Prof. Virender Koundal
Jammu and Kashmir, now officially the Union Territory of Jammu & Kashmir (JKUT) since the reorganisation of the former state in 2019, has a unique economic profile in India. Nestled in the Himalayan mountains, with valleys, hills, plains, and a diverse culture, the region has rich potential in tourism, horticulture, agriculture, hydropower, and handicrafts. However, the UT’s economy has also faced long-standing structural challenges and fiscal pressures that need urgent policy attention.
In recent years, JKUT’s economy has shown signs of stabilization and growth, despite enduring fiscal stress and external shocks such as security-related disruptions and the COVID-19 pandemic. The Gross State Domestic Product (GSDP) or UT’s economic output is projected to grow significantly in the near future. For 2025-26, the GSDP is projected to reach around ?2,88,422 crore, with growth estimated at about 9.5 percent compared to the previous year, reflecting renewed economic momentum. This growth projection is a positive sign of economic revival and resilience. Nevertheless, it is important to understand that a large part of this economy’s performance depends not just on local economic activities but also on financial support from the Government of India and structural reforms aimed at improving revenue generation and reducing fiscal deficits.
Jammu and Kashmir’s economy traditionally hinges on few major sectors, agriculture and horticulture, tourism, infrastructure projects,cottage and small scale industries. The UT is famous for basmati rice, rajma, apples, walnuts, saffron, and other high-value horticultural products. Religious places, scenic valleys, mountains, lakes, and cultural heritage sites have historically been magnets for tourists, contributing to local incomes. Rail, road, tunnel, and connectivity projects including tunnels and rural road schemes have substantial long-term economic impact. Despite strengths in these areas, the UT’s internal revenue streams remain narrow relative to its expenditure needs, which leads to heavy dependence on central transfers to sustain basic services and development programs.
While there are areas of strength, JKUT faces several deep-rooted economic challenges that have serious implications for growth, public services, and fiscal balance. Below are the key problem areas.
- Overdependence on Central Grants – One of the most pressing issues for JKUT is its dependence on central assistance to fund its budget. According to recent budget data, a major portion of the UT’s revenue comes from the Government of India.For instance, under the 2024-25 Union Budget, Jammu and Kashmir received total central transfers of about ?42,277.74 crore, of which approximately ?40,619.3 crore was central assistance to bridge the UT’s resource gap. Similarly, in the 2025-26 Union Budget, the central government allocated around ?41,000.07 crore in central assistance to JKUT to support fiscal needs.
This level of dependence often exceeding 50 percent of the UT’s total receipts means that JKUT cannot fund even basic services and obligations with its own internal income. This reliance reduces local policy space and makes the UT vulnerable to changes in national fiscal priorities. - Limited Own Revenue Base – JKUT’s own-source revenue which includes taxes such as GST, excise duties, motor spirit tax, and non-tax revenues like electricity charges and land rents remains relatively limited.For example, in a recent half-year data for 2025-26, the UT’s internal revenue generation from tax and non-tax receipts stood at around ?10,984 crore (?6,777 crore in tax and ?4,207 crore in non-tax), which is small compared to overall expenditures. This low revenue base arises from narrow tax collection efficiency, low compliance and informal economy features, underdeveloped industrial and manufacturing tax base.Without enhancing its own revenue, JKUT remains financially fragile and perpetual recipients of central support.
- High Revenue Expenditure on Salaries and Pensions – A large share of budget expenditure in Jammu and Kashmir goes toward salaries, pensions, and other committed costs. Recent data shows that in the first nine months of 2024-25 alone, salaries and pensions accounted for over 69 percent of revenue expenditure, leaving less space for development spending. While paying government employees and pensioners is necessary, this high committed expenditure crowd out spending on priorities such as healthcare, education, infrastructure, agriculture, and job creation.
- Underinvestment in Capital Expenditure – Capital expenditure spending on long-term development projects such as roads, irrigation, and buildings is critical for future economic growth. While some progress has been made, capital spending remains modest relative to total outlays.For example, during early 2025-26, only around ?2,574 crore was spent on capital expenditure, much lower compared to the ?30,994 crore spent on revenue items. Low capital investment limits the UT’s growth potential and delays essential infrastructure projects that can boost connectivity, trade, and quality of life.
