The Post-Militancy Political Economy of Jammu and Kashmir* Akshay Ganju

Transcription

1 The Post-Militancy Political Economy of Jammu and Kashmir* Akshay Ganju The many distinctive features of Jammu and Kashmir, including its exceptional political situation, extreme geography, and continual military conflict, have uniquely shaped its population and economy. Though the Kashmiri economy was fairly static for decades after independence, the recent advent of militancy has triggered some dramatic transformations. Despite these new circumstances, however, many other aspects of the economy remain untouched. An analysis of various sectors of the Kashmiri economy demonstrates the continuity and change associated with the rise of terrorist activity. The economy is sustained by its strengths, such as agriculture, handicrafts, and fruit processing. Nevertheless, glaring weaknesses a lack of infrastructure, state fiscal problems, the demise of tourism, unemployment threaten to spoil the fragile affairs of Jammu and Kashmir. The recent militancy has served to exacerbate these problems, and careful steps must be taken to address these issues. There is a great deal of debate over the net effects of terrorist activity in the state. There are obvious negative consequences, such as the loss of tourism and higher state military and security expenditures. These are quantitatively substantiated by data about tourist arrivals, state budgets, and growth rates. Nevertheless, other indicators suggest that the Kashmiri economy is booming. An careful analysis of the various sectors of the economy helps illuminate this seeming contradiction. Modern Economic Background Various economic indicators provide different accounts of militancy s effect on the state. In the 1980s, the growth rate was 8.47%. 1 After the militancy, throughout the 1990s, real growth dropped significantly the rest of India boomed, while Kashmir averaged only around 5%. 2 Despite the relatively *Note: Research for this article was originally conducted in Jan. 2005, so some data may be out of date. 1 Sreedharan, Chindu. Blood in the Snow: Reviving the Economy. Rediff 17 December 1999, Internet Edition: 2 States and Territories of India: Jammu and Kashmir. South Asia 2004, Country Surveys. Europa Publications: New York, Pg. 247.

2 sluggish growth rate, the poverty rate in Jammu and Kashmir, estimated around 3.48% in 2003, 3 is still among the lowest in the nation poverty for the country as a whole stood at 26.1% in The changing Per Capita State Domestic Product best reflects militancy s effect on net state production. Set against an all-india index, intermittent values from are given below. The table, which includes the index value for each time period and the all-india state rank (out of 17) in parentheses, clearly demonstrates the extraordinary growth of the Kashmiri economy in the 1970s and 1980s. Between 1970 and 1982, Jammu and Kashmir raised five places and crossed the national average. Despite this strong growth, after the advent of militancy, the state promptly lost all that it had gained. As the rest of India benefited from the liberal reforms of 1991, Jammu and Kashmir was left behind. Despite these numbers, there has been a silent growth movement in the Valley, as demonstrated by the rise of the Jammu and Kashmir State Bank. Deposits have grown tremendously since militancy began, from $458 million in 1989 to $2.29 billion in An analysis of the four main sectors of the economy government spending and enterprises, agriculture, tourism, and industry helps explain these apparent contradictions. Index of Per Capita State Domestic Product at Constant Prices (All India = 100): Selected Years 5 Year J&K Index Value (Rank) 83 (12) 86 (13) 106 (7) 79 (11) 72 (13) Government Spending, Infrastructure, and Enterprises The fiscal dealings of the Jammu and Kashmir state government are instrumental in the workings of the whole economy. The total bureaucracy of the Kashmir Valley alone is estimated to be around 350,000 people, or one in seventeen residents. The government payroll accounts for two-thirds of the state s total budget of $1.2 billion. 6 The budget itself is spiraling out of control. The revenue deficit increased 77% from , to Rs 9.6 billion in 1990, the deficit stood at only Rs 574 million. 7,8 Several theories explain this 3 Government of India. Planning Commission. State Development Report, Jammu and Kashmir. New Delhi: planningcommission.nic.in/plans/stateplan/sdr_jandk/sdr_jandk.htm. 4 Chopra, Geetanjali, and Manasseh, Karina. India Country Brief. The World Bank in India: September Krishna, K.L. Working Paper No. 144 Patterns and Determinants of Economic Growth in Indian States. Indian Counsel for Research on International Economic Relations. New Delhi: September Waldman, Amy. Border Tension a Growth Industry for Kashmir. The New York Times 18 October 2002: A3. Lexis-Nexis. Harvard College Library. 20 December 2004: 7 Sreedharan, Chindu.

