Revamping Kashmir Economy

Dr Mubeen Shah

Dr Mubeen Shah
Dr Mubeen Shah

Kashmir Chamber of Commerce & Industry (KCCI) wants the 13th Finance Commission to make necessary recommendations that would guarantee the people of Kashmir a stable and sustainable fiscal environment consistent with equitable growth. Here are the main points from KCCIs detailed presentation.

KCCI lays emphasis on certain issues which it thinks need the intervention of 13th Finance Commission while allocating funds. Firstly, KCCI lays emphasis on power availability and suggests for its augmentation.


J&K has huge water resources with potential to generate more than 22,000 MW Power. We are more than sure if tapped properly, as this sector being the major economic activity, the State can change its destiny so far as economic viability is concerned. Government of India as well as State Government needs to have focal attention on this sector. This potential is based on run of river projects and due to the infamous Indus Water Treaty which has been detrimental to our State only, it is obligatory that the Govt. of India gives all types of financial support to exploit this water resource. In order to make availability of Power better and also compensate to a certain extent our State losses suffered due to Indus Water Treaty, Salal and Uri also be transferred to state besides Dulhasti as suggested by Rangarajan Report.

Under Prime Minister’s package of 24,025.55 crores, announced 16,061.35 crores have to be implemented by NHPC when our State Government is already having a memorandum of understanding with them by which only 12% power is going to be given to the State which is injustice to the people of State when the income from exploitation of resources should come to state only. This amount be given as part of the equity to the State to put these projects in the State sector.

We request that a Special Venture Capital Fund, especially for Power sector in J&K, be created by the Central Government which will be deployed for viability gap as there is a long gestation period for this type of project with maximum of 10% equity by private companies to promote Private Public Partnership whereby our potential of 22,000 MWs on run of river can be tapped. This venture capital in the first instance be provided for projects upto 100 MWs so that the potential in micro hydel projects can be tapped by local entrepreneurs.


We have envisaged some points to be changed in that report. From our discussions, meetings with all levels of strata in the economic structure of the valley, our observation is that there is problem of loss of private initiative to reconstruct. So we have suggested amendment of the RANGARAJAN REPORT as:

One time debt relief to the tourism, handicraft, industry and general trade in the whole valley of Kashmir. The debt relief has to be in the above sectors in totality. The total estimate of this is not more than Rs. 500 to 600 crores. By this one step the local private initiative will be restored.

Reserve Bank of India has issued a circular dated 04-05-2009 wherein a corpus will be created of Rs. 1000 crores for revival of sick units and we request to the Govt. of India to give a corpus of minimum 100 crores for J&K particularly for Kashmir as the State Government has no funds available for revival of sick units under soft loan which is getting a minuscule budget allocation of 1.00 crore.

The creation of an Investment Insurance guarantee for J&K specifically, which will not only encourage the revival of these sectors but also encourage new investment in the potential areas which have been already determined & specified in the industrial policy of 2004 announced by the state Govt. For this, necessary funds and providing of this insurance by Govt. owned insurance companies is essential.

B. Focusing on sectors and projects that yield quick results:-

I.             Tourism:-

The projection of requirement of 6000 additional beds in 2010 and 3000 more by 2015 may not be appropriate or sufficient to cater to the rising demand. To achieve this it is important to put in place:

•             Investment insurance guarantee to encourage private investment.

•             Expedite the vision document and the master plan for tourism as suggested by the task force.

•             The suggestion in regard to the sub sectors of tourism to be implemented i.e. setting up of asset reconstruction company with revival.

•             Market access initiative scheme (MIA) for tourism to be given to the private sector and KCCI declared as NODAL AGENCY for this to combine it with handicraft promotions that KCCI intends to do internationally and nationally.

•             The houseboat owners incurred lot of capital for repairs and renovation of their houseboats but could not get the encouraging tourists resulting in financial losses  for them. Hence it is recommended that entire outstanding amount on account of loans for houseboat owners be waived off which amounts to Rs.32.00 crores.

•             There is a need to facilitate international technical tie-up by local entrepreneurs.

