Jammu and Kashmir’s manufacturing sector has survived a series of systemic and systematic interventions in the last five years. As the rail is anticipated to come with cargo in late 2025, Masood Hussain reports the sector’s craving for a serious policy initiative to help it stay afloat
On June 15, 2019, a group of traders from Jammu’s Nehru Market invited the media to assert the requirement of abolishing the Toll Plaza at Lakhanpur, the sparsely populated Kathua township, which is the gateway to Jammu and Kashmir. Rattan Lal Mahajan was angry that GST and a toll tax coexist and said that the toll collection violates the One Nation One Tax slogan. Asserting an early abolition of the system, Mahajan suggested the government must hunt for alternatives to tax collection.
On December 31, 2019, the plaza was formally abolished, within hours after the government invoked its rights within section 4 of the Jammu and Kashmir Levy of Tolls Act to notify that the toll post “shall cease to operate with effect from January 1, 2020”. Given the series of developments that followed the reading down of Article 370 and the reorganisation of Jammu and Kashmir State into two federally-governed Union Territories (UT), it was anticipated to go.
The gateway was the ‘barrier’ where Sangh ideologue Dr Syama Prasad Mookerjee was arrested by Sheikh Abdullah’s government, subsequently becoming part of a larger narrative. Mahajan’s statement was seemingly part of the “manufactured consent” so that the government could prefix the abolition statement with “meeting a long-pending demand of local people and traders” to justify the action.
The toll post was a milch cow, a spot of authority where a consumer state could pick and choose the system and style of protecting its own market. It gave the government Rs 644.64 crore in 2017-18 and around Rs 1000 crore a year later. Earlier on February 6, 2018, the then Jammu and Kashmir government had abolished two major toll posts at Lower Munda along the Jammu-Srinagar Highway in the Anantnag district and Borehallan-Heerpur along the Mughal road in the Shopian district. Unlike Lakahnpur, the two posts were taking more money to operate than they would earn and were seen as delayers in the movement of goods within the state.
“Post-GST, tariff-based barriers have been removed. The continuation of the toll tax regime, therefore, militates against the idea of one nation, one tax. Tariff-based import or export of commodities into and from the UT distorts the trade regime. It acts against the overall consumer interest by imposing an avoidable cost on them,” Rohit Kansal, senior IAS officer, who would routinely speak for the government, explained. To buttress his assertion, Kansal said the toll tax not only penalised consumers by increasing the cost of commodities but also rendered the industrial sector in Jammu Kashmir uncompetitive owing to the high input costs.“It fosters inefficiencies by un-levelling the playing field in the industrial sector. It also leads to quality and pricing issues for consumers in the UT. Although the abolition of toll tax will lead to an annual loss of about Rs 1,500 crore to the UT coffers, the philosophy of one nation-one tax needs to be implemented in both letter and spirit.” Certain products like pulses and cement were indicated to get cheaper.
The toll post has existed for ages, remaining a gateway to Jammu and Kashmir ever since Maharaja Gulab Singh purchased Kashmir from the British, ceded some territory on his Himachal borders and took Lakahnpur instead. Immediately after the partition, non-natives entering the state were supposed to have a permit (against which Dr Mukerjee protested, was arrested and died in Srinagar). It later became the spot where commodities and goods entering or leaving Jammu and Kashmir would be listed and taxed, with even outgoing apples being taxed right up until 2002. There was also a nominal tax on passenger vehicle movement.
New Toll Emerges
On July 21, 2020, more than six months after making the toll plaza history, the National Highway Authority of India (NHAI) made the Lakhanpur toll plaza operational. This was part of a chain of toll plazas that appeared on the upgraded highway NH-44. It collects toll tax on all movements, passengers, commercial vehicles, and private cars. As the post was being inaugurated for a mass toll tax, Congress leader Kashboo Bhagat staged a sit-in, shouted slogans and eventually went home after registering his symbolic protest.