3 dismal record. Large amounts of state funds are allegedly lost through rampant corruption amongst government officials, though prosecution is rare. 9 Beyond that, however, there are many controversies surrounding the allocation and use of federal funds by the state government. In 2001, Jammu and Kashmir received $1.27 billion from the Government of India the fourth highest per capita federal economic assistance in the country. 10 The Kashmir Valley alone, home to slightly more than half the population, got $812 million. 11 Furthermore, as Jammu and Kashmir is classified as a Special Category State, it receives 90% of its funds in grants, and only 10% in loans. Most states in India receive 70% of their aid in loans, and only 30% in grants. 12 Despite this federal generosity, the state government still blames its fiscal woes on New Delhi s stinginess. The federal aid structure accorded to Jammu and Kashmir as a Special Category State started in The state government, however, believes that the funding should be retroactive to when the state was first awarded this status in 1966, and therefore much of its current debt to New Delhi should be waived. 13 The Srinagar government also complains that its security expenditure due to cross-border terrorism has not been adequately reimbursed. State security spending increased from nearly nothing in 1989 to Rs 3.05 billion by At that time the state alleged that the federal government owed Rs 8.96 billion in security expenditures. 14 According to the state government, these unpaid debts and the misstructure of federal aid are responsible for the deepening fiscal crisis. Another possible explanation for the messy budget involves the state s power crisis. One estimate claims that 20% - 25% of central government funds sent to Kashmir are used to pay for power, 15 as it imports over 15 billion megawatts a year; 16 in 1999 the state government owed Rs 600 million to the National Electricity Grid. 17 Despite this dismal power situation, Jammu and Kashmir has immense hydroelectric 8 Government of India Waldman, Amy. 10 Dewan, Parvez. Jammu, Kashmir, Ladakh. New Delhi: Manas Publications, Waldman, Amy. 12 Government of India Bhosle, Varsha. Raising Cain The Rediff Interview: Dr. Farooq Abdullah. Rediff 1 September 1999, Internet Edition: 14 Sreedharan, Chindu. 15 Dewan, Parvez. 16 Khan, M. Y. Summary of Talk by M.Y. Khan, Chairman and CEO of the Jammu and Kashmir Bank Ltd. South Asia Program Center for Strategic and International Studies: Washington, 28 May Bhosle, Varsha.

4 potential due to its rugged terrain and profuse water sources upwards of 20,000 megawatts a year. 18 Nevertheless, total installed capacity in was only megawatts. 19 With proper infrastructure and development, the state would be able to end its power crisis and even sell excess power to other states. The influx of terrorist activities has left the state infrastructure in shambles, with the destruction of 758 schools, nine hospitals, 243 bridges, 1,264 other government buildings, 9,309 homes, and 1,659 shops between 1988 and Though much of this damage has been repaired, some restorations have been neglected due to the state budget crisis. For example, in 1996, 157 major and 244 minor bridges were recognized as needing repair. Only 109 major bridges and 128 minor bridges were actually reconstructed. 21 Kashmir s infrastructure woes cannot all be blamed on terrorism and the state government. Many problems have existed for decades, and are due to historical issues with limited development, little industry, rough landscape, and rural population. For example, Jammu and Kashmir has very low road and rail density, especially compared to other states with similar terrain. The state has only 127 kilometers of road per 1000 square kilometers of land area. That compares poorly to Assam (872/1000 sq. km.) and nearby Himachal Pradesh (542/1000 sq. km.). Its rail density is also the lowest, at.40/1000 sq. km. 22 The rail terminus of the state lies at Jammu, in the far south, and there is only one road connection to Srinagar and Leh. This road, National Highway 1, is extremely perilous and is closed for much of the year. There are regional airports at Jammu, Srinagar, and Leh. The lack of a railroad and cheap, efficient modes of transportation in the state have proved extremely detrimental to industrial growth and development. The state government considers a rail route to the Kashmir Valley integral to industrial development, and condemns the federal government for the delay in completion of the project. 23 Work is currently underway on several different sections of the proposed 287-kilometer, Rs 3.6 billion Udhampur Srinagar Baramulla railway line. The entire project should be finished within five years. 18 Government of India Government of India Dewan, Parvez. 21 Government of India Government of India Bhosle, Varsha.