•             The financing of this sector at lower margin of 10% in case of new ventures while as refurbishing without any margin as suggested by us to RBI is need of the hour to increase investments. There is a need to create a special Venture Capital Fund by the Government of India for this sector so that local investors can invest in this sector for bigger projects which otherwise may not be in their reach. This will also be deployed for the purpose of viability gap as this sector has a limited working season in the Valley and has a longer gestation period.  Exclusive funds for Venture Capital by providing a corpus of at least 200 crores to the State Govt.

2. Horticulture and Food Processing:

The measures suggested are welcomed and in order to make them result oriented:

•             The allocation of 50 crores should be increased to minimum 100 crores, suggested to be deployed as equity or viability gap needs to be increased and the initiative of market development should be completely done in private public partnership (PPP) model as the experience of world bank aided project of HPMC of similar nature failed.

•             The model of cold storage/grading and packing in every district of valley.

•             Sanction of mega food park under Private Public Partnership as applied by KCC&I to the Food Processing Ministry.

•             The forward linkage of transport to be liberally financed on margin not more than 10%.

•             The setting up of cold storage/ Grading and packing plants to have allocation from the equity fund suggested above till the viability is ensured and providing the same at 10% margins.

•             The continuation of market intervention scheme in case of all fruits so that low grade fruits can be processed within the state. Subsidizing the cost of packing material i.e. cardboard or other so that such units can also be setup to make the fruit exportable—Central funding/grant to the extent of 150 crores.

•             Subsidizing air transport for all perishable fruits like cherry, strawberry and floriculture as is the case in North-East.

•             Provision of land in denuded forests for planting hybrid walnut plants planted for not wood but for walnuts which have a low gestation period.

•             Technology mission of Horticulture to be implemented through KCC&I as there is a long time lag in its implementation.

•             The waiver of principal and interest be extended to our Horticulturists as had been done in the Union budget 2008-2009 to Agriculturists.

•             Horticulture being very important and a significant portion of Kashmir’s economy which amounts to 2000 crores and about 25 lac people are involved directly or indirectly with this sector. The expected production of Apples in the year 2008 is 1.52 million tones which is about 10 tones per hectre and is much less as compared to USA and Australia.

It is requested that tree spray oil be transferred to Agriculture sector from oil sector so that the prices of this important spray oil are affordable for the fruit growers. It will subsidize this important ingredient to the extent of 75% which yearly will amount to Rs.52.00 crores.

A fund of Rs.8.00 crores for subsidizing the interest for inventory support to the walnut kernel activity be provided to the State Government as the rates of walnut kernels at international level have reduced by 50%.

3- Handicraft Sector

This is one of the most important sectors where the potential is largest and the sector which can yield quick results by augmenting the marketing of the products already manufactured as well as increasing the capacity of production.

As per data available for 2007-2008 total production of handicrafts was 1614.59 crores out of which exports have been 1200.47 crores. The export of carpets was 649 crores, woolen shawls 310 crores, papier machie 33.65 crores and other items 207.51 crores. However, if following measures are taken the exports can double within no time and increase manifold in the next five years.

1.            MARKET ACCESS INITATIVE SCHEME (MIA) for handicrafts be given to the extent of minimum Rs 10 crores per annum to the KCCI for doing necessary market development initiatives.

2.            Creation of clusters for handicraft/ silk/ handloom in all districts of Kashmir valley—About 10 crores per cluster are required to put the necessary infrastructure for this and keeping in view 10 districts, total fund required will be 100 crores which the KCC&I can put up under the private public partnership through SPV model. These clusters will also have satellite centers of IICT (Indian Institute of Carpet Technology) and CDI (Craft Development Institute) for skill development in the districts.

3.            Creation of clusters for gems Jewellery/ Silverware. KCC&I has suggested that  HMT factory which is sick can be converted into a Gem & Jewellery Complex which can be put up under Public Private Partnership by our organization  through SPV model in order to utilize the infrastructure already created and will also be in a position to adjust the present staff and envisages further employment.  We  have had discussions with the Gem and Jewellery Export Promotion Council of India who have even agreed to put