Bhagat’s argument was different: “The financial health of the people is not good, many youths lost their jobs during this Corona crisis, private sector jobs already collapsed, no economic activities in the market. Instead of mitigating the problems of people, the government imposed more taxes.” Even BJP leaders had protested within the party against the “ill thought out” decision. They wrote protest letters to the Ministry of Highway seeking a delay in the toll collection. The government, however, prevailed.
In November 2024, Minister of Road Transport and Highways Nitin Gadkari informed the Lok Sabha that the total toll revenue collected from the Srinagar-Pathankot national highways (NH 44) has crossed Rs 1800.64 crore since the commencement of toll collection. Of this, Lakhanpur contributed Rs 348.05 crore, Bann Toll Plaza Rs 626.90 crore, Mada-Nashri Rs 270.98 crore, Lamber and Ujroo Rs 227.85 crore and Kaichachkoot Rs 328.86 crore.
A Disruptive Intervention
For decades, Lakahnpur has remained a gateway of the two markets integrated by a common cause on goods, services and labour. It might have been some source of income to the erstwhile state but it was more vital to protect the market interests. The policymakers in the pre-GST regime would use the toll to alter the margins of trade so that its own produce and products are not pushed out of the market.
“There are two aspects to the decision-making,” one second-generation industrialist, still scared to talk on the record, said. “Lakahanpur to us was a nightmare. It was a den of corruption and a key factor for the delay.”
The Jammu and Kashmir government was aware of this throughout. In 1990, it had three bays for the vehicles to line up, two weighbridges (tax was collected on weight with no difference in cotton and iron) and pay tax and in 1996, the infrastructure was added to ease tensions. A lot was still yet to be done, with delays and instances of corruption still present.
“At the same time,” the industrialist continued, “we have lost the privilege of protection. Products coming from neighbouring states are cheaper than what we produce, even though we are not a huge manufacturing place.” He said the successive governments in recent years have not been able to understand how the industry works back home. “In Punjab and UP, the manufacturing sector gets almost six per cent subsidy on raw material and that makes their products cheaper at the outset. This helps them dump a lot of their inventory in Jammu and Kashmir, something we cannot even think of.”
“We go to the government and they say that they are building infrastructure but there is no one to utilize it,” the industrialist said. “We also have problems in Jammu and our sector is operating at minimum capacity.” Whether or not the low manufacturing is dictated by squeezed demand, the turnover and margins have taken a hit.
In Srinagar, a second-generation furniture major said that the MSME sector has suffered immensely in the last few years as too many areas were hugely hit. “By 2018, we had aggressively chased poultry and reached a situation in which we were managing almost eight per cent of our consumption,” Shakeel Qalander, the erstwhile FCIK leader, said. “The then toll post was closed and our poultry farmers failed to compete due to which we are now importing eighty per cent. The dressed chicken for the hospitality sector is now coming from outside at hugely attractive rates we cannot compete with. To me, this sector is over.”
“In Sanat Nagar estate, there are four of 150 units which are specialists in power equipment making including the high and low voltage distribution transformers,” Qalander said. “The PDD installed four transformers in the same estate and all four were manufactured in Jharkhand.”
Explaining this policy shift, Qalander said of the Rs 6000 crore given to Jammu and Kashmir under the Revamped Distribution Sector Scheme (RDSS), half was meant for purchasing equipment. “The government issued bigger tenders in which the turnover was on the much higher side and all our best units failed to even get into race at the pre-qualification stage,” he said. “Eventually some of them started getting these non-locally manufactured transformers installed as labourers as sublet vendors. The rest are idle, doing nothing because they have no work.”
Rail Finally
Now, the Indian Railways has finally integrated Jammu and Kashmir with the vast network in the plains that has evolved since 1853. The Rs 42000 crore 272-km wonder that links Baramulla (Kashmir) with Jammu’s Tawi station via Katra is one of the biggest interventions in recent history. Passenger traffic and tourist arrivals apart, the track in itself is a huge tourist attraction. On the track are the Chenab Bridge, the towering bridge made in India, and another India-first, the cable-stayed rail bridge. Originally anticipated to take Rs 2500 crore way back in 1994, it took too much time and resources but finally came up as one of the most fascinating mass transit infrastructures in the mountains.
