Drabu presents Rs 64,669 cr budget for 2016-17

* FM announces hike in certain taxes; exempts more categories
* Previous Govt charged with ‘Ponzi game’ in handling PF

Fayaz Bukhari
Srinagar, May 30:   Finance Minister Haseeb Drabu today presented Rs 64,669 crore State budget for 2016-17 with a deficit of around Rs 3000 crore. He announced a slew of sops for women including a fee waiver for all girl students in government schools upto Higher Secondary level and proposed that 10 per cent area in all industrial estates of the State shall be reserved for women entrepreneurs.
The budget estimates envisaged a deficit of around Rs 3000 Crore as the revenue receipts are expected to be to the tune of Rs 61,681 crore during the current fiscal.
“This fiscal the total receipts are estimated at Rs 61,681 crore. Of these 51,460 crore are revenues and Rs 10,221 crore in the form of borrowings. The State’s own revenues are estimated to be Rs 23,737 crore while Rs 9500 crore will come from the State’s share in Central taxes. In addition to this Rs 27,721 crore are to flow as other Central transfers,” Drabu said in his Budget speech.
Giving details of the Budget estimates, Finance Minister said Rs 19,694 crore will be the capital expenditure while Rs 44,975 crore will be the revenue expenditure. “What these large numbers mean is that we are spending Rs 2.50 in order to be able to spend Rs 1.00 on development. To reduces this ratio from 2.5:1 and at least bring it at par with the development spend is the first big challenge. We have made a good beginning in this budget. But the road ahead is difficult as salaries and pensions online account for more tha Rs 23,000 crore which is more than the development expenditure in the year,” he added.
Drabu said the State had got large development expenditure this year in view of Rs 6000 crore from the Rs 80,000 crore Prime Minister’s Development Plan announced last year.
The women-specific measures which include waiving off of fees for all girl children studying in Government run schools upto 12th standard and reservation of 10 percent area in all industrial estates for women entrepreneurs. “In deference to our first woman Chief Minister, I am introducing some gender specific budgeting initiatives. I propose the Government waive off the fee of all girl students in the State Government run educational institutions up to the Higher Secondary level,” Finance Minister said.
Drabu also proposed that 10 per cent area in all industrial estates of the State shall be reserved for women entrepreneurs, subject to the condition that if it  is transferred, it shall be to an enterprise which is incorporated in the name of a woman and has women as the majority shareholders. “I am proposing to set up two Entrepreneur Development Centres to be set up at Srinagar and Jammu to help, guide and train aspiring women entrepreneurs,” he said.
Finance Minister also announced setting up of four new Women Police Stations at
Pulwama, Kupwara, Kathua and Udhampur.  The budget also has provision of Rs 5 crore for starting a dedicated city bus service for women in Srinagar and Jammu cities. “I am making a provision to provide exclusive women toilets in all State, district and sub-district hospitals,” he added.
Drabu announced hike in certain taxes including a one per cent increase in levy on all items which were earlier charged at 13.5 per cent under the VAT regime.
The list of items falling in this list has also been expanded to include cell phones, tablets, I-pads and accessories, imitation jewellery, readymade garments and hoisery goods. It also would include all types of packed, frozen food, juices and ready to serve food. The aviation turbine fuel levy has been hiked from 20 to 25 percent, while the toll levied on vehicles has been increased between eight to 15 percent.
An entertainment duty of Rs 50 per connection per month has been levied on satellite and cable TV operators.  All online purchases made in the state will now be levied entry tax as the budget proposes to do away with the earlier threshold limit of Rs 5000. “The online purchases by the consumers are increasing day by day and the practice to purchase goods and services by splitting the value into bills of less than Rs 5000 is rampant. This puts local retailers to disadvantage as the same goods and services sold by them are costlier being loaded with tax,” Drabu said
“The budget proposes to extend the exemption on essential commodities, remission to local industry from payment of VAT, exemption on CST to industrial units, exemption from toll on raw material and finished products of industrial units and exemption to lodging services provided by hotels, lodges and guest houses”, the Finance Minister said.
Drabu also included carpet and agriculture produce under the exemption category. All types of cotton and yarn, handmade and handloom carpets were placed in the zero tax category. “VAT will not be levied on agricultural implements like thrashers, tillers and harvesters while tax exemption is proposed to be extended on Rodenticides and herbicides. The automobiles sold at CSD canteens to the members of the Armed Forces have been placed in the five percent rate of tax instead of earlier 13.5 per cent. The VAT on parts of bicycles, tricycles, tyres and tubes of cycle rickshaws has also been put in five percent category”, he added.
