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)

From Thanos to Zobrist: The re-emergence of Thomas Malthus and Malthusianism in the 21st Century

One of the major aberrations that could be seen in the nature of antagonist characters of popular cinema in recent times is that antagonists have started looking for better rationality in the mass murders they are engaged in.  The iconic antagonist characters such as the Joker (The Dark Knight, 2008; Director: Christopher Nolan), Ernst Stavro Blofeld (James Bond Series) or Solomon Lane (Mission Impossible Series), have all been depicted as the antithesis of their protagonists and who are, in general, megalomaniacs and anarchists attempting to attain world dominance. In the words of the Joker:

“Introduce a little anarchy. Upset the established order, and everything becomes chaos. I'm an agent of chaos. Chaos is fair.”

However, some of the recent antagonist characters in mainstream cinema such as Thanos (The Avengers Series) or Bertrand Zobrist (Inferno, 2016; Director: Ron Howard) seem to have found a bigger and better reason for the mass killings they are so strongly convinced about. In the words of Thanos:

 “When I’m done, half of humanity will still exist. Perfectly balanced, as all things should be.”

© cgmagonline.com

Thanos and Zobrist believed strongly that the major menace faced by the world is its ever-burgeoning population, given its limited resources and the only way the world or human beings can survive, is by eliminating half of the world’s population. If not, people would die out of hunger. In the words of Thanos himself:

“Going to bed hungry.. scrounging for scraps. Your planet was on the brink of collapse. I was the one who stopped that. You know what’s happened since then? The children born have known nothing but full bellies and clear skies. It’s a paradise.”

These words of Thanos may sound very familiar to any student of Economics.  It might remind them of the classical literature An Essay on the Principle of Population (1798) and its famous author Thomas Robert Malthus. Perhaps it would not be wrong to state that the characters of Thanos and Zobrist appear to be antagonists influenced largely by the economic concept of Malthusian Catastrophe.

What is Malthusianism and Malthusian Catastrophe?

A standard textbook definition of Malthusianism will be that it’s an idea derived from the economic thought given by the classical thinker Thomas Malthus in his book An Essay on the Principle of Population (1798) which suggests that the population growth in the world is exponential while the growth of food supply is linear. This might lead to a situation known as the Malthusian Catastrophe in which the population growth will outpace the agricultural growth resulting in a situation of too many people and too less food. In the words of Thomas Malthus:

"Famine seems to be the last, the most dreadful resource of nature. The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or the other visit the human race. The vices of mankind are active and able ministers of depopulation. They are the precursors in the great army of destruction and often finish the dreadful work themselves. But should they fail in this war of extermination, sickly seasons, epidemics, pestilence, and plague advance in terrific array, and sweep off their thousands and tens of thousands. Should success be still incomplete, gigantic inevitable famine stalks in the rear, and with one mighty blow levels the population with the food of the world."

- An Essay on the Principle of Population. Chapter VII, p. 61

These apocalyptic like words of Malthus had inspired a lot of scientists and thinkers like Paul R. Ehrlich, as well as laymen, who become ardent believers of the Malthusian idea and predicted the occurrence of Malthusian catastrophe in the 20^th century. The population explosion that occurred in many underdeveloped countries in the world gave momentum to this belief. But the Malthusian Catastrophe never happened. Nevertheless, one cannot take away the fact that when Malthus wrote his magnum opus, England was essentially an agrarian economy just engaged in its first industrial revolution and perhaps he did not anticipate the role technology was to play in improving the agricultural yield by leaps and bounds in the coming ages. The population growth also got major checks through continuous major wars, genocides and natural catastrophes throughout 20^th century.

The Malthusian prediction was rubbished and became largely regarded as a failed proposition in the mainstream economics literature of the 20^th century. But the sudden re-emergence of the idea through popular culture in the 21^st century and the widespread reception it received would force any student of economics to take a relook at the idea and check if there exists any empirical possibilities for Malthusianism in the 21^st century.

The Empirical Investigation

A basic empirical investigation was done using secondary data collected from the World Bank and FAO database for the period from 1960 to 2017. A preliminary graphical analyses show that the world population has been steadily increasing, along with the crop production (in this case, rice and wheat are considered). It was interesting to observe that while the crop production has been steadily increasing, the area of cultivation has remained more or less the same or has declined over the decades which indicates that the rise in production has majorly been due to the higher yield.

Though a graphical analysis of the yield showed a clean upward trend, it was observed that this was occurring at a diminishing rate. Hence the growth rate of yield was taken for both rice and wheat along with the population. A trend analysis using Least square method showed the growth rates are on a downward trend. A forecast based on the estimates provided a very interesting result. The forecast showed that if the present trend continues, the conditional mean of rice yield growth rate and wheat yield growth rate would become zero by the year 2040 and 2050 respectively. Though the population growth rates are also on a decline, the forecast shows the conditional mean of population growth rate to become zero by only 2070.

Assuming that the area of production and yield for rice do not fall but remain constant at the 2040 level and the same for wheat remain constant at 2050 level, the per capita crop production was calculated. The results showed a steady decline in the per capita crop production post-2040 and this decline escalates post-2050. Assuming that the population growth rate goes negative post-2070, the situation of per capita crop production can reverse. However, the result suggests that the period between 2040 to 2050, if the present trend continues, shall result in a period of very high inflation and the period between 2050 to 2070 may turn out to be a period of severe food crisis. Looking beyond the food-population relationship, an exponential forecast shows that the per capita habitable area shall also reduce from 80,000 sq. ft in 2018 to 40,000 sq. ft by 2060.

Both these findings are only possibilities provided the prevailing conditions and trend persist. The possibility of a food crisis can be averted with another green revolution which looks very much a possibility with the advent of nanotechnology. The steep decline in the per capita land availability is a bitter reality but can be managed through the construction of more vertical cities replacing horizontal.

