Haseeb Drabu wears two hats. He is not only the chairman and managing director of state-owned Jammu & Kashmir Bank, but also the economic advisor to the state government. A member of the Prime Minister’s task force that charted out an economic reconstruction strategy for Jammu and Kashmir, Drabu spoke at length with BW’s P. Vaidyanathan Iyer about the government’s efforts in bringing sanity to the state’s economy and finances. Excerpts:

Is the state still struggling to come out of the fiscal mess?
During militancy, three things had happened. One, there was a complete destruction of physical infrastructure of the state — bridges had been burnt, roads destroyed. This was during the 1990s. There were 18-hour power cuts a day! And virtually no communication network. Second, the institutional capacity to govern was completely decimated. Taxes were not being paid, nor were they collected by the state. Expenditure was not being met; it was being taken out of Srinagar to Jammu. You couldn’t spend them. Non-taxes were not paid. Nobody paid electricity fees. This resulted in total fiscal collapse of the state. Third, centrally-sponsored schemes were not coming because you did not provide for the utilisation certificates. Matching grants were not available. Every single budget had huge gaps. Now, in a state, you cannot have budget deficits because you cannot print currency. When you have gaps, you are saying my Plan is unfunded or the Budget is unfunded. There were huge off-budget borrowings. Baglihar bonds were floated, yet they were not shown in the Budget. No interest payments were being serviced. This was the kind of backdrop in which we came.

Are you suggesting that things have changed now? The indicators do not really point to much of a revival...
I remember when I came as economic advisor to the government in 2003, the Budget was already prepared. The first thing I saw was the huge off-budget borrowings and lack of proper expenditure planning. So, I advised the government not to present a Budget but to go for a vote on account. Let’s first understand what is happening. When we presented the Budget in July 2003, it outlined the full fiscal strategy — how we will clean up the whole act. We also found that successive Prime Ministers had announced several packages, but nothing had really flowed in. At that point, we took a view that a normal plan of the state cannot address its requirements. Because plans are incremental, building on the pace that is already there made sense. But there is no pace here. So we said, let’s do a reconstruction plan over and above the normal state Plan. It will take 10 years, but the pace will be set. We also said, let’s combine all Central government interventions and have one consolidated reconstruction plan. Secondly, we said we will approach multilateral agencies such as ADB.
So, we thought we should have a normal developmental plan that is the state plan, the PM’s reconstruction plan and an additional expenditure plan through the ADB. Normal plan was Rs 3,000 crore, PM’s plan Rs 5,000 crore a year and ADB about Rs 3,000 crore over two years.