The Finance Minister announced Rs one lakh for each Police Station across the State to cover expenses of investigating cases in a bid to improve the image of the police. “I propose to allocate Rs one lakh each in favour of all the 193 Police Stations of the State as ‘cost of investigation’. Having the legitimate financial resource will certainly uplift the image of police stations in the minds of common masses,” he said.
Drabu said the police stations had never been provided any specific financial resources to meet routine expenditure for investigating crimes. “Even as we speak, no police station, the primary interface with the citizens for resolution of law and order issues, has ever been provided any specific financial resources to meet the routine expenditure such as the cost of investigation of the crimes. This includes basic things like petrol or stationary,” he said.
Finance Minister said the CAG had pointed out that from 2009-10 to 2013-14, allotment of fuel to district police stations for running their police vehicles was virtually non-existent. “Such is the inefficiency of the system, that one-third of the fuel quota was being consumed in to and fro journeys by vehicles from police stations to petrol pumps located at the district headquarters. With this kind of a setup, the SHO has nowhere but to look for manna from heaven. This has often resulted in the perception of police station and its personnel being corrupt,” he said.
Drabu, citing an example of austerity drive of few years ago, said the big cut that Finance Department enforced was on tea served in offices. “The tea never actually stopped but its financing changed. The tea that  Ministers and officers had was paid, if whispers in the Secretariat are to be believed, from faking printer cartridge bills. This to me sanctifies unethical behaviour and breeds corruption at the lowest level and the system not only condones it but also internalizes it as acceptable behavior,” he added.
The Finance Minister hit out at earlier State Government for their handling of the Provident Fund of the Government employees saying it was a classic case of “Ponzi game”. The Government has been utilizing the net accruals on account of Provident Fund as captive resources to finance its day to day expenditure, he said.
“To make matters worse, instead of accounting what it had borrowed from its employees, the net 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 crystallized 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 are 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. “This was not done. 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.
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.
Drabu 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.
Finance Minister proposed steps for promoting entrepreneurship and industry in the State including setting up of industrial estates by industrial associations “The industrial estates in the State, will be reorganized to function as a corporate entity within the aegis of State Industrial Development Corporation (SIDCO)/SICOP. The idea is to make each one of them a profit centre. These estates shall become Special Purpose Vehicles of the corporations or operating companies be it SIDCO or SICOP,” he said.
The Minister said as more clarity is needed on the implementation of GST and its applicability to the State, it would be difficult to formulate a long term Industrial Policy in Jammu and Kashmir.”However, prior to the formation of the new government, an industrial policy for the State has been notified. This will require substantive changes once the GST regime is implemented. For the moment, few
changes are required. “Industrial associations of the State will be encouraged to develop, on their own or in partnership, private industrial estates/parks on commercial lines,” he said.
Drabu said there was considerable uncertainty about the Industrial Policy in all the States that offer tax exemptions and other fiscal incentives to industry in  view of the uncertainty about finalization of the GST. “J and K is a little more complicated case as we have to carve out our space within the national tax regime while protecting our unique privilege of the right to tax services,” he said.
The Minister said while the Government will go all out to attract investments in industrial estates or elsewhere in the state by providing an enabling environment and incentives, it will be ensured that these are governed by and are in compliance of existing administrative practices, regulatory norms and the Constitution of Jammu and Kashmir. “In essence, the estates will effectively be corporatized and each estate will have an estates manager who will be the CEO of the industrial estate. All the unit holders within the estate will form its management committee. Each industrial estate will then have an income and expenditure statement and a balance sheet which will be audited annually,” he said.
Drabu said one-third of the earnings of the Industrial Estate by way of rents and other earnings shall be mandatorily deployed for the upkeep, maintenance and up gradation of the assets and infrastructure of the estates.  He said Information Technology is an important sunrise industry in the State. To facilitate growth of this sector and to help the local IT companies reach certain economies of scale, the Government shall offer Joint Venture opportunity to State’s Top 10 IT companies in terms of audited top line. “The State Government will invest through J&K E-Governance Agency (JAKEGA) or an SPV created for this purpose. The proposed initiative shall also help speed up e-governance projects in the State. For capitalization of the Joint Venture (JV), I have earmarked Rs 10 crore,” he said.
“Our new breed of young entrepreneurs needs support for them to grow. Instead of giving them subsidies, I propose to set up Business Incubators for sunrise industries in the capital cities of Srinagar and Jammu. The Business Incubators will provide finances, branding, and marketing support to the entrepreneurs. To begin with, I propose a start-up fund of Rs 5 crore,” Minister said.