5 Militancy itself has raised some infrastructural concerns very specific to Jammu and Kashmir. For example, the development of telecommunications has been hindered due to security considerations - even cellular phone networks were not allowed in the state until late Another specific state concern is the healthcare industry. An interesting case study within this segment is the condition of the psychiatric facilities within Jammu and Kashmir. The terrorist movement, and the associated death and upheaval, has led to widespread psychological troubles. There is trauma associated with military service, migrating families, and individuals coping with loss. The main psychiatric facility in Srinagar saw its caseload grow from 3,000 in 1989 to 18,000 in In 2001 it saw up to 250 people daily, a patient total six times greater than in the pre-militancy era. 26,27 The situation is not improving, either. In 2002 the Srinagar facility dealt with 48,000 patients. By 2003 that number had grown to 63, Hospitals in both Jammu and Srinagar must cope with overcrowding due to insufficient funds and resources. Recently, Medicins Sans Frontiers (MSF) has started working in the Kashmir Valley; the organization provides outpatient resources to psychiatric patients and runs public awareness campaigns and community initiatives. 29 Despite this help, the state healthcare system is still overwhelmed and in dire need of resources, space, and staff. The state government also wrestles with the massive problem of unemployment. Over 100,000 youth are currently unemployed, 30 and the problem is worsening the total number of unemployed in 2000 was almost 50% higher than in There are several contributing factors to this trend. Jammu and Kashmir has experienced a recent pattern of high population growth: 28.91% from 1981 to 1991, and 30.46% from 1991 to As a comparison, the population of the whole country grew 23.56% from 1981 to 1991, and 24 States and Territories of India: Jammu and Kashmir Habibullah, Wajahat. The Political Economy of the Kashmir Conflict Opportunities for Economic Peacebuilding and for U.S. Policy. United States Institute of Peace. Washington: June Mental Health Deteriorating in J&K: Study. The Deccan Herald 2 April 2004, Internet Edition: 27 Hussein, Masood. J&K Takes a Hit on the Mindfield. The Economic Times 1 April 2004, Internet Edition: economictimes.indiatimes.com/articleshow/ cms. 28 Ramesh, Randeep. Healing the Hidden Casualties of Kashmir. The Guardian 8 January 2004, Internet Edition: society.guardian.co.uk/christmasappeal/story/0,11321, ,00.html. 29 India: Fighting TB and a Cycle of Violence. Medicins Sans Frontiers. India: 23 June Khan, M. Y. 31 Government of India 112.

6 21.43% from 1991 to Not only are the corresponding rates higher for Jammu and Kashmir, but while the decadal rate of growth increased in Jammu and Kashmir, it decreased for the rest of the country. These high growth rates are accompanied by a similar growth in the workforce during the same time period the total number of workers in the state rose by 39%. 33 These workers have not been absorbed by the agricultureand handicraft-dominated economy of the state; they are left to join the ranks of the jobless. Furthermore, the numbers of educated unemployed is growing, a result of the free higher education provided to residents of the state and the lack of industry. 34 The government, which used to employ such workers, has cut back on new additions due to the current budget problems. This has led to a deepening employment crisis. The situation is dangerous as well many unemployed young men are drawn to terrorist groups, who offer the best opportunity to make money. 35 The state government must deal with its fiscal issues before it can help the rest of the economy. Fiscal deficits must be reduced, aid from the central government must be effectively utilized, and state enterprises, such as those in the power sector, must be reformed. Only then can other pressing issues, such as healthcare and unemployment, be addressed. Agriculture With the downfall of tourism and the lack of organized industry, agriculture has been the backbone of the state economy. Agriculture and related activities employ around 80% of the population and account for 60% of the state income. 36,37 Four-fifths of the state s population resides in rural areas, a much larger proportion than the rest of the country. 38 This sector of the economy, which carries the state, has been barely affected by the rise of militancy in the 1990s. The total area under cultivation has almost remained the same, 32 Government of India Government of India Government of India Hababullah, Wajahat. 36 Government of India States and Territories of India: Jammu and Kashmir Jammu & Kashmir: A Profile. The Official Website of Jammu and Kashmir Government, India. 16 December Jammu and Kashmir Government, India. 20 December 2004 jammukashmir.nic.in/profile/facts.htm.

