When on 5th August, 2019 Home Minister Amit Shah rose in the Rajya Sabha to pass a resolution addressed to the President that henceforth Article 370 should be read to extend “all provisions of the Constitution as amended from time to time” to the State of Jammu and Kashmir, he did not just stop there. The government recognising that a branch and root transformation of the entire region was required, also simultaneously to reorganise the erstwhile State into two Union Territories, the Union Territory of Ladakh and the Union Territory of Jammu and Kashmir as a precursor to the transformation of the region that had so much promise and potential and yet had comparatively delivered so little.
The erstwhile State of Jammu and Kashmir had done poorly. This performance had not been due to shortage of resources from the Central Government. The economy of the erstwhile State was heavily dependent of State Government Expenditure which 2018-19 (before the COVID Pandemic hit the world) was 57 per cent of the total gross state domestic product and largely financed by the Central Government, demonstrating an overwhelming dependence on government and a weak private sector. In contrast, the figure for neighbouringHimachal Pradesh (also a hill state) is around 28 per cent. The largesse of the successive central governments can be gauged from the fact that for years on end, of the total receipts of the state government, about 40 per cent has come from the Centre (over 50 per cent if only revenue receipts are considered) which is totally discretionary, that is, apart from its share of taxes collected by the Centre it is constitutionally mandated to receive. An oversized government workforce (approximately 5.5 lakh employees, of whom 70 per cent are from the Valley) ensured that over a quarter of its total receipts are consumed by salaries and pensions. Its per capita net state domestic product at Rs 94,000 is almost half of that of Himachal’s Rs 176,000, its road density less than a fifth of Himachal’s and unlike Himachal, its power sector is poorly managed.
Thus one aspect of the total transformation of the region i.e. economic development demanded that this unsustainable scenario needed to be changed. A strategy was needed to transform Jammu and Kashmir that would ensure that it would be private enterprise and investment that would lead its economy creating jobs and incomes. Thus an appropriate economic and investment strategy would have to be adopted by policy makers to effect this transformation.
Framing an Investment Policy for Jammu and Kashmir
A basic pre-requisite for private investment in any economy is a stable law and order situation and it has been argued that in a region such as Jammu and Kashmir plagued by terrorism, private investment is unlikely to come in. This extremely superficial view has to be countered. It must be realised that the long-term trend of the terror graph of the region had always been downward since the late 1990s-early 2000s. In any case, even these increasingly few cases of terrorism had been isolated to certain parts of the Valley. Had this not been the case tourism would not have revived in the Valley as it did since 2000. What affected investor sentiment and tourist arrivals were the sustained agitations that would take place from time to time encouraged by a curious coalition of “autonomy seekers,” soft-separatists and the overground workers of the various terror outfits. There is evidence to suggest that these could have been controlled and brought to an end quickly but given the political capture of the erstwhile State’s institutions by these very same forces, Jammu and Kashmir or rather the Valley remained permanently in an unsettled condition. The contrast in the law-and-order condition after 5-6 August 2019 when dire predictions were made about the situation in the State especially the Valley is a signal pointer. Given the enormity of the steps taken on 5-6 August 2019, when much bloodshed was predicted, the facts on the ground have instead demonstrated the desire of the people for peace. Stone-pelting which was the order of the day since 2016 has been rare in the last three years. The large-scale disturbances that would last for months are now a distant memory proving that it was the lack of intention and resolve that made such disturbances possible.
Therefore, an appropriate economic policy for Jammu and Kashmir like that for any other region should depend on other advantages and disadvantages of the region, like topography, water availability, nature of natural resources etc. For example, given its location and topography, the Union Territory will be a high-cost economy primarily on account of transportation costs that will have to be reflected in the price of goods produced there. In these circumstances, the most appropriate strategy for business as well as policy makers is to concentrate on high value low volume goods and high value services for which customers are willing to pay premia which serves to neutralise the disadvantage arising from high transport costs. They could be commodities where the region has an advantage due to natural as well as cultural resources which over course of time with application of traditional/local knowledge have evolved into unique products and services which command a premium price. It is well known that Jammu and Kashmir have both these resources in abundance which serves as an ideal platform for the economic transformation of the region.