The train is expected to change the old ways and means the trade will be transacted now on. Initially, the focus shall remain on mass transit of labour and services, but eventually,it is anticipated to dictate a new regime on trade as well. It is not too unrealistic to imagine a container train moving with tons of apples, cherries and peaches, replacing immensely huge smoke-spitting truck convoys. These trains will not run empty on either side, thus adding a new dimension to the trade. Rail cargo facilities will lower transportation costs, enable faster transit, keep the atmosphere slightly less polluted and prevent age-old interruptions on the national highway.
“This railway will act as the backbone of the Kashmir region. Perishable items like apples and dry fruits, which often rot due to road delays, will now reach New Delhi within 13-14 hours, ensuring better market rates for Kashmir’s produce,” India’s Jr Railways Minister, Ravneet Singh told reporters in Srinagar. “Travel through other means, such as flights or roadways, is either too costly or time-consuming. Rail is the most affordable and efficient option.”
While the impact on the small Kashmir economy will not be abrupt, it will gradually change, pushing the investors to take the rail factor into account. There is a strong possibility that certain things being currently manufactured in Kashmir will prove far more expensive than the imports from neighbouring states and certain local commodities will have to fight a harsh battle to retain their market standing. At the outset, it will greatly impact the hospitality sector, which is contributing less than nine per cent to the state domestic product of Jammu Kashmir. Kashmir will require more budget hotels in the coming days, and even dormitories will be in huge demand.
New Investments
Regardless of the claims being made about the investment in Kashmir and Jammu, not much is visible barring the land allotments. Under the service-sector friendly ‘industrial’ policy, a chain of hospitals has come to Kashmir, creating a situation in which they all running below their breakeven. They have funds and beds but no patients. Certain investments are at various stages of implementation in the hospitality sector but these are few are far between.
The investors may eventually come but they will take their own time to assess the ground realities. For major investments, the Jammu and Kashmir market is too small in size, too distant a place and too expensive and cumbersome for raw materials. Within manufacturing sectors, it has a notoriety of being a low-skill and cheap labour spot, which it is not.
All the greenfield investments will have to pass through the competition test and that takes its own time and cost. That is perhaps why most of the hospitality chains tied up with existing brands within Kashmir and Jammu and managed a sort of business integration. Radisson, Taj, Lemon Tree and OYO are already in Kashmir and Marriot is in a tie-up for a new facility, with similar tie-ups in the transport sector as well.
“Investments did take place,” a senior officer privy of the happenings said. “In Jammu, most of the non-natives invested but quite a few non-locals came to Kashmir, including Jindal Steel and a few others.” At one point in time, when applications were sought from potential investors, there were around 3500 of them – all natives and barely 20 non-locals. “In the last few years, we have had a lot of investment in different sectors including a Rs 500 crore hotel project in Pahalgam,” he said. “With rail finally connecting Kashmir to the rest of the country, we do have enough of a low-budget space in Srinagar, with around 60 to 70,000 rooms available.”
New Stake-Holding
A new route has opened for businesses. In the last few years, two major investments took place in the existing business; in February 2024, Qul Fruitwall Farm Installations got a foreign private equity investment of Rs 60 crore after the company was valued at close to Rs 400 crores. It was a foreign fund operating within the country that picked part of the equity and infused the fresh capital for new growth of the company.
Almost a year later, JK Cement acquired a 60 per cent stake in Saifco Cements, a Srinagar-based cement manufacturer. Saifco was valued at Rs 290 crore and they gave up majority shareholding for Rs 174 crore.
