Kashmir's Debt Trap
By Arjimand Hussain Talib
04 November, 2007
Kashmir TimesAn open letter to Dr. Haseeb Drabu
Dear Dr. Drabu,
To write this column in the form of an open letter to you today was guided by the pressing need to bring to your notice the brewing disquiet in Kashmir's civil society on the trend of putting J&K State in the deeper quagmire of debt with each passing year. The worry has become even more serious with the growing trend of roping in the international financial institutions like the Asian Development Bank (ADB) to finance key projects in our State, thereby not only getting us deeper into the debt trap but also making the State even more dependent on the government of India in terms of financial guarantees, economic bails and regulatory power.Such a trend is also worrying as the State's ruling political establishment - as you yourself know - tends to treat such loans as "free bounties", sell the same to their political constituencies as "grandiose packages" and do not think of the repercussions in the name of "structural adjustments and capacity building" on the poor people of Kashmir. You are yourself aware that burgeoning debt and greater government of India role in acting as a counter guarantor compromises J&K's special constitutional position to regulate and legislate in some areas of taxation.
Without going into the details of the manner in which J&K's political establishment treated the earlier ADB loan - putting most of the expenditure into non-productive uses guided by petty regional and political considerations and defeating the very purpose of yours to bring in investment into productive sectors for enhancing our revenue generation capacity, I would like to put some points here on your new initiative of getting new ADB funding for two hydel power projects.
In your address at last week's conference at Kashmir University, while regretting what you called "intellectual bankruptcy" of Kashmiris, you expressed your resentment on the indifference of India's economists in helping J&K State tide over its financial crisis and the inability of J&K State in translating good economic ideas for giving a fillip to our economy into practice. Were you referring to your frustration in making the political establishment understand your economic logic and vision?
No matter the good ideas and intentions which you have expressed in your needs assessment report "J&K economy: Reform and Reconstruction, June 2004" for the ADB, one hopes you would frankly admit that the political executive and the bureaucracy in J&K have their own yardsticks and preferences which do not necessarily match the vision and goals that people like you have in mind. So where would this latest ADB loan lead us to? Economic liberation or enslavement?
In your needs assessment report you have yourself pointed out that at Rs. 10000 crore of internal debt in 2004, the debt/State Domestic Product (SDP) ratio works out to 71.4 per cent for J&K State. As we know that most of this debt is owed to the government of India and financial institutions like NABARD and LIC, addition of international financial institutions to this list would be a tragedy. Although you have termed J&K's debt burden more of a fiscal than a macro economic problem, citing its percentage to overall SDP, you have your self remarked, "To be sure there is no way in which the present debt build up, given its magnitude and composition, can be resolved by any amount of fiscal prudence" and have made a case for debt write off, something which has never come.A high level team of ADB, led by its Director, Energy, SA divion, Theva Kumar Kandiah, met you and the Chief Minister, Ghulam Nabi Azad on 18 October to what the official statement has said "explore possibilities for availing financial and technical assistance from the bank for improvement in power sector in J&K including implementation of new hydel projects." We understood that the CM emphasized the need for a "long term relationship" (pointing to a long term debt vision?) with the ADB of the State Power Department for "harnessing the huge hydel power potential in J&K."
If the government of India gives its go ahead in the coming days, it would mean a 720 million dollar loan for constructing two hydel power projects at Karthai and Ganderbal, besides "capacity building" in power sector. This time round we are glad there has been honesty at governmental level to say it plainly that the loan would come at an interest of 6-7 per cent. But looking at the fissiparous and highly divisive regional and communal polity of the State do you see hope that this loan will achieve its objectives? Would the bureaucracy inimical to the State's self-reliance help you in making it happen?
Perhaps the most revolutionary step having been conceived by the National Conference government (though it is responsible for the loss of most of the economic sovereignty J&K State has had) was the Roshni Scheme, which was designed to raise Rs 25,000 crore from selling off State land under occupation and use that money for power sector in the State. The Roshni Scheme could have helped J&K State end its dependency syndrome which you usually lament on and refer to. Due to some mysterious reasons - not even populist in nature - the scheme was scrapped and the land given free to the occupiers. Why was such a well conceived plan sabotaged? Why didn't your economic logic prevail over the Congress-led Azad government to re-think this senseless move?