Drabu said the annual phasing of the Rs 80,000 crore Prime Minister’s Development Plan (PMDP) for the state would be based on the spending capability of the state government and implementing agencies.
“The size of the PMDP which is an aggregate of sectoral initiatives, is Rs. 80,000 crore. It is fully funded and expected to be executed over the next five years. The annual phasing of the plan will be based on the absorptive capacity and spending capability of the State Government and its implementing agencies,” the Minister said.
Drabu said the capital expenditure, which forms a large part of the Prime Minister’s economic rehabilitation plan, has been designed as a critical link between relief and development. “Underlying the plan is an intermediate strategy of institutional reform and reinforcement, of reconstruction and improvement of infrastructure and services initiating and supporting sustainable development,” he said.
The Minister said even though the PMDP has been formulated in the aftermath of the devastating flood of September 2014 in the state, disasters have not been looked upon as singular events unrelated to development processes in this plan. “The PMDP is based on the understanding that relief, rehabilitation and development do not chronologically succeed each other but have to be simultaneous and are strongly interlinked,” he added.
Drabu said Under the PMDP, an amount of Rs 1197 crore has been received for providing of assistance in respect of completely/severely and partially damaged houses. The release of funds has been provided to individual beneficiaries under the Direct Benefit Transfer mode through District Development Commissioners concerned, he said adding an amount of Rs 957 crore has been disbursed till date.
“The financial assistance to certain category of uninsured and small traders affected by the floods, who had not received any assistance either from banks or other financial institutions, was provided assistance through the Chief Minister’s Flood Relief Fund. A total amount of Rs 101.89 crore has been distributed till date among around 40,000 small traders whose turnover is up to Rs 5.00 lakh,” Drabu said.
The Minister said the PMDP also included an amount of Rs 800 crore for extending interest subvention support to the trading and manufacturing units whose borrowal accounts have been restructured by banks after the September, 2014 floods. “These funds stand transferred by the Central Government. The interest subvention support will be provided through banks/financial institutions to the affected units very soon. The interest subvention scheme has been approved by the cabinet,” he added.
Drabu said that the government has submitted to the Centre a Rs 2000 crore scheme for rehabilitation of displaced persons of Pakistan-occupied Kashmir and Chamb. “For the displaced persons of PoK and Chhamb, necessary scheme has been drawn up by the State Government and submitted to the Central Government for approval and release of financial assistance of Rs 2,000 crore for its onward distribution among the identified 36,348 families,” he said.
The Minister said the cash assistance to Jammu province migrants has been also recently enhanced and brought at par with Kashmiri migrants with effect from November 18, 2015.
Drabu in the budget proposed to set up a Journalist Welfare Fund with a corpus of Rs 2crore for the welfare of working and accredited journalists of the State. “For last 26 years, journalists working in strife torn State of Jammu and Kashmir are facing hardship as there is no welfare scheme for scribes. I propose to set up a Journalist Welfare Fund with an initial corpus money of Rs 2 crore for the welfare of working and accredited journalists of the State,” he said.
The Minister said the legal heirs or dependents of a working journalist will be provided assistance from the fund in case of death or incapacitation of a scribe. “It would be ideal if the journalists of the State get together and set up a society, frame the rules and guidelines for administering this fund,” he said.
Drabu has proposed eexemption on essential commodities, local industry from payment of Value Added Tax, Concession on Central Sales Tax to industrial units, Toll on raw material and finished products of industrial units, lodging services provided by Hotels, Lodges and Guest Houses extended till March 31st 2017.
The Minister has proposed tax rate levied on items listed in the Schedule D-1 enhanced from 13.5 per cent to 14.5 per cent. Items placed under schedule D-1 includes Lassi, Butter Milk, Separated Milk, Flavoured Milk packed, Rusks of all kinds, Multi Functional Devices, Printers, Room fresheners, Air fresheners, Naphthalene balls, cell phones, mobile phones, Tablets, I-Pads and their accessories, imitation jeweler, readymade garments & hosiery goods and all types of packed, frozen food, juices ready to serve foods. He said the Transformers falling under Schedule C proposed to be placed in the Schedule D-1.
Drabu has brought all types of Cotton & Silk Yarn, local handmade and handloom carpets,LED lights, Lamps and Tubes brought in the zero rated tax category. He proposed Tax exemption on plant growth promoters and regulators, rodenticides and herbicides.
