SASCI Expansion in J&K: Development Momentum or Debt Trap Risk?

The Special Assistance to States for Capital Investment (SASCI) scheme has been projected as a major development opportunity for Jammu and Kashmir, promising infrastructure expansion through long-term interest-free loans. While the scheme offers immediate financial resources for roads, tourism infrastructure, urban development, disaster mitigation, and public facilities, its long-term fiscal implications raise serious concerns that require careful policy scrutiny.

Jammu and Kashmir already faces a fragile fiscal structure. Public liabilities have crossed approximately ₹1.37 lakh crore, amounting to nearly 52 percent of the Union Territory’s Gross State Domestic Product, while own tax revenue contributes less than one-fifth of the total budget. In such a financial environment, even interest-free borrowing, when accumulated over multiple years, gradually increases repayment obligations that future administrations must manage. If the projects financed under SASCI do not generate measurable economic returns or expand the revenue base, the scheme could convert short-term infrastructure gains into long-term fiscal pressure.

One of the major demerits lies in the limited capacity for capital expenditure absorption. Historical trends indicate that only a fraction of sanctioned capital funds are efficiently utilized due to administrative delays, procurement bottlenecks, terrain-related execution challenges, and contractor inefficiencies. When institutional execution capacity remains weak, additional borrowing does not automatically translate into development outcomes. Instead, partially completed or delayed projects increase costs while reducing economic returns.

Regional imbalance is another structural concern. Infrastructure investments often concentrate in major urban centers where implementation is easier and administrative oversight is stronger, while remote districts, border regions, and rural belts continue to face deficits in connectivity, irrigation systems, healthcare facilities, and employment-generating infrastructure. Without an equitable allocation mechanism, capital investment programs may unintentionally widen regional disparities rather than reduce them.

Equally significant is the issue of employment sustainability. Capital-intensive infrastructure projects create temporary construction employment but do not necessarily generate long-term livelihood opportunities unless linked to productive sectors such as horticulture value chains, tourism entrepreneurship, manufacturing clusters, and digital services. Jammu and Kashmir’s young demographic profile, where a large share of the population falls within the working-age group, requires investments that generate continuous economic activity rather than short-duration employment cycles.

Another concern relates to the contracting structure of many large infrastructure projects. In several cases, project execution is awarded to large contractors and industrial firms from outside the region, who often mobilize their own skilled and semi-skilled labour force. As a result, a significant portion of project expenditure flows back to firms and workers outside Jammu and Kashmir, limiting the local multiplier effect that such public investments are expected to generate. Without strong local hiring mandates, skill-development linkages, and subcontracting opportunities for regional enterprises, infrastructure expansion may produce visible physical assets while delivering only limited employment benefits to the local population. This risk underscores the need for policy frameworks that prioritize local contractor participation, mandatory local labour quotas, and integration of infrastructure spending with region-specific economic sectors capable of sustaining long-term employment.

Future fiscal risks are also emerging in the form of infrastructure maintenance obligations. Newly constructed assets require regular operational funding, repair costs, and administrative staffing. If maintenance expenditure is not planned alongside capital investment, infrastructure quality may deteriorate rapidly, reducing the economic value of the projects while leaving the financial liabilities intact. Over time, this mismatch between asset creation and maintenance financing can create additional budgetary stress.

Another important concern is that many projects financed under the scheme are essentially one-time construction activities. While roads, buildings, tourism facilities, and public infrastructure create short-term economic activity during the construction phase, their long-term sustainability depends on regular maintenance spending. Every completed asset requires continuous funding for repairs, staffing, electricity, and operational costs. In simple terms, building infrastructure is a temporary expense, but maintaining it is a permanent responsibility. If new projects continue to be created without ensuring stable revenue sources to finance their upkeep, the government’s maintenance burden will steadily rise over time, increasing financial pressure on future budgets even if the initial loans are interest-free.

Several international experiences demonstrate how infrastructure-led borrowing, when not matched with revenue generation, can create long-term fiscal stress. Sri Lanka accumulated infrastructure-related debt exceeding 80 billion USD between 2010 and 2021, with major projects generating limited immediate revenue, ultimately contributing to sovereign default in 2022. Zambia also defaulted in 2020 after large infrastructure borrowing strained fiscal capacity. Greece’s excessive borrowing before the 2010 Eurozone crisis pushed public debt above 180 percent of GDP, forcing prolonged austerity measures. Argentina’s repeated debt crises and Egypt’s rising public debt during large-scale infrastructure expansion further demonstrate how borrowing-led development can create fiscal vulnerability when revenue generation remains weak.

These global cases differ in scale and context from Jammu and Kashmir, yet they highlight a consistent policy lesson: capital investment financed through borrowing becomes sustainable only when it generates measurable economic returns, strong revenue flows, and institutional efficiency.

Key Policy Concerns Emerging from the SASCI Approach

• Borrowing without assured revenue returns can convert development spending into long-term fiscal liabilities.

• Infrastructure projects often create temporary construction employment but limited sustainable livelihood opportunities.

• Weak administrative and execution capacity can lead to delays, cost overruns, and inefficient utilization of funds.

• Continuous borrowing risks increasing long-term fiscal dependence rather than strengthening economic self-reliance.

• Concentration of projects in urban centers may widen regional inequalities between developed and remote areas.

• Maintenance financing is frequently underestimated, creating recurring expenditure pressures for future budgets.

• Heavy emphasis on visible infrastructure may crowd out investments in education, skills, innovation, and enterprise development that generate sustained growth.

• Accumulated repayment obligations over time can reduce fiscal flexibility for welfare, healthcare, and employment programs.

The central policy question is therefore not whether Jammu and Kashmir should invest in infrastructure, but whether borrowing-linked investment is accompanied by revenue-generation strategies, institutional strengthening, balanced regional allocation, and long-term maintenance planning. Without these supporting elements, capital assistance schemes risk gradually deepening fiscal dependence instead of strengthening economic self-reliance, turning short-term infrastructure expansion into long-term fiscal vulnerability.

The article is published at:

 https://noukeqalamnews.com/en/sasci-expansion-in-jk-development-momentum-or-debt-trap-risk/

Dr. Kalimullah Lone is bridging research, technology, politics, and social service to shape a progressive and empowered society.