7 rising from 731,000 hectares in 1990 to 733,000 hectares in Rice, wheat, and maize are the main crops, though Jammu and Kashmir is also the largest producer of saffron in the subcontinent. 40 Despite the good performance of the agriculture in Jammu and Kashmir, it remains mostly a subsistence sector. 41 There are few processing facilities, few agriculture-related industries, and therefore few opportunities for growth. This massive segment of the economy, containing more than three-quarters of the total population, has limited potential and currently cannot absorb new, educated workers. As such, it continues to imprison the Kashmiri people in a primitive lifestyle, with few prospects. The lack of facilities and the agriculture domination also forces an unhealthy dependence upon the general Indian market. With no canning, bottling, or storage facilities, Jammu and Kashmir must immediately sell its goods elsewhere in India. 42 This lack of facilities limits international export, and eventually results in losses by Kashmiri farmers on the open market, especially when forced to compete against higher performing states such as Punjab. Agriculture has remained the backbone of the Kashmiri economy. Nevertheless, much more can be done to boost production and industry within the sector, to increase employment and to turn Jammu and Kashmir into an effective competitor in the Indian market. This sector of the economy is currently mired in traditionalism, with old practices, old tools, and old levels of production. Tourism The biggest casualty of the militant activity has been the tourist industry in Jammu and Kashmir. More than 700,000 tourists flocked to the Kashmir Valley every year, drawn to the Switzerland of the East with promises of Paradise on Earth. 43 Since the start of terrorist activity in 1989, however, tourism to the Valley dropped sharply, from 722,035 in 1988 to a low of 6,267 in As illustrated in the following table, tourism in Kashmir remained negligible throughout the 1990s, with a slight spike in The Kargil 39 Government of India States and Territories of India: Jammu and Kashmir Government of India Ahmad, Mukthar. Kashmir Can Become Prosperous in a Short Time. Rediff 17 December 1999, Internet Edition: 43 Jammu and Kashmir. Community Information Centers. 12 March Department of Information Technology, Government of India. 4 January

8 Kashmir Valley Ladakh Vaishnodevi Year D F T D F T Amarnath State O. St. T * N.A Tourist Arrival in Jammu and Kashmir Note: D Domestic; F Foreign; T Total; O.St Outside State * Tourist arrival figures for the year 2002 are up to May for Kashmir Valley, up to April for Ladakh and Vaishno Devi. War between India and Pakistan in July of that year quickly put an end to the growth, and the numbers were down again in Government of India 45.

