Since the inflated Jhelum devastated Kashmir in 2014, the business is yet to show a real sign of recovery. It was demonetisation followed by the new tax regime and then a series of negative interventions that led to stressing of the overall economy, reports Masood Hussain, insisting that liberal spending by the government can somehow help recover to an extent
The stakeholders will require some more time to deconstruct 2018 to understand why it was a bad year for business. The year witnessed almost every encouraging factor played inversely to make it a failure: disruptive policy interventions, situational spoilsport, low demanding markets and logistical nightmares, all conspired to undo growth. Even the retail is having tough competition from the online.
“Tourism has remained a fragile sector for all these years, dependent on the situations within and outside,” Asif Burza, the Managing Director of Ahad Hotels and Resorts – Kashmir’s second major hotel chain, said. “At a time when this sector was facing a sort of a campaign through Delhi TV, the GST made visiting Kashmir costly. Our packages became expensive by 28 per cent, and this was happening when the state government completely failed to intervene in the airfare which remains expensive ever.”
The yearly average of the overall hospitality sector has been below 20 per cent, which means they will have to seek funds to keep the show going. Sector insiders said the modest 40 per cent occupancy is basic to keep the show going.
Though the government claimed that Kashmir was visited by almost nine lakh visitors, 50 thousand of them foreigners, the sector is seeking attention beyond numbers. “All the upcoming investment in the sector has either been halted or the conversions have taken place,” Burza said. “I am aware of a major chain inking an agreement with an upcoming hotel and then undoing it. Now the hotel is being converted into a hospital.”
With tourism, Kashmir handicraft has remained linked throughout. “You cannot imagine the crisis, the figure which we were recently given suggest that the sector has fallen from Rs 2000 crore turnover to barely Rs 300 crore, and there is a lot of capital blocked in the sector,” Farooq Amin, the Secretary-General of the Kashmir Chamber of Commerce and Industry, said. “Now we are chasing the idea of helping the government create a policy for the sector so that we can start selling the luxury products in markets that we never did in history.”
There were more occupational shifts from handicrafts because the work was getting consistently non-remunerative, sector insiders said. Survivals were basically individuals and groups linked to major export networks having a better shock-absorbing capacity.
Real estate has been a key sector that would attract more than half a million seasonal construction labour. Though part of the labour would be seen in Srinagar, this summer too, their engagement ran all-time low.
“The market remained sluggish because there is less liquidity and the cash crunch has severely impacted,” Umer K Tramboo, the Managing Director of the Khyber Industries said. “The overall economy is yet to come out of the GST shock.”
Tramboo said the cement consumption fell by around one-third as the real state saw a dip of more than two-thirds. “The retailers are restocking on regular basis, but most of it is on credit and that is impacting the money cycle which eventually will have a chocking effect on the manufacturing sector,” Umer said. “The systems are not helpful. The reimbursements under various taxes have not been made for almost a year and it is costing an additional 12 per cent of interest from the banking set up.”
Insiders in the sector said that rates marginally nosedived but still the real estate sector is not reviving. This is despite the fact that the banking sector has been highly encouraging and flexible in offering home loans and funding housing projects.
Himalaya Steel, the only steel plant in Srinagar, is also facing the music partly because of the negative policy interventions and partly because of the massive price escalations. “In the pre-GST era, we were paying 14 per cent tax to the centre, but in the state, we were in zero tax category,” Shahid Kamli, the MD of the plant, said. “Post-GST, we pay nine per cent to state and the centre, and we were told the state would reimburse part of it. For a year, it has not been paid. The industry was given a bridge loan to manage this part of the resource and the industry pays 12 per cent on that loan. Tell me, how can the industry survive?”
Kamli said there is no manufacturing facility on earth that can pay government 18 per cent after paying nine per cent on every raw material up front and then offer jobs and sell the manufacture at affordable costs. “Fuel costs have gone up so has increased the interest rates, and it has pushed people to a state of unaffordability,” Kamili, who runs the factory with yearly 1.80 lakh ton capacity, said. “We are pushed to a situation where we earn for the government and the bank.”
Some sectors, however, remained immune to the crisis. These are fundamental to life as the basic consumptions of foods. Since the businesses have decentralised, Srinagar is gradually moving away as the business capital of Kashmir, it is also showing up. During festivals of Eid, peripheral markets, especially in the south do better business than Srinagar. The online has started playing the new major challenger to the retail.
The private health sector, for instance, did not see much of the change simply because health is something that is always an emergency. Most of the private hospitals had the routine rush.
“In comparison to 2017, we recorded footfalls increasing by around 30 per cent in 2018,” Shahnawaz, the administrator of the Khyber Hospital said. “This might be because we have facilities that we lacked earlier; I am not able to make it out.” This is Kashmir’s top hospital in the private sector that is seriously into issues of health other than gynaecology and obstetrics. Last week, it emerged as the first hospital that did a minimal intrusive open heart surgery.
