace, even after massive migration and spending.
The fact also is that the Central government support to J&K has been extraordinary (excluding security spending in the region). Several factors are responsible for this, including but not limited to:
- J&K was one of the 11 ‘Special category’ states (some criteria: difficult terrain, low population density, and strategic location along borders with neighbouring countries).
- There were persistent errors in budgeting, savings, excess expenditure and expenditure without provision. (Source: CAG Report)
A question arises: how extraordinary has been this support? We can answer this by looking at the state’s revenue composition.
State revenues are sourced from (i) the state itself, and (ii) the central government. The following chart illustrates the various heads of central fund transfers to state governments:
Comparative data on State Finances in 2018
(Source: PRS Legislative Research)
Share of state tax revenue as a percentage of total revenue: J&K was lowest at 17%. The state was not pulling its weight.
Revenue composition of states (2017-18): J&K was highest, receiving 57% of its revenue through central government grants. Majority of the state’s expenditure has been financed through central grants.
Looking at the data above, it is fair to characterise the support to J&K as extraordinary. Although, the political question remains – whether it was excessive, adequate or lacking.