THE ECONOMY OF JAMMU & KASHMIR: THE STORY OF A GOLDEN OPPORTUNITY LOST IN CHAOS

The abrogation of Article 370, along with its other political and social objectives, has a declared objective to improve the economic condition of Jammu & Kashmir (J&K). Despite the poetic sobriquets like “Paradise on Earth” and “Switzerland of India”, poverty plagues the people of Kashmir because the state’s economy is in shambles. The erratic economic growth of the state is perhaps one of the most disappointing growth stories of the Indian economy. The volatility in the growth of the state GDP is such that it fell from 34 per cent to two per cent in three years from 2011 to 2014 and again climbed to 19 per cent in 2015 (see Fig 1). While agriculture has traditionally been the mainstay of the economy and provides the largest employment, the tourism sector has not gained momentum in Kashmir in a manner that justifies its potential. Moreover, industrial development in the state is weak. Only the service sector has grown over the years.

 

To comprehend the economy of J&K it is necessary to compare the state with the other states in India. However, the country’s northern-most border state is unique from its counterparts across the country and therefore challenges characterize comparison. J&K is the fifth-largest state with 222,236 sq km but has the 19th largest population with 12,541,302 people prior to the bifurcation. Hence it will be a methodological error to randomly compare the J&K economy with any other state with either a similar land area or population size. For instance, the only states with similar size of territory are Uttar Pradesh with 240,928 sq km and Gujarat with 196,024 sq km. But UP has the highest population with 199,812,341 people among the Indian states and Gujarat has the ninth-largest population at 60,439,692 people, which is 16 times and five times more than the population of J&K, respectively.

Beyond the population and size of the territory, J&K also has a distinct environment, geographic and topographical characteristics, which make it methodologically inappropriate to compare with any states that do not possess these homogeneous characteristics. Therefore, the only feasible and appropriate methodology would be to compare the state with three of its neighbours namely Punjab, Himachal Pradesh and Uttarakhand. It is true that these states are smaller in the area compared to J&K. But their population size, geographical characteristics and climatic conditions are largely similar to J&K. Data from India Meteorological Department suggests that the four states jointly experience severe winter from November to March and records the lowest temperatures in India during the same period. The four states also jointly come under the impact of the Western Disturbances (WD) which causes heavy rain in their low-lying areas and heavy snowfall in the mountainous areas, causing significant influence on the agriculture of these states, particularly for the Rabi crops. Table 1 provides a comparison of J&K with Punjab, Himachal and Uttarakhand on certain important geographical, demographical and economic factors.

Table 1: Comparison of J&K with neighbouring states

Factors	J&K	Punjab	Himachal Pradesh	Uttarakhand
Area  in sq. Km (2016)	2,22,236	50362	55673	53483
Pop (in Cr) (2016)	1.25	2.7	0.68	1
Sex Ratio (2016)	890	895	972	963
Nominal GDP (In Lakh Cr.) (2016)	1.27	5.18	1.26	2.14
NSDP Per capita (in Lakhs) (2016)	0.94	1.53	1.76	1.9
Literacy Rate (2011)	68.7	76.6	83.7	79.6
Poverty rate (2013)	10.35	8.26	8.06	11.26
HDI (Rank among states)	0.684 (17)	0.721 (8)	0.72 (9)	0.67 (19)
Urban Unemployment (per cent) (2016)	10	7.7	8.7	9.5
Property rates (Avg. price/ sq. ft.) (2018)	2,300 (Srinagar)	78,505 (Chandigarh)	7,887 (Simla)	11,742 (Dehradun)
Number of Factories  (2011-12)	861	12593	2489	14090
Financial Inclusion (CRISIL Inclusix Scores) (2016)	47.8	70.9	72.3	69

Source: From various publications of Govt. of India and RBI.

Economic growth

Though J&K’s neighbours are one-fourth the area before its bifurcation, the state’s 2016 Nominal State Domestic Product (NSDP) figures are astonishingly lower in comparison with its neighbours. While the NSDP of J&K in 2016 was only Rs.1.27 lakh crores, Punjab and Uttarakhand registered NSDP of Rs.5.18 lakh cr. and Rs. 2.14 lakh cr. respectively. Only Himachal Pradesh which has half J&K’s population had similar NSDP figures of Rs 1.26 lakh cr. Data suggests that Himachal and Uttarakhand which more closely resembles the topography of J&K experienced faster economic growth than J&K since 2001 (see Fig 2). 

The major source of revenue for the state has been the grants-in-aid from the Government of India. Historically, the Govt of India has provided J&K with the highest grants-in-aid in comparison to any other states in India and the trend of grants-in-aid is provided as Figure 3.

Source: RBI

A comparison of successive governments at the centre shows that irrespective of the political parties that have ruled the centre, the Government of India has only increased the grants-in-aid towards J&K over the period of time (see Table 2).

