How BJP’s Political Gamble Doomed Jammu and Kashmir Economy?

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by Bilal Gani

Economic growth and political stability are deeply interconnected. The uncertainty associated with an unstable political environment may reduce investment and the pace of economic development.

In August 2019, a complete communication blackout and the lockdown was enforced after BJP-led central government scrapped Article 370 and suspended Jammu and Kashmir’s constitution. The state was put under complete lockdown, thousands of additional troops were flown in and tourists were asked to leave the state with immediate effect. In the subsequent months, the economic activity remained shattered with the business establishments shut and transport off the roads. In the eleven months, the economy has plummeted with grim serendipity of revival.

Kashmir’s 30-odd business, trade and industrial associations jointly addressed a news conference at the SKICC on June 3, 2020, to highlight the crisis that Kashmir economy is facing since August 2019. KL Image: Bilal Bahadur

The State Of Economy

The August 2019 lockdown plunged the state into a sharp downward spiral. By December 2019, the economy of the valley was in dire straits. In four months of the lockdown, Jammu and Kashmir’s industries suffered a loss of Rs 17,878.18 crore (roughly US $ 2.4  billion), while job losses were just under half a million (497,000). The Kashmir Chamber of Commerce and Industry (KCCI), in a recent report, put economic losses in the Kashmir Valley in the last year at Rs 40,000 crore. It means losing about 11% of Jammu and Kashmir’s economic output.

According to Chamber report, the service sector, including Tourism took the biggest cumulative hit losing Rs 9191 crore in first 120 days after the abrogation of Article 370 on August 5. The sector also witnessed a whopping 1,40,500 job losses.

Despite the increase in tax collections, the gross fiscal deficit of Jammu and Kashmir has been estimated around Rs 7,720 crore for the year 2019-20, which has shot up by 69.6 per cent in the last five years, according to RBI data.

The prolonged lockdowns from August 2019 till date led to low demand, fewer purchases, a reduction in satisfaction, trust and loyalty, which in turn reduced turnover, margins, market share and overall business performance. The fruit industry, one of the state’s largest producers, contributes about 10 per cent to Jammu and Kashmir’s economy. It lost around 1.35 lakh metric tons of its crop due to restricted transport facilities. According to the MHA, by January 2020, NAFED had only purchased Rs 70.45 crore worth of apples, while the average revenue from apple sales is around Rs 14,000 crore per annum.

In November 2019, the J&K State Level Bankers’ Committee, representing 41 banks operating in the region, had to approach the Reserve Bank of India for a special loan rehabilitation package and relaxation in capital provisioning for bad loans to save their balance sheets.  The CMIE data show that the unemployment rate (UR) breached the 20% mark in August 2019 after staying below the figure for 30 months.

How an economy grows

In his book How An Economy Grows and Why it Crashes, Peter Schiff presents three important points of the robust economics: first, the fundamental reason for promoting economic growth is production, not consumption; second, improving the deteriorating economic situation requires savings rather than consumption; third, the economy does not need inflation but rather deflation for prosperity.

Undoubtedly, economic growth does depend on a degree of economic freedom, and under some circumstances, more freedom will promote additional growth.

A deserted view of Lal Chowk as Lockdown continues across the Kashmir valley to curb the spread of Coronavirus. KL Image by Bilal Bahadur

The economists have identified six factors of economic growth: natural resources, physical capital or infrastructure, labour, human capital, technology and law. These factors are key components in an economy. Improving or increasing their quantity can lead to growth in the economy.

Since August 2019, in Jammu and Kashmir, there is a limited or no physical movement, a devastated supply chain and colossal demand shock. A New York-based digital rights organization, Access Now, has said that so far in 2020 there have been 55 internet shutdowns in India, with 46 of them in Jammu and Kashmir, and 38 in Kashmir alone. In the absence of high-speed internet, both e-commerce and making online payments becomes near impossible. Internet bans in Kashmir have proved calamitous for the economy, crushing innovation in the region and leading to joblessness.

Political stability as a prerequisite for economic growth

Economic growth and political stability are deeply interconnected. The uncertainty associated with an unstable political environment may reduce investment and the pace of economic development.

While the peaceful environment that political stability may offer is a desideratum, it could easily become a breeding ground for high economic growth.

When we talk about political stability in the context of growth, leaving aside resource-driven bubbles, we mean the rule of law, strong institutions rather than powerful individuals, an efficient bureaucracy, low corruption and an investment enabling business climate.

The grapes of the area have surprised Hari Singh during his visit to the place. The advantage of the fruit is that it is ready when fresh grapes are not available anywhere in the world except Italy.

The absence of sustainable peace, and the presence of subsequent shutdowns, curfews and civil strife that follows, does not only result in the loss of human lives but also makes the society economically weak. The intense political conflict in Kashmir has hampered any heavy industry to thrive and prosper. In the run-up to strip Jammu and Kashmir of its special status, the central government on August 2 last year issued an advisory. The advisory warned of “terror threats”, and advised that tourists and Hindu pilgrims should “curtail their visit… and return as soon as possible”. In subsequent months situation becomes war-like and grim aided by the imposition of another lockdown due to Covid19.

According to a news report in Scroll, as per statistics provided to parliament on December 9, 2019, tourist figures declined from over quarter of a million in 2018 to just over 43,000  between August and December.  As a result, there were an estimated 144,500 jobs lost in the tourism and handicrafts sector alone.

One of the stated reasons for bifurcating the erstwhile state into two UTs is the lack of economic and social development. A year on the economic growth of Jammu and Kashmir has been erratic and people are suffering under the rubric of gratuitous lockdown.

Bilal Gani

When the brutality of conflict surrounds every sphere of life, peoples’ lives are bound to be chaotic and anarchical. The landscape of Kashmir is swiftly changing around a particular narrative. The Hindu-nationalist Bhartiya Janta Party’s agenda to enforce demographic change in Jammu and Kashmir is devastating its economy and damaging its sociology. People are in an economic quandary and in a practical dilemma over how to sustain this crisis. Due to this double whammy of nested lockdowns and triple tragedy of the communication gag, logistical restrictions and demand shock, havoc has been unleashed to all major sectors of the economy. The people in Jammu and Kashmir have to live with a staggering economy and a perplexing situation of how to triumph over forces of violence.

(The author is a Research Scholar at the Central University of Kashmir. The opinions expressed in this article are those of the author’s and do not purport to reflect the opinions or views of Kashmir Life.)

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