Conclusion

There, of course, do exist an impending possibility of a food crisis in the near future. But through another technological revolution, the crisis can be very well be averted. Hence the growing ideology promulgated through characters like Thanos and Zobrist, which gained quick popularity among the present-day youth, is without any doubt too farfetched and extremist in nature. However, if the developing countries in the world which would be housing around 85 per cent of the world population by 2030, do not adopt these technological and structural changes with immediate urgency then the scenario could be a little scary. As a recent FAO report suggested, “hundreds of millions will remain hungry” post-2030. Then perhaps Thomas Robert Malthus will be back in business, once again.


(The article has used only basic data analysis methods. The forecasts are based on Least square estimates uncorrected for any assumption violations. Hence the precision can be affected due to biased estimates.)

CASHLESS ECONOMY: THE PANACEA FOR CORRUPTION, BLACK MONEY AND FAKE CURRENCY

On the evening of Tuesday, November 08, 2016, the Indian Prime Minister declared a historic decision in the path of India’s fight against corruption, black money and fake currency by demonetizing the higher denominations of Indian currency viz. Rs 500 and Rs 1000 with immediate effect. The move delivered an unexpected assault on all the black money holders and hawala traders in the country, who were holding the majority of their black money and fake currency as denominations of Rs 500 and Rs 1000. Looking at the merit of the move, one can safely say that the move will be successful in wiping out the fake currencies in circulation almost completely, but the same cannot be said about the black money. Though for a short run, the government has dealt a severe blow to all the black money holders, but this decision alone is not sufficient to completely eradicate the menace of parallel economy in India. The true panacea lies in demonetizing all paper currencies of the country and moving on to a cashless economy. Though at the outset this idea might sound highly impractical, shambolic and insane, it is something not really IMPOSSIBLE. It can be achieved if a well determined government move on a well thought out and systematic policy path. To achieve this we need a gradualistic and systematic approach. In this article I am attempting to share with the readers the outline of one such policy path that propped up from my thoughts. The objective of this article is to initiate a discussion on these policies and churn out a robust policy that could help in achieving the goal of a total eradication of the parallel economy not only in India, but around the world.

STEP ONE – FINANCIAL INCLUSION

The first step towards a cashless economy will be a comprehensive financial inclusion. Government should aggressively try to get each and every citizen of the country to be part of the financial system. Policy such as PM Jan Dhan Yojna is a welcome move in this direction. Each and every citizen of the country should have a bank account, with net banking, debit/credit card and mobile banking facility. Personal accounts, Salary accounts and student accounts must be made compulsory and should be linked to PAN.

STEP TWO – ICT INCLUSION

The second step will be information and communication technology inclusion. This includes popularizing mobile phones and internet among all people in the rural and urban. Slashing down internet usage tariff and tax of gadgets such as smart phones and computers shall be right move in this direction of popularizing ICT.

STEP THREE – TRAINING ON NEW GENERATION BANKING

Once the inclusion of all people in urban and rural with ICT is achieved, then the next step should be to impart training to the illiterate and less educated people in urban and rural, in association with the various banks in the country, on various techniques of new generation banking such as net banking, debit/credit cards, mobile banking, cash wallets etc. Such training can also be made part of all schools in the country. Such trained students can also be made volunteer trainers in their locality.

STEP FOUR – CREATION OF ONLINE MONEY WALLETS

All banks in the country should start Online Money Wallets. It should be a separate account other than the regular SB, Current, Recurring or Fixed Deposit account. Money held in this wallet should be highly liquid and shall be given no interest. The account holder can decide on what proportion of his SB money he wants to hold in his Online Money Wallet. Transactions from the Online Money Wallets should not be charged with transaction or service charge by the banks.

STEP FIVE – POPULARIZING QR CODE BASED COMMERCE

Once financial and ICT inclusion is achieved and online money wallets are opened, the banks should issue QR codes to all account holders. Shop keepers, taxi drivers and all others who cannot keep swiping machines for debit/credit cards, can use these QR codes of their bank account for getting their payment online.

STEP SIX – GOVERNMENT RUN E-COMMERCE WEBSITE/APP

The Union Government should start an e-commerce website/app with all the scheduled, non scheduled and cooperative banks as partners in it. Through this website/app similar to the Paytm, the Online Money Wallets held with these banks should be interconnected. The mobile app should be enabled with not only provisions for net banking but also QR code scanners. The government should ensure the safety of these networks from hackers by building impenetrable firewalls.

STEP SEVEN – POPULARIZING SMART CARDS

Public transportation, Petrol outlets, Shopping malls, Food joints etc should all issue smart cards that will be having money wallets to which customers can transfer money from their bank account through net banking or e-commerce website/app. Public transportation should introduce smart card system similar to that used in Metro Rails. This will end free rider issue in public services for ever.

CONCLUSION

The idea laid down here envisages an economy that runs on plastic money and online money. QR codes for commerce and e-commerce app can revolutionize the commerce sector and can play an important role in achieving this dream of a cashless economy. There will be zero chance of having fake currency, black money and corruption in this system as each and every penny are accountable. Every single transaction is recorded. The financial inclusion will make the monetary policy more effective and direct money transfers will bring about a more efficient distribution of public fund. This can also end age old social issues such as bribery, undervaluation of land, unaccounted binami assets etc. However I do acknowledge that it is not something that can be achieved overnight, but definitely something which we should be pursuing. As mentioned in the introduction, this is only a rough road map. The purpose of it is to ignite the minds and initiate discussions on this line to churn out a robust policy could help in achieving the goal of a total eradication of the parallel economy not only in India, but around the world. Now let the discussions begin.