- Fiscal Stress and Debt Pressure – Jammu and Kashmir has historically faced fiscal stress due to the nature of its expenditures and financing patterns. According to economic surveys, public debt remains a large component of its liabilities, with internal debt and provident fund liabilities forming significant proportions of total debt. High fiscal stress constrains the UT’s ability to borrow for development without increasing donor dependence or risking budget deficits.
The structural and fiscal challenges outlined above are not just figures in a finance document, they have real and direct impacts on life and development in the region. Some of the key consequences include: - Slow Job Creation – Despite potential in sectors such as tourism and horticulture, limited funds for enterprise development and market expansion slow the pace of job generation, especially for youth entering the labor market.
- Strain on Public Services – With a large portion of the budget tied up in salaries and pensions, sectors like health, education, social welfare, and basic infrastructure often receive less than what they need. This can lead to inadequate public services and infrastructure deficits in remote areas.
- Reduced Fiscal Autonomy – Heavy reliance on central transfers reduces local government autonomy. It limits JKUT’s flexibility in designing region-specific fiscal measures, reforms, or social programs tailored to local needs.
- Interruptions and Uncertain Growth – Security-related disruptions in parts of the UT affect tourism, local industries, and investor confidence. Coupled with weak internal revenues, these external risks can interrupt economic activities periodically.
Given these challenges, the upcoming JKUT Budget needs to balance immediate fiscal sustainability with long-term growth strategies. Here are practical policy recommendations that should be addressed: - Expand Own Revenue Base – The UT government should take proactive steps to strengthen tax and non-tax revenue by improving GST compliance and enforcement through digitization, better data analytics, and taxpayer services.Modernizing property tax systems in urban areas.Enhancing non-tax revenue by efficient charging for services (like electricity usage, water fees, and tourism-related fees).This reduces dependency on central transfers and builds long-term fiscal sustainability.
- Rebalance Expenditure Toward Growth – While committed expenditures (salaries and pensions) are necessary, the budget should earmark a higher share of spending for capital investments that drive growth like rural roads and connectivity, irrigation infrastructure for horticulture and farming, digital infrastructure for education and governance.This shift will create jobs and open new economic opportunities.
- Strengthen Fiscal Discipline and Accountability – To manage limited resources effectively, the government should enforce strict budgetary discipline to avoid unproductive spending, use transparent financial management systems such as BEAMS and PFMS for better accountability, continually review and audit major programs to ensure effectiveness etc.
- Prioritise Entrepreneurship and MSME Development – Small businesses and startups are engines of job creation. The budget could include seed funding and credit support for Micro, Small and Medium Enterprises (MSMEs), special incentives for sectors like IT services, handicrafts, food processing, and ecotourism, market access support through trade fairs and export facilitation etc.
- Focus on Human Capital – Investments in health and education are essential for long-term prosperity like expand healthcare infrastructure in rural and hilly areas, improve school infrastructure and teacher training programs, promote skill development programs tied to local industry needs particularly tourism, agriculture, and renewable energy.
- Targeted Welfare with Growth Orientation – Welfare schemes should be carefully targeted to the most vulnerable sections of society, ensuring benefits reach those who need them most, schemes encourage economic participation and avoid dependency cycles, programs such as conditional cash transfers are tied to education or health outcomes.
- Strengthen Public-Private Partnerships (PPP) – Encouraging private investment through PPP can mobilize additional capital for infrastructure projects like hospitality and tourism infrastructure, renewable energy projects, logistics and warehousing facilities in border areas.This approach leverages private sector efficiency and reduces public burden.
The economy of Jammu and Kashmir stands at a crossroads. With strong natural resources, cultural heritage, and strategic investments in infrastructure, the UT has the potential to transform its economic landscape. However, persistent revenue weaknesses, high dependence on central grants, and structural fiscal stress pose significant hurdles.The upcoming JKUT Budget offers a critical opportunity to address these issues. By expanding its own revenue base, prioritizing capital investment, promoting entrepreneurship, and strengthening fiscal discipline, the region can achieve sustainable and inclusive growth. The road ahead requires careful planning, innovative policies, and collaboration among central and local stakeholdersbut with commitment and strategic focus, Jammu and Kashmir can chart a new era of economic prosperity for its people.
