The lack of public investment deterred private industry in Kashmir, not Article 35A

Shiekh Ashiq, the president of the Kashmir Chamber of Commerce and Industries, estimates that businesses in Jammu and Kashmir suffered losses of over Rs 8000 crore during the lockdown. Mukhtar Khan / AP
08 November, 2019

In his speech in parliament on 5 August, the home minister Amit Shah listed several reasons behind the government’s decision to repeal Article 35A of the Constitution and abrogate Jammu and Kashmir’s special status under Article 370. Key among them was the promise of greater economic growth. Shah argued that Articles 370 and 35A had kept Kashmir poor and stalled its development. He further claimed that the private industry had not invested in Kashmir because Article 35A disallowed them to buy land.

Shah failed to mention a significant factor in the private industry’s absence in Kashmir: that even public investment has been dismal in the former state. The central and state government have a poor track record of investing in Jammu and Kashmir and creating the public infrastructure needed to attract private investment.

According to Haseeb Drabu, an economist and the former finance minister of Jammu and Kashmir, private investments often follow the lead of public investments. He told me that private investments started trickling into India post the liberalisation of the Indian economy in 1991. While noting that he could accept the argument that private investments had not ventured into Kashmir post the nineties because of the militancy in Kashmir, he added, “What I am asking is what happened between 1947 and 1991?” Drabu continued, “Why was there no public investment at all? Public investments did not face any land restrictions as we speak. More than four-and-a-half-lakh kanals”—a unit of measurement popular in Kashmir, which is approximately one-eighth of an acre—“of land was occupied under the use of the central government. So they had no restrictions, why didn’t they invest?”

Drabu emphasised that in a number of states seen as industrially developed, it was the government that created the infrastructure and agreeable conditions for the private sector to enter. “Take the example of Maharashtra, Gujarat, Karnataka or Punjab,” he told me. “When no public investment has happened in Kashmir, how do you expect the private sector to go there?”

Drabu also questioned Shah’s rationale that land restrictions had deterred private investment. “Even in the original provision of 1927”—which defined state subjects who had the right to land use and ownership—“there was a clause which allowed the state to give land to corporates for investment purposes. The land could be given both in the form of a lease as well as a grant, and the lease would be extendable to 99 years, which is as good as ownership. So, the land restriction argument is completely rubbish; a hogwash.”

In the aftermath of the lockdown, as WhatsApp swarmed with fake messages of cheap buyable land in Kashmir, many land owners in the Valley feared that their land would be sold to outsiders. In a meeting with representatives of sarpanches and fruit growers from Jammu and Kashmir in September, Shah told them that “nobody’s land would be taken away.” He reassured them that “government land would be used for the establishment of industries, hospitals and educational institutions.”

However, as Drabu pointed out, the government always had the option to use this land and commit resources to building this sort of infrastructure on it. Article 35A did not prevent them from doing so. But the data suggests that both the central and state governments have been slow to invest in Jammu and Kashmir, resulting in the region lagging behind in several public-infrastructure indicators.

One way to assess the government’s investment in a state is to look at the functioning of Central Public Sector Enterprises. At present, CPSEs are companies in which the direct holding of the central government or other CPSEs is 51 percent or more. In the financial year 2017-2018, there were 339 CPSEs operational across India. The central government’s financial investments in the CPSEs—through loans and other instruments—amounted to Rs 13,73,412 crore. As of March 2018, out of these 339 CPSEs, there are only three based in Jammu and Kashmir, employing a total of 21 people. The capital invested was a meagre Rs 112 crore. Further, Jammu and Kashmir’s share in the total value of assets held by these companies is merely 1.03 percent—Rs 20,398 crore out of a massive Rs 19,84,619 crore.

According to the Annual Survey of Industries, conducted by the ministry of statistics, in the financial year 2017, Jammu and Kashmir accounted for only 0.4 percent of the total factories in the country. A 2019 profile of Jammu and Kashmir by Care Ratings, a credit-rating agency, detailed the state of public infrastructure in the region. It noted that the erstwhile state’s road density is a dismal 28.5 kilometres, as against the national average of 152. Road density is the length of India’s total road network per 100 square kilometres of India’s total land area. Another hilly state, Himachal Pradesh, performs much better at 112.8 per 100 square kilometres. The rail density of the region stands at 1.3 per 1000 square kilometres—far from the national average of 20.5 per 1000 square kilometres. Himachal Pradesh still fares better with a rail density of 5.3 kilometres. The former state also has a high power deficit. Compared to the national average of 0.7 percent and 0.6 for Himachal Pradesh, Jammu and Kashmir recorded a power deficit of 20 percent for the financial year 2018.

As reported in The Statesman, in 2015, the Comptroller and Auditor General tabled a report criticising the state government for the continuous fall in developmental capital expenditure, which indicated that inadequate resources were being spent on development work. Capital expenditure includes the amount spent on acquisition or creation of long-term assets such as educational institutes, hospitals, roads, ports, bridges, and railway connectivity. These assets act as incentives for economic growth. The percentage of developmental capital expenditure, as a proportion of the total expenditure, fell from 27.7 percent in the financial year 2010 to 12.18 percent in the financial year 2014. In the same report, the CAG came down hard on the state government for overshooting the completion day schedules for 267 developmental projects.