The Minister proposed exemption from levy of VAT for agricultural implements like threshers, tillers and harvesters . “Exemption of health clubs, gymnasiums, fitness, wellness centres, slimming centres from the levy of tax. All medicalservices provided by the Hospitals and nursing homes exempted from levy of service tax. VAT on Medical imaging equipments, X-ray Machines, Scanners, X-ray films and plates reduced from 13.5per cent to 5per cent tax rate category. Handmade Cups, plates made of Leaves and papers exempted from VAT. Exempting EOT cranes, forklifts, pallet trucks, chain blocks used for material handling from payment of Entry Tax”, he said.
Fresh Cooked food sold by hotels/ restaurants/ eateries/ dhabas in the category of 5 per cent tax. VAT on containers, utensils made of precious metals reduced from 13.5 per cent to 5 per cent. Automobiles sold by CSD canteens to members of the Armed Forces having Canteen Smart Cards brought to 5per cent rate of tax instead of 13.5per cent. Paneer and Cottage Cheese in packed form to be taxed at the rate of 5 per cent. VAT on parts of bicycles, Tricycles & Tyres and Tubes of Cycle Rickshaws to be reduced from 13.5 per cent to 5 per cent. Shawls, Stoles and Towels under 5 per cent tax rate Category. Toddy, Neera and Arak falling in entry No.43 of Schedule-A to be deleted from zero rated category being intoxicating drinks. Dhupkathi and Dhupbati presently taxed at the rate of 5 per cent to be exempted. Misri, Batasa, Makhana and Phullian exempted from levy of VAT. Free Export / Import of Goods/ Items based on self certification by promoters of Micro & Small Scale Units. Bangles made of imitation gold to be placed in Schedule D-1 at par with other imitation jewellery. All capital goods namely machinery and allied goods are specifically mentioned in Schedule D-1. Words capital goods listed in 5 per cent tax schedule be deleted to avoid misinterpretation and misclassification.  Hose pipes and fittings to be deleted from 5 per cent rate category as another similar entry “pipes of all varieties” exists in Schedule D-1. Hot Mix Plants, Cutting and grinding of glass; itching, silvering bevelling, frosting and designing of glass under negative list. Tax rate on Aviation Turbine Fuel enhanced from 20 to 25 per cent. Increase in goods and basic toll on vehicles between 8 to 15 per cent over the prevailing rates”, he said.
The Minister proposed the threshold in limit in the Services provided by Chartered Accountant and Cost and works accountants to be enhanced from Rs 5.00 lakhs to Rs 10.00 lakhs.
Soon after budget speech, addressing a press conference Drabu said that keeping in view that J&K has woman Chief Minister for the first time in its history, the Government has taken many women specific initiatives. “College going girl students will be given 50% subsidy on purchase of a Scooty,” he said. “The idea is to make them independent in mobility.”
Explaining the measures and initiatives his government is taking to eradicate the unemployment, Drabu said, “we have tried to boost and invest in areas having potential of generating employment.” He said that it was after 10 years that his Government announced new industrial estates and Rs 10 crore have been allocated to each new such estate. We have focused on IT sector and entrepreneurship. We have identified top ten IT firms with whom we will go for joint ventures”, he said.
Observing that the issue of 61000 casual and contractual employees is a social issue, the Minister said, “this budget has tried to accommodate their concerns. It is an issue of 61k families not of finances only.”
Deciphering the financial position and planning in distribution of money in various developmental initiatives,  Drabu said: “We tried to do frame this budget on normative basis. Since funds there was inequality in funds distribution for same work, we tried to fulfill that gap.”
Casting an example, Drabu said: “What governments have been doing is allotting Rs 10 cr for sub-district hospital in one area and Rs 60 Cr for similar type of hospital in another area which is technically wrong and we have tried not to do that.”
When asked whether J&K Government was dependent on Union Government funds, the Minister said “technically not.” “J&K has its own resources but then there are modalities through which states get share from Union resources which is their right,” he said.
“There is Finance Commission which works on the basis of Constitution of India and allots money to states because the resource which belongs to Union Government originally belongs to a particular place, therefore, the revenue thus generated from them is to be shared between Union and State. Then there is Planning Commission which also gives funds. We are supposed to get fund which doesn’t mean that we are dependent”, Drabu said.

Highlights
*     Health care to be cheaper
*     X-rays, scans, imaging cheaper
*     Health clubs, Gyms, fitness centres cheaper
*     Locals Handmade carpets, Tubes, LED lamps cheaper
*     Metal Utensils cheaper
*     Milk products, printers, Air freshners, cell phones, Tablets, I-Pads, imitation jewelery, readymade garments, hosiery goods, frozen food, juices to be costlier
*     Automobiles at CDS canteens to be costlier.
*     Air travel to be costlier
*     Toll tax increased
*     Cable, satellite TV costlier

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