Jammu and Kashmir is known the world over for its quality and range of handicrafts. It produces the bulk of India’s apple crop and has a commanding presence in certain high value low volume crops like walnut and saffron but is handicapped by low productivity especially compared to international players. Its natural beauty and exquisite cuisine make it a favourite destination of tourists who are willing to spend more in this location compared to others but lack of infrastructure has ensured that only a small proportion of the tourism potential is tapped.
The policies adopted by the UT Government in conjunction with the Central Government are focussed on these advantages and drawbacks are designed accordingly to target certain types of investment and investors
The Current Investment Strategy for Jammu and Kashmir
The discernible core that runs throughout the Jammu and Kashmir Industrial Policy 2021-30 arguably the flagship policy of the UT is the issue of employment. The objectives of the policy and the choice of industries focussed upon are heavily labour-intensive in nature and where the products/services are high value low volume items. These include both the UT’s traditional strengths e.g., Tourism, Handicrafts as well as new sectors like IT, ITES, Healthcare. It also focusses on synergies with existing strengths like post-harvest management of Horticulture as well as Film Tourism as an add on to Tourism.
As compared to previous policies that were announced from time to time for the erstwhile State where, the policy is also more discerning in extending financial support as compared to previous policies. This is because, while earlier policies were able to draw investment in industry in the erstwhile State in so small a measure due to generous subsidies and tax exemptions and were not linked to Jammu and Kashmir’s natural strengths and would not sustain once these financial sops were withdrawn. The new Policy by focussing on sectors that draw on the region’s strengths e.g. where Services are concerned and which comprises 53% of the region’s economy, the Policy has an explicit Service Sector Positive List which will be eligible for benefits. They include Tourism, Film Tourism, Healthcare, Education and Skill Development etc. It can be noted that all these sectors, especially tourism have very high employment multipliers requiring all kinds of skills.
The UT and the Central governments have taken care to align subsequent policies as well as design the J&K budgetary provisions in a manner to boost this central theme. The aim of these policies as well as the budgetary provisions has been to improve and spread connectivity and to amplify and play to the region’s strengths. Indeed, smart budgetary provisioning aligned with an appropriate policy can yield disproportionately high returns.
For example, while J&K has all along been associated with tourism in the popular mind, it has surprisingly never figured among the top ten States when it came to tourist arrivals either in absolute numbers or as a proportion of its population. The current UT budget by providing support and resources for the development of 75 new destinations, seeks to expand the region’s tourism economy via this highly employment elastic sector. Innovative alignment with other public expenditure such as the culture department which seeks to revive traditional fairs and Sufi festivals, many of them in remote, lesser-known destinations or the J&K tourist village network scheme is expected to further add to this effort. Targeted public investment in roads and urban infrastructure is aimed at making the new locations more accessible and increasing the sustainable carrying capacity of these destinations.
The budget’s accent on horticulture again stresses on high value low volume items. The stress on lavender cultivation for example is on a crop that fetches a high price and has low volumes. The thrust on cold storage capacity expansion, increase in productivity of apple through high intensity orcharding, support to high value and low volume agro-products like aromatic and cash crops and vegetables as provided by the UT budget are perfectly aligned with the Investment Strategy. When taken along with the GI certification initiative for saffron and other crops which is already under way, the sector holds great promise. Indeed, if productivity is increased to international standards, it can lead to the quadrupling of the size of this sector and if supplemented by value addition to fruit (currently very low) it can significantly increase growth and employment. This would mean less dependence on the UT government to provide employment and would enable rationalise its size and redirect expenditures to where it is really required.