Within no time 11.5 lakh kanals of government land was transferred to its occupants in the Jammu region and another 10 lakh in Kashmir, out of which barely 30 per cent is agricultural land while as rest is in the form of lease land mainly to army and other central government undertakings, and commercial/religious establishments.And all of us know that the said land was not something to do with the bread and butter of poor farmers, but big businesses of big land lords and political and business mafia, and that too mostly in the plains of Jammu and Kathua districts. Now it is expected to raise Rs 6000 crore, as per Congress Minister, Taj Mohi ud din. Huge discounts of up to 65 per cent given to land owners occupying leased lands and whose lease periods have ended. But why? We have given about 70 per cent discounts on market rates for commercial lands which our State has given on lease. It had befitted whom? Can any government in our State have the guts to make the names of those individuals and groups public?
Minister Taj Mohi-ud-din is on record to have said that his government had given Rs 20000 crore worth land free of cost to people. In its official website government of J&K itself says that 30,000 kanals of land acquired for railway line had already escalated market costs. Imagine how much you would have fetched from Roshni Scheme?
The government that you advise on economic matters says that in its re-structured form the Roshni Scheme would raise Rs 6000 crore. But it is not clear where the money raised under the scheme will go? Under the scheme as conceptualized by the NC government it was specifically mentioned that the money so raised would go to fund development of State-owned power sector. Can it be explained by the Congress government?
Let us consider the Baglihar Power Project which we proudly celebrate as our first own power project, billed to "end all our power and financial woes." Even after 12 years have passed in the execution of the project I guess we are still in the phase of struggling for the financial closure of its second phase. Apart from numerous other financiers, we are now all set to also get in the National Power Finance Corporation (NPFC) for tying up the new loan the government is negotiating. A loan of Rs 1131 crore has already been lifted and until December 2006 Rs 3274 crore excluding financial costs of bonds of Rs 508 crore have been spent on Baglihar. Where does it lead us to? Would the project when finally completed be really able to help us? How long would it take us to clear its debt? And at what cost? Can we do an honest cost-benefit analysis?
Since years we have been told that the Salal Power Project would be transferred back to J&K State. Had that happened? We have also been recently told that a decision on the transfer of Dulhasti Power Project to J&K State will be taken within 2 months. But would it come? The Rangarajan Committee too strongly recommended transfer of the power project to the State. Has he been heeded?
Isn't it now a long time since you are told in Delhi that such things were not possible as other States in India would also demand the same? We hear a regular noise (demand?) from some of the State's ruling political figures on compensation from government of India for recurring losses J&K has to have because of Indus Waters Treaty. Does it make any impact? Has the power debt been written off?
Under the Accelerated Power Development Reforms Programme (APDRP) massive funding is going for metering, reduction of transmission and distribution losses and reforming tariff collection etc. Successive governments have been saying that about 70 per cent of total power consumed in J&K is consumed in the cities of Srinagar and Jammu. Now that these cities are metered and pilferage has been reduced to 90 per cent, why are you not able to raise revenue matching the cost we pay to buy power? You have said that government is committed to increase power receipts by more than 300 per cent by 2010 in your needs assessment report. Would your government dare to do an honest analysis where does the non-metered power go? Can you touch the government and military establishments which are responsible for most of the power pilferage in the countryside?
Let us confess the fact that the frustration in not making our visions translate into practice has something to do with the highly unjust and uneven political system entrenched in J&K. It emanates from the power of the political executive and some sections of the bureaucracy, which are so badly entrenched in their communal and regional mentalities that does not see and appreciate the economic logic in ideas that you had tried to translate into practice. That space does not simply exist.
One appreciates the imperative for prudent use of borrowed funds and need for a thorough analysis which you have underlined in your needs assessment report, but Mr. Drabu with the kind of political system you are trying to steer the holed economic boat of the State, we hardly see any scope for optimism. One expects this madness to be reversed for the sake of a better future of the people of Kashmir before they are doomed. And there are genuine hopes with a knowledgeable person like you to make the best use of your vision for the betterment of the people here by keeping them informed about the perils of the decisions being made and the repercussions such decisions would have on the common people. Because at the end of the day ruling political class here has always been interested in the funds in hands to consolidate their petty regional and constituency-based vote banks no matter where they come from and how badly we get entrapped in debt. They are interested in maintaining the political status quo here by hook or crook no matter what it means to our future. The ball surely lies in your court.
(The author can be e-mailed at arjimand@ gmail.com).
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