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Jammu and Kashmir : Haseeb’s maiden budget

, March 31, 2015, 0 Comments

haseeb drabu jammu kashmir MarketExpress-inHaseeb Drabu was a journalist once; he and I were colleagues some 15 years ago. Since then, he has been banker, bureaucrat business advisor, and much else. He has just become finance minister of Jammu and Kashmir, and presented his first budget. He has declared that he will not seek any dole from the central government; he will manage with what he gets from state taxes and the state’s share of central revenue promised by the finance commission. He has brought energy and ambition to his post; his budget is more interesting than our Delhi finance minister’s. Let me mention some of the things he has done.

In Jammu and Kashmir as elsewhere in India, parents do gender tests on babies conceived and abort them if they happen to be female. In 2011, Jammu and Kashmir had 889 females for a thousand males; the sex ratio amongst children was even worse. To stop parents from getting rid of girl children, Drabu proposes to open an account for every newly born girl and put Rs 1000 a month into it for the next 14 years. The balance in the account would earn interest. When the girl reaches 21, she will get the balance, which Drabu estimates will be about Rs 650,000. Thus the government proposes to give every girl a lottery prize if she beats the odds and reaches 21. Presumably, the kitty is unconditional; she can share it with parents, boy friends, pets or anyone else. Drabu hopes that this will be enough of a disincentive for girl killers. He plans to try out this scheme first in six districts with the worst female sex ratios.

The death of the breadwinner is a devastating tragedy amongst the poor. The central government gives families Rs 20,000 when this happens. Drabu proposes to give such families an annual pension of Rs 20,000 in addition. If the family’s income is less than Rs 75,000 a year, Drabu proposes to top up the centre’s Rs 20,000 with another Rs 40,000 from the state. If the breadwinner dies, his widow is left to fend for herself and the family. Drabu proposes to open a savings account for such destitute women. He will also give them an insurance policy which will give Rs 25,000 if they die, expenses of Rs 25,000 if they have an accident, medical expenses up to Rs 5,000, and Rs 25,000 after five years if they survive and maintain the policy. Rather complicated, but understandable. Getting an insurance policy and maintaining it is complicated; it involves so much paperwork and dealing with bookish people. The insurance industry is dominated by the central government’s own Life Insurance Corporation. It is easy for governments to pay it a collective premium and to insure sections of people such as widows.

Many governments try to promote employment of young people. The government of Victoria (in Australia) places young people between 16 and 24 with enterprises for 12 months to give them training and exposure to a work environment. The government of Andhra Pradesh started an interesting scheme in 2005. Under it, the government gives chosen young people Rs 2400 a month in cities and Rs 2100 a month in villages. it gives a subsidy to firms that are prepared to take the young people and train them for a year. The subsidy is determined by a bidding process; firms that ask for the smallest subsidy win. In effect, therefore, the government places young people in firms for training at lower than market wage; the cost of training is borne partly by the government in the form of a small fixed wage, and partly by firms, which pay an additional wage. The firms are paid in four instalments. They get the first 25 per cent in 15 days after they take on the trainees. They get the second tranche of 40 per cent only at least 60 per cent of their trainees get a job. They get a further 25 per cent if at least 60 per cent of the young people they trained are still in their jobs after three months. For the final 10 per cent, the firms have to be able to tell the government where their trainees are three months after they have left.

Rajendra Kondapati, who studied the AP scheme, found that the training firms made most of their money from the 25 per cent training fee, and the 40 per cent they get if 60 per cent of their trainees get a job. They did not have any control on whether the trainees stayed with their jobs for three months, and often lost contact woth the trainees afterwards. So they did not bother much about the last two tranches. The AP scheme worked tolerably well in exposing young people to paid work; whether it generated jobs or not is uncertain.

AP is one of India’s more prosperous states; if it finds it difficult to train young people and get them jobs, it must be even more difficult for Jammu and Kashmir, which does not have many large private firms. So Drabu has decided to forget employment, and turn young people straightaway into entrepreneurs.

Jammu and Kashmir had a subsidy for educated unemployed called Voluntary Service Allowance, and another Seed Capital Fund scheme for startups. Like most states, Jammu and Kashmir has a state development finance corporation; it is supposed to give loans to enterprises. Drabu will turn it into a startup finance corporation, and hand over the seed capital fund to it. it will give loans to micro-enterprises started by unemployed young people. It does not matter whether the young people start BPOs or snack bars; as long as they do something, they will learn out of it, and maybe go on to better things.

The Prime Minister of India ushered in the (Christian) New Year by announcing Prakash Path, a scheme to subsidize LED bulbs that would save electricity. The finance minister of Jammu and Kashmir ushered in the financial year (which begins on 1 April) by allocating a mere Rs 50 million to a Suuya Bhatt Energy Efficient Consumer Scheme. For the benefit of ignorant lowlanders, Suuya Bhatt founded Sopore, then known as Suryapur, in the 9th century. He also trained the Jhelum river, cleared it of silt and boulders, and diverted it to create Wular lake in Srinagar.

There is much more to Drabu’s budget, but in conclusion I will mention one measure which would set a standard for the finance minister in Delhi. Some decades ago, car manufacture was licensed, and there was a great shortage of motor vehicles. Since Kashmir depends for many things on supplies from the plains, and its ministers and bureaucrats had to run to Delhi for little things, its government had lots of vehicles and garages, just like every other governments in India. Drabu proposes to turn it into a public enterprise, and hopes it will reduce leakage and corruption. It is a good idea, but he should allow it to sell its services in the market, instead of keeping it a slave of the government.

–This article appeared first in TelegraphIndia