Table 2: Grants-in-aid to Jammu and Kashmir during the periods of various Central Governments

UNION GOVERNMENTS	GRANTS IN AID (₹ Crore)
Narasimha Rao (1991-96)	8354
A B Vajpayee (1998 -2003)	22200
Manmohan Singh 1 (2004 -2008)	37757
Manmohan Singh 2 (2009-2013)	66727
Narendra Modi (2014-2019)	129628

Source: Computed by the author using RBI data

Human Development

The Human Development Index (HDI) rankings of the states show that all the neighbour states except Uttarakhand have high HDI ranks compared to J&K. While J&K ranked 17 in the HDI rankings for Indian states in 2018; Punjab and Himachal ranked 8 and 9 respectively. The literacy rate in J&K is at 68 per cent, which is much lower than the national average of 74 per cent as per Census of 2011. Importantly J&K with a comparatively lower population suffers a high poverty rate of 10.35 per cent.

Industrial growth

Industries in J&K have not gained traction due to lack of investments. The state received its first-ever foreign direct investment with an initial investment of Rs 1500 crores only in February 2018. According to the Annual Survey of Industries report 2011-12, there are only 861 factories in J&K while its smaller neighbour Himachal has 2,489 factories. Corruption is a major impediment that prevents investors from investing in the state. The Centre for Media Studies (CMS) in its annual corruption study – CMS India Corruption Study 2017 – has placed Jammu and Kashmir along with Karnataka, Tamil Nadu and Andhra Pradesh as most corrupt among 20 surveyed states in India.

Agriculture

Agriculture contributes 21 per cent to the state’s domestic product, providing 70 per cent of the employment. Wheat, rice and maize are the major crops grown in J&K. The same crops are also the major crops grown in Punjab, Himachal as well as Uttarakhand. The Ministry of Agriculture data 2014-15 suggests that while the yield of food grains in Punjab, Himachal and Uttarakhand were 4144 kg/ha, 2011 kg/ha and 1824 kg/ha, J&K registered a yield of only 1379 kg/ha. In the same year, Punjab, Himachal and Uttarakhand had the yield of 4492 kg/ha, 1800 kg/ha and 1902 kg/ha respectively for wheat, while J&K’s yield was only 1200 kg/ha. Rice yield was also the lowest for J&K among the four states with 1710 kg/ha, while Punjab, Himachal and Uttarakhand registered yields of 3838 kg/ha, 1751 kg/ha and 2313 kg/ha respectively. Considering the fact that the climatic pattern and topographical conditions of Himachal and Uttarakhand with J&K are mostly similar, such low yield in the major crops of J&K is a cause of worry.

Land Value

Lower population density coupled with the restriction imposed by Article 370 on non-Kashmiris to buy and sell land in the state has resulted in the abysmally low property prices in the state. While the average land price is Rs 2,300 per sq. ft. in the state capital, Srinagar, the equivalent in Himachal’s capital Simla is three times higher.

Unemployment

Today J&K suffers from 10 per cent urban unemployment which is the highest compared to its four neighbour states. The Economic Survey of J&K highlights that youth unemployment poses the biggest threat faced to the state economy. The total unemployment figures of the state being 5.3 per cent, indicates that the rural sector provides the majority of the employment. An increase in the young population, low literacy levels clubbed with stagnation in the tourism sector and slow growth of industries has resulted in the higher urban and youth unemployment in the state.

Financial Inclusion

J&K has also performed poorly in financial inclusion. The state ranks 28th in the Crisil Inclusix Index, while Punjab, Himachal and Uttarakhand have ranked 11, 10 and 12 respectively. This shows the lack of availability of formal banking systems and financial connectivity with the public. The low financial inclusion shows the lack of credit availability for industries, agriculture and business in the state which can cause a major impediment in its economic growth.

Tourism

One of the major disappointments for J&K has been the tourism sector. With the tremendous tourism potential offered by its serene topography and climatic conditions, data suggests that the state could never fully tap on to it due to the political instabilities and turbulences. Militancy has also been a major factor that impacted the growth of the tourism sector in Kashmir (see Fig 4). The data suggest that there exists a very strong negative relationship of militancy with the decline in tourist arrivals. In 2017, while Himachal saw a 6.25 per cent increase in tourist arrivals, with a total of 19.60 million tourists of which 471 thousand were foreign tourists, Uttarakhand received a total of 34.72 million tourists of which 142 thousand were foreigners. However, during the same period, J&K could receive only 14.32 million tourists of which 79 thousand were foreigners.

Conclusion

The political motives and righteousness in the move by the Government of India to abrogate Article 370 is being questioned by many. But there can be no denial that the economy of J&K is in shambles. The J&K economy over the decades has been largely propelled by the generous grants-in-aid from the Union government. But what data suggests is that these grants-in-aid have not been able to bring about any changes in the life of the people of the state due to the rampant corruption that exists at every level in the state government. Even J&K’s smaller neighbours with similar adverse geographical characteristics and climatic conditions have overtaken the state in economic growth and social development. The industrial development of the state is a major concern with no investments from outside reaching the state. The literacy rate is lower than the national average and urban unemployment is a major concern. Political turmoil and militancy issues have been the major roadblocks for the state in attaining its true potential growth.  The state requires a major revamp with respect to its investment policy, industrial policy, land ownership policy, tourism promotion and agricultural practices One can only hope that the recent developments would open up doors for investments and businesses into the state that could provide the big push that the economy of J&K is desperately wanting. But however, if this move backfires, then it would only lead to a further worsening of the economic status quo. 

(I thank my student Mr Mohammad Saiflan Aijaz for the help rendered in the data collection)