Further, public-sector undertakings have not performed well in Kashmir. By the end of the financial year 2017, 12 out of 19 PSUs under state government departments were registering losses and being provided budgetary support to meet their wage bills. According to the 2017 Economic Survey of Jammu and Kashmir, these “units have to compete with the private sector but the productivity of labour as well as capital is low.” The survey added, “Fresh infusion of technology requires additional funds that are not easily available. Under these circumstances, it has become necessary to carry out reforms of the public sector at a fast pace.”

In addition, a March 2018 article in the Economic Times noted that 18 PSUs under the aegis of the state government had reported a cumulative loss of Rs 191 crore. The situation had worsened to such a degree that the state government had to step in with additional financial support to meet salary payouts of disgruntled employees. Evidently, the PSUs in Kashmir have been suffering for the lack of comprehensive, structural reforms. Article 35A and the easing of land-ownership restrictions have little correlation with the better performances of PSUs, which could have led the way for private investments in the region.

Besides the lack of public investment, there is another factor that has deterred private investment in Kashmir—militancy. For instance, the year 2016 was disaster for the local economy as discontent over the death of the slain militant Hizbul Wani spilled out onto the streets, leading to widespread protests and curfews that lasted for more than fifty days. Between July and November 2016, Kashmir suffered a massive fall in industrial production and frequent interruptions of continued economic activity. The 2016 Economic Survey estimated the total loss for the period to be over Rs 16,000 crore.

While the central the government has insisted that its reading down of Article 370 and the repeal of Article 35A will boost private industry, Drabu held a different point of view. “Private investments is not driven by politics, it is driven by profits,” Drabu told me. “Now, as and when, if at all, private investment does go to Kashmir, it will be seen as a huge political move. There will be lot of politics attached to it.” He said there would probably be investment announcements made, and added, “I don’t know how many of them will fructify. But the very fact of an announcement itself is a political act, not a profit act. And that itself makes it very dangerous.”

Drabu further said that the way in which Kashmir had been put in a state of lockdown and under a communication blockade, had snapped all the existing business networks. “States in a country or entities in sub-national economies are not bound in the larger national [fabric] only by a constitutional provision but also by business acts and networks,” he said. “Every truck that transported goods from J&K to other states embodied a certain trust and trade in it and now that they have been snapped, you have made Kashmir an economy that you don’t want to engage with. It took 70 years to build these networks that have been snapped in 70 days. This setback will take ages to recover.”

Whether or not the government’s Kashmir moves spur new investment in the region, the lockdown has deeply impacted the existing local economy. I spoke to Shiekh Ashiq, the president of the Kashmir Chamber of Commerce and Industries, a body that represents industries, to understand the scope and depth of the impact that the 5 August announcements had on economic activity.

Ashiq told me that he and his organisation were drawing an absolute blank in collecting data on what is happening with the business sectors and the state economy. He said that a number of people have been approaching him asking for an assessment of the damage to the economy, and the losses to businesses. “All I have to offer those who come asking me these questions is that when an earthquake is rocking the landscape, nobody has any idea about the aftermath of it,” he told me. “The earthquake is continuously going on. It hasn’t stopped anywhere; it is happening right now. Once this situation comes to an end, we will arrive at an idea of what are the losses. But for now, all we can say is that in the course of the first 49-50 days of the lockdown, we have suffered a loss of close to Rs 8,000 to Rs 10,000 crore.”

From apple cultivation to carpet weaving, business has come to a standstill in the region. According to the Associated Press, the apple trade, worth $1.6 billion in exports in 2017, accounts for nearly a fifth of Kashmir’s economy, and provides livelihoods for 3.3 million people. This year, less than ten percent of the harvested apples had left the region by early October.

The tourism industry has also suffered a setback. Ashiq believed that the lockdown had hurt businesses of close to 1,100 hotels, 950 registered houseboats, numerous shikara-plyers, travel agents, and cab-service operators. Ashiq said he will be leading revival initiatives in the tourism industry on behalf of his organisation.

“Right now, the confidence that the tourism sector had managed to build in the tourists has been destroyed,” he told me. “Once again, we are left to start afresh from scratch. Once the situation stabilises, we will start trade promotion, tourism promotion exercises once again. Before we start doing that, we will have to take a look at the macro-health of our hotel industry.”

According to Ashiq, before the lockdown, development projects worth about Rs 2,000 crore in Jammu and Kashmir were nearing completion. However, there was a large-scale exodus of workers after a government advisory in early August asked tourists, pilgrims, and visitors from other states to leave Kashmir immediately. Consequently, the projects came to a grinding halt. Ashiq said that 80 percent of the skilled workers in Kashmir came from outside state. He, along with many other entrepreneurs of Kashmir, face the unenviable task of initiating a confidence-building exercise to get the labourers to return.

“This will take years,” Ashiq told me. “The workforce will also have to be placated to come back to Kashmir to look for employment opportunities. ‘Please come back, everything is okay, nothing will happen to you’—all this pleading takes a lot of time.” He said he rememberd how the workers were filled with dread when the advisory was issued. “Many of them have worked for 10-15 years in Kashmir,” he told me. “When they left they were not worried about their dues. They know they will be paid. There was no trust deficit. Inshallah, someday things will get back on track, a message will go out that everything is alright and the workers will come back. But, for now, everything is in a state of collapse. This is the fact of the day.”