9 While Ladakhi and Kashmiri tourism have declined, Jammu tourism is actually on the rise. Though not considered as beautiful as Kashmir, the City of Temples 45 is the starting point for the pilgrimage to Vaishnodevi, a holy site in the mountains to the northwest. Massive structural improvements and development have led to skyrocketing numbers of pilgrims, as evidenced by the table. Amarnath, another holy site located in the mountains west of Srinagar, has also surpassed its pre-militancy numbers. There is no exact figure on the importance of pre-militancy tourism to the Valley. Nevertheless, it is estimated that by the late 1980s, it accounted for around 16% of the state s domestic product, 46,47 and tourism and related activities employed around 30% of the population. 48 It was the second only to agriculture, 49 and the loss of tourist traffic to Kashmir deeply wounded the economy. Nevertheless, new unconventional forms of tourism have ameliorated some of the damage. An industry of olive tourism grew around the 350,000 Indian Army troops stationed in the state. These new tourists, the troops and their families, spend a great deal of cash in the Valley: they buy groceries, jewelry, and local crafts. 50 The military itself purchases local supplies as well olive cloth fills tailor shops and oliveclad soldiers fill hotels year-round, whereas tourist traffic was only seasonal. 51 There is even a militant tourist industry, as they pay villagers cash in exchange for food, shelter, or information about troops. 52 Both groups have contributed to the afore-mentioned rise of the Jammu and Kashmir State Bank, as troops deposit paychecks and militants use the bank to funnel money from international financiers. Tourism as an industry has been hardest hit by the unrest in Kashmir. Though raw numbers have gone down, conventional travelers have been somewhat replaced with a new conception of tourism; army personnel and their families, as well as militants themselves, have flooded the Valley with fresh cash and 45 Jammu and Kashmir. 46 Sreedharan, Chindu. 47 Government of India Ibid. 49 Dewan, Parvez. 50 Baldauf Scott. In Kashmir, War is Also Business. Christian Science Monitor 13 July 2001, Internet Edition: csmonitor.com/cgi-bin/durableredirect.pl?/durable/2001/07/13/p1s3.htm. 51 Sreedharan, Chindu. 52 Baldauf, Scott.

10 demands for new services. Increased traffic to Jammu and Ladakh has also proved to be an effective partial substitute for the losses in Kashmir. Industry Kashmir has historically had a modest industry sector. It is dominated by traditional handicrafts and minor production operations these accounted for most of the 38,029 small-scale industrial units in existence in Individual weavers create woolen (cashmere) shawls, blankets, and fabrics on traditional handlooms; some raw materials are also used to make embroidery and carpets. There were almost 50,000 weavers by the mid-1990s, with production valued at around Rs 230 million in 1995, including Rs 132 million in carpets alone. Total handicraft exports in 1997 were put at Rs 2.9 billion. 54 Handicraft production itself has not been significantly affected by terrorist activity. Nevertheless, tourism provided the biggest market for handicrafts, and the end of tourist traffic has crippled sales. This has been somewhat replaced by military tourism, as explained above. Militancy has also scared off outside business interest in the sales of Kashmiri products. However, this has been somewhat positive for handicraft manufacturers. The loss of in-state purchasers has forced the export of Kashmiri products, and the loss of outside business interest has forced Kashmiri producers to manage this transition themselves. This money comes back to the valley, where it supports other segments of the economy. 55 One such segment is the home-building industry. Home prices in Jammu and Kashmir have risen continuously throughout the 1990s, which cannot be said for the rest of India. With uncertain business prospects and the fickle, unstable nature of the political situation, people have poured money into real estate. 56 In the Valley this was spurred by the migration of 130,000 Kashmiri Pandits, whose properties were quickly purchased as investments. In Jammu these same migrants bought new property, raising prices in the southern part of the state. 53 States and Territories of India: Jammu and Kashmir Ibid. 55 Baldauf, Scott. 56 Waldman, Amy

11 The forests of Jammu and Kashmir hold great potential. With many expensive varieties of wood and a famous tradition of furniture making, the state government could profitably capitalize upon its monopoly on forested land. Militancy has diminished these prospects, as the government has lost control of forests and militants conduct logging operations for their own profit. Government corruption also hurts the industry, as bureaucrats make money by condoning illegal operations. 57,58 There is great debate over why industrial projects and investment stay away from Jammu and Kashmir. Many blame it on infrastructure difficulties the lack of a railroad to the Valley, or the poor quality of the road and air network. Others blame it on the uprising, which is of real concern to anyone risking a significant investment. Another hurdle are the tensions and political brinksmanship with neighboring Pakistan a border conflict could erupt at any time. Many people, however, lay blame with Article 370. Article 370 is a temporary section of the Indian Constitution that specifically deals with the state of Jammu and Kashmir. It was designed to protect the autonomy of the region, and to prevent the central government from exercising too much control over the state. It originally limited federal interference only to telecommunications, defense, and foreign affairs; anything else passed by New Delhi had to be separately ratified by the state legislature. These rules have since been modified, to bring the state s civil code more in line with the rest of the country. The BJP-led government of the late 1990s failed in its efforts to completely rescind Article 370 and fully integrate Kashmir, and despite minor modifications, the basic ideas underlying the article remain. 59 Article 370 also bars a non-kashmiri from buying property in the state, which some see as a major hurdle to industrial development it hinders out-of-state capital and investment. When financiers cannot buy and develop property, they stay away from the state, leaving Kashmir mired in industrial dilapidation. Others refute these claims however, pointing to the arrival of international companies in Jammu and Indian- 57 Hababullah, Wajahat. 58 Government of India New Indian Government Supports Autonomy for Kashmir. Agence France Presse 7 June Lexis-Nexis. Harvard College Library. 6 January 2005:

12 nationalized banks throughout the state. The counterargument contends that anyone can develop land on a 99-year lease, and that the fundamental problem does not lie with the law, it lies with the infrastructure. 60 The government has passed incentives to stimulate growth, including a five-year tax holiday on industrial development. 61 As of yet, little has worked. Small-scale handicraft producers dominate the Kashmiri economy. There is little outside economic investment, resulting in little economic development. Though this cottage industry base has remained strong, it currently contains little potential for growth, restricted by its traditional setting and methodology. Other possibilities for industrial development, such as timber, remain untapped. Conclusions Kashmir has many economic difficulties; some of these have been caused by the decades of militancy, while others are inherent in the structure and production of the economy itself. Despite the nature of these issues, several steps can be taken to help ameliorate the prevailing situation in the state. Government finances must be corrected. The government at Jammu and Srinagar plays an immense role in the state, as it employs much of the population within its sprawling bureaucracy and controls a great deal of federal funding. Without limiting the fiscal deficit, the government cannot begin to fix the infrastructure and investment problems that trouble industrial development. Even as blame for the fiscal concerns is thrown between the state and central governments, the state can take several steps to improve the situation. The power mess is a good start Kashmir has more than enough resources to provide for its own power without depending on expensive out-of-state shipments. Hydroelectricity is a virtually untouched supply that can be valuably exploited; investing in this area can also boost industry and employment. Investment in the timber industry would yield similar results. An improved infrastructure will encourage development a rail route to the Valley should be established as soon as possible, but in the meantime the state can build storage and processing venues to take advantage of the well-performing agriculture and handicraft sectors. New modernized facilities can revolutionize traditional Kashmiri industries, boosting 60 Ahmad, Mukthar. 61 Bhosle, Varsha.

13 production and bringing more private resources to the area. State investment in these areas will also provide jobs to the restless unemployed youth of the state, ameliorating another huge problem in Jammu and Kashmir. Though agriculture and handicrafts have maintained their performance through the troubled 1990s, a stable record is no longer good enough to compete internationally or within the rest of the country. Production must be boosted and new jobs must be created. The land cultivated in Jammu and Kashmir has remained constant, so efficiency should be raised by investing in better tools and techniques. New processing and packaging facilities can also boost industry within agriculture and handicrafts. For example, fruit processing and bottling plants can transform Kashmiri horticulture from a subsistence sector into an industrial sector. Similar investment can industrialize Kashmiri agriculture as well. More can be done to encourage the export of Kashmiri handicrafts, including woodwork, fabrics, paper mache, and carpets; this is especially important with the loss of direct tourist traffic in the Valley. Tourism must be increased as well. Not only will it revive the sector that once employed 30% of the population, but other industry will grow up around the hundreds of thousands of visitors. Kashmir and its government must do more to re-attract the millions of people who visit India each year. The revitalization of tourist attractions and regional airports would help, as well as a dedicated advertising campaign. The net results of militancy have been ambivalent. Some sectors have continued untouched, others have completely collapsed, and new industries have grown around the culture of war. Despite its strengths, the economy of Jammu and Kashmir is threatened by grave weaknesses that the government and population must immediately address. A traditional framework shackles the workers of Kashmir, leaving no room for growth and development. A concerted effort to correct these issues and bring Jammu and Kashmir into the new millennium will go a long way towards improving the welfare of the populace, citizens who have suffered enough from the violence that destroys their homeland.