Developing the economy of the former state of Jammu and Kashmir (J&K) is a strategic necessity for India in the aftermath of its controversial decision on August 5 to abrogate Article 370 and downgrade its status to a union territory. The move stunned Kashmiris and rest of the nation alike and came with a pre-imposed communication shutdown – that continues over 100 days now – and movement restrictions across the Kashmir Valley.
The central government led by Prime Minister Modi expects to sail through the grievances against the move on the basis of its flagship agenda of economic development of J&K. But Kashmir Valley continues to be a contested, complicated and militarized zone where the decision and its subsequent changes have increased political risks to businesses. Without a peaceful and stable business environment, prosperity may be far off.
The real deficit in Kashmir’s economy was however, not Article 370 restricting inward investments, as the government argues. Private businesses already operate in the Valley – such as large hotels by the Tata, ITC and Radisson Groups – through a present system which allows long term renewable leasing to the private sector.
Reported merits of Article 370 included its role to keep poverty low and Human Development Indices high. However, macroeconomic indicators show that there is significant room to improve. The Gross State Domestic Product (GSDP) of J&K for 2018-19 was estimated to be US$ 1637, ranking at the bottom as compared to other similar sized states.
The reasons for poor output and large unemployment numbers can be traced back to Kashmir’s former dependency on central aid for about 2/3rd for its annual finances. Despite substantial financial assistance, such as a US$ 2570 million ‘UDAAN’ upskilling project, J&K remains a poor economy due to inefficient, poor governance and implementation of such projects. Private capital has historically ignored Kashmir, not only due to insecurity but also lack of infrastructure, reliable local partners and connectivity.
A spurt in violence is proportional to falling economic growth. All the core economic sectors had plummeted coinciding with major violence which followed the killing of young militant Burhan Wani by Indian military forces in 2016. The industrial sector growth fell from 26% in 2015-16 to a mere 3.2% the next year.
Over decades, the Kashmiri community in the pristine but securitized Valley grew up experiencing human rights violations, UN reported, that have eroded trust in the authorities. Prospects of elections and an effective local government are in limbo as most major political leaders, activists remain under house arrest and political activities virtually eliminated.
Factors driving Kashmiris towards militancy are no more limited to anti-India sentiments and recruitment by Pakistan-sponsored groups, but also a global Jihadist extremist ideology that has permeated what was originally a territorial-separatist conflict. Grievances from normalized violence in day to day life in the hand of armed troops also pushed youth to take up arms.
Militant attacks in last few years targeted not only the security forces but also locals who are moderate Muslims. Young, educated Kashmiris have been increasingly radicalized online and receive greater community support than their previous generations. A series of attacks targeting local as well as migrant traders and workers points at the somber mood in the Valley, even as the government claims that all is well. Most recently on October 29, three migrant labourers from West Bengal were fatally shot in the Valley.
Such attacks on economic actors, in a shift from the usual target of security forces, shows that militants are widening the use of fear tactics. Protests can also erupt unexpectedly, such as on religious memorial days, of death of protestors or militants or the anniversary of article 370’s removal, necessitating security deployment, and its increase at flashpoints across the Valley.
Political stability and security, the key to a sound business environment, will continue to be challenging. Investing in and operating a business in a risky geography is not without hurdles – ranging from banks’ unwillingness to give loans to companies to the lack of security guarantee. Corporates such as Reliance, Mahindra and Tata Group expressed interest calling for investment in Kashmir. Much of the enthusiasm – initially seeped with patriotism – have dried down even as the rest of the private sector prefer a wait and watch approach.
Reliable infrastructure such as electricity and water, smooth supply chain and communication are already a challenge in Kashmir that periodic events of transport and internet shutdowns are likely to further impede. Long term costs can mount over ensuring the security of physical assets, personnel and supply chain, especially outside major cities of Srinagar and Jammu. Large investors are likely to face higher insurance premiums for continuing operations.
A disempowered local authority translates into operational and regulatory issues such as longer processing time and contract enforcements. An open ended transition period to peace means the government will continue to rely on the security forces including in non-security functions, for example, protecting infrastructure projects.
Establishing long-term social capital to de-risk the economy is crucial before private investments can come in. A social acceptance of Kashmir’s new status, stabilizing the local government and community outreach are the prerequisites.
Views expressed are personal
- Writaja Sasmal is currently a Research Officer in India, based in Mumbai, specializing in South Asian strategic and political economy affairs and holds Master degrees from RSIS Singapore and Jawaharlal Nehru University, India.