Saifco Cements operates an integrated facility in Khunmoh, Srinagar, spread over 54 acres. The plant boasts a clinker capacity of 0.26 million tonnes per annum and a grinding capacity of 0.42 million tonnes per annum. Besides, it has access to extensive limestone reserves spanning 144.25 hectares, with a total mineable reserve of 129 million tonnes. This acquisition positions JK Cement to utilise Saifco’s resources for bolstering production in the region.
With this deal, Saifco emerged as the first major company to give up the decision-making to the new partner as part of the strategic tie-up. The Singhania-owned company is the sixth major cement producer in India with an estimated revenue of around Rs 9000 crore.
The deal set tongues wagging. While a vast section of the industry asserted the company should have retained the decision-making, a few said there is nothing new. “Do not you remember how a major 5-star hotel was sold for a laugh brazenly with the Chief Minister solemnising the deal, not so many years ago?” one officer asked. “The JK Cement arrival will add to the competition on a long-term basis but help players choose their moves wisely.”
Protecting Existing MSME
Sitting on the advantages that the railways will offer, the trade and manufacturing sector in Kashmir is currently confused about what they must do to sustain such a major intervention. While debt-free companies are slightly at ease and exploring the possibility of diversification, those still struggling to manage the banks are frustrated, with ‘what ifs’ being the dominant factor being talked about at tea breaks.
“I am genuinely worried,” a Jammu industrialist who once headed a major industry body said. “In the first go, the elected government must explore the possibility of ways and means to protect the sector that is doing better. They can have some kind of anti-dumping duties on imports that upsets the local sector.” He believes the GST has left ample scope with states to manage this part. “I would have suggested the government create a new subsidy so that it gives some advantage to the local players in a hugely competitive market now despite them not being sustainable on a long-term basis.”
The industrialist hopes that the government studies how the neighbouring states manage their MSME sectors. “They give them a lot of benefits unlike ours,” he remarked.
Being part of the Prime Minister’s task force on the industry intervention last decade, Qalander has intimate knowledge of the sector and the policy intervention. “The crisis is that we have three industrial policies in operation concurrently,” Qalander said, asserting that it serves no one. “As part of the policy intervention, the government must roll all three policies into one proper scheme and roll it out only after sitting with the stakeholder.”
The last time the industry convinced the government of the crisis they were facing, policymakers came with a subsidy of three to five per cent based on the turnover. “As the stakeholders came with their claims, it requires a subsidy outgo of around Rs 200 crore. The cash-starved government capped the cumulative outgo at Rs 50 crore, creating more problems for the sector.”
“For all these years we have been craving for dependable transportation and rail came but now we see certain areas getting impacted by the intervention,” Qalader admitted. “The government must explore viable options for the sector and in the long term, the investor and the government will give due weightage to the new ecosystem that the rail will bring around.”
The government, he said, has been adequately briefed about things. They are convinced of the changes that the ecosystem will have. “They somehow do not seem to be working on this front and it is already getting late,” he said. The manufacturing sector, he said, had already lost a huge advantage when the preferential price policy was withdrawn. “Now, the government has made it mandatory to make all purchases through a portal and most of these purchase orders are bagged by non-natives as the local manufacturing sector lacks a competitive advantage.”
A government officer, who is privy to the sector said the impact and management should be seen and tackled on a short and long-term basis. “Right now, in the short term, policymakers must offer a solution to maintain the sustainability of the existing sector, and for them a separate policy intervention is possible,” he said. “On a long-term basis, the sector will choose its own course. In the upcoming days, people will prefer the areas in which they have raw materials nearby. We do have certain areas where we have a huge competitive advantage – apple, willow, pencils, various food products, handicrafts in addition to the hospitality sector. While the transportation will become cheap, the margins will go down as the Jammu Kashmir market is too small for anything requiring an economy of scale.”
The officer said the people had started working in the right direction. “I do see a lot of investment into the hospitality sector. People see a good future in this. More than 7000 rooms have emerged in a Pahalgam periphery in recent years and Srinagar is also investing massively in the sector.”