But the UT Government has also done something novel. In what must be a first both for India’s states and union territories, the UT government as a part of its strategy has sought to leverage India’s CEPA with the UAE (another off-budget element of transformation) to seek markets, investments and tourists. This again is a low-cost low risk and potentially high return gambit. Given the fact that many in J&K work in the Gulf including UAE, using its entrepot trade to enter other markets makes eminent sense. Also, as a source of capital and a source of high spending tourists, the UAE is eminently attractive. Thus, this strand of the UT’s Investment strategy is also aligned with the core vision.
The Impact on Jammu and Kashmir Bound Investment
What has been the impact of all these policies on investors with respect to Jammu and Kashmir? The constitutional ambiguity of J&K such as it may have existed came to an end on 5-6th August 2019. Subsequent Presidential Orders have cemented that status. The ability of the Government to preserve law and order dire predictions notwithstanding and laid foundation to this basic requisite for normal economic activity.
However, it is also true that India, like the rest of the world was hit by COVID 19 a development not of its doing but one that necessitated lockdowns and affected business activity and sentiment. None-the-less, when it came to Jammu and Kashmir, investors who shied away for the erstwhile State have shown renewed interest in investing in the now reconstituted Union Territory. The UT Government reported that it had received investment proposals worth around Rs 51,000 crores whose employment potential is approximately 2.37 lakhs. Given the total spend of the Industrial Policy is approximately 28,400 crores spread over 10 years, the potential investment “crowded in” appears to be impressive by any standards. Moreover, the interest evinced in the region now extends to overseas investors especially well-known names and brands in the UAE which has received special attention by the UT Government. Significantly, the areas in which interest has been shown and proposals received are largely in the list of positive sectors earmarked by the government in its Industrial Policy.
Syama Prasad Mookerjee’s slogan of “Ek Desh Do Vidhan, Ek Desh Do Pradhan, Ek Desh Do Nishan, Nahin Chalega, Nahin Chalega” was not merely an emotion but a slogan that underlined the inherent impossibility of the system India’s political class had instituted in Jammu and Kashmir since the commencement of the Constitution. That it was not working and had long become a source of political instability and separatism and a barrier to economic development was also obvious for a long time. Bringing this state of affairs to an end was not just a constitutional and administrative challenge but an economic one as well.
It has been clear to most observers whether opposed to or supportive of the extension of the Constitution to Jammu and Kashmir in its totality and its subsequent reorganisation, that the government has been innovative and smart with respect to the law especially the Constitution (Application to Jammu and Kashmir) Order of the 5th August 2019 and the subsequent resolution with respect to Article 370 as well as the measures with respect to security.
With respect to economic strategy too, the Government has been innovative. Realising that the quality and direction of government spending is as important as the quantum of expenditure it has devised and economic strategy that focusses and plays on the region’s strengths. Thus, throw away expenditure policies that attract the wrong kind of investors and investment as in the past have been avoided. The design and aim of the current investment strategy are to attract investment that will create employment and will remain profitable even after financial concessions come to an end. Thus, ultimately it is private investment and private investors who will drive economic activity in Jammu and Kashmir as in any normal economic sub-unit of the Indian Union and the region will no longer be dependent on Central Government largesse.
With a determined and favourable policy ecosystem and a matrix of economic tools working in symbiotic convergence- public investment, industrial policy, transparent and targeted execution, central support, global markets, the portents for J&K are bright. This novel approach holds promise in transforming the erstwhile State from being a sinkhole for India’s scarce resources to a dynamic part of the Indian Growth story.
Jammu and Kashmir’s role in India’s development story can be distinct and supportive. With targeted investment, it can host an increasingly mobile India which is looking for destinations to tour and explore. It has the ability to produce the fruit and fruit products that will form part of the nutritious diet that India seeks to provide to all its citizens. For the more discerning Indian or any person in the world, it has handicrafts that are product of a millennia of experience and culture. It will eventually generate over one-third of India’s hydropower. It also has the ability to host many of the IT, ITES and electronics industries that it is uniquely positioned to attract.