But what is more interesting, even the personal car market remained unaffected. “The first half of the year was good but our sector did suffer a fall in sales by around 20 per cent in Q3,” Irfan Ahmad, Managing Director of the JamKash Vehicleaides, who also heads the car dealers association, said. “It was because of the issues linked with the Article 35A, the municipal and the subsequent Panchayat elections.”
Insisting that the personal car is no more a luxury segment for Kashmir, Irfan believes that the failure of public transport is the key factor driving the surge in personal cars. “The day, Kashmir will have an affordable and quick transport system, the personal car will face a problem,” Irfan said. “It is a must now because nobody knows what happens to the situation and how will they manage the aged and the ailing.”
The situation actually played spoilsport with almost every economic sector. The year 2018 witnessed a new record in the hartals and strikes because these were dictated by the prevailing situation. Initially, it was the Article 35A, and then encounter and the massive civilian loss added to the new calendar that disrupted the routine and impacts both, manufacturing and the sales. Interestingly, the situational tensions come with its own parallel economy and people getting into lock-ups and moving out has always disrupted the routine budgeting of the families involved.
Agriculture remained the only sector that didn’t take the situation hit. It, however, was impacted by the weather conditions. The early November snow devastated most of the apple orchards and part of the crop as well. Almost one-fourth of all the apple-bearing trees were impacted. Though the government has ordered a survey, its outcome is not known. “It will take us some more time to firm up the figures,” Mohammad Yousuf Dar, Joint Director (horticulture) said. “It is being believed that 33 per cent of the apple trees are damaged.” Kashmir has 3.62 crore apple-bearing trees across 1.45 lakh hectors of land.
The loss to the horticulture will not be quickly visible. It will start showing up from next year when the production will drop. Low production will essentially mean low income from the Rs 8000 crore sector that is literally the main shaker and mover of the peripheral economy. The governor’s administration has resorted to some quick fix solutions with the support of an ignorant trade and it will add to the losses on a long-term basis. The relief money that the government intends to distribute to the farmers is too little to help any way. The idea of replacing the damaged orchards by high density was the quickest alternative that would save the production and improve the quality of the crop.
The only population that is immune to the market shifts are the people working for the state and the central governments. Strike or curfew, they get paid anyhow.
The details that the governor’s administration released as part of the 2019-20 budget suggests that the state government employs 525980 in various departments and the aided institutions other than the cooperative banks. It also excludes almost one lakh of people which the government engages as part time or full time and in a temporary capacity.
The allocations indicate that the state government has spent Rs 35215.21 crore on the wages and the pensions in the current fiscal. In the next year, it will be the same, if not less. That will exclude Rs 1000 crore that the administration has set aside for regularising the services of the temporary teachers. All this will take almost Rs 36300 crore which is 41 per cent of the total budget of the state for 2019-20.
Besides, the banks and the central government have almost an equal number serving it. Jammu and Kashmir is the No 10 state in India that contributes the highest number of personnel to the armed forces and the paramilitary forces. This essentially means that a million odd population – which could be slightly a lesser number than a million families, have no impact of the market turbulence on their purse and the plans. This class is the major contributor to pushing demand in situations when the markets are unwell.
Regardless of the demographic distribution of the economic activity, the experts see differently why markets are looking dull and diseased.
“The slump in the level of economic activity in Jammu and Kashmir is related to the overall slowdown in the economic growth at the national level,” explains Dr Haseeb A Drabu, former finance minister. “It gets accentuated by the reduced level of tourist inflows; two seasons have gone by without any significant tourist activity. It is also possible that the rate of growth of public expenditure has slowed down which may have reduced investment demand. I see the local productive economic activity slowing as imports have gone up. On a more medium to long-term basis, I suspect capital flight can be a contributing factor. There is no doubt that re-investible surplus is not being deployed in the state. It is being deployed outside the state and the country. This I am saying on the basis of an anecdotal evidence.”
Farooq Amin said the crisis has been there since the September 2014 floods. “We manage one crisis and land in another,” he said. “This is exactly what we have been doing for all these decades. Almost all the business accounts are in a sort of distress and the cycle is prolonging.”
“It has a set of reasons,” explains Shakeel Qalander, the industry lobbyist and furniture major. “The demand has gone down since the demonetisation and it was quickly followed up by GST. The crisis is that these two disruptions took place at a time when the markets in India were slightly better than the global one. It is now a cash crisis that has reduced the demand.”
Qalander said that the Kashmir market is linked with the larger market in the plains and it will exhibit the same crisis that is seen elsewhere. “But what is very exclusive to us is the situation,” he explained. “Which business on earth can survive despite having 2200 days of strike in three decades?” He believes the government will have to get in and create some sort of a product that will help manufacturing, retail and the service sector to get compensated for the losses which they book for none of their reasons. But is the system mature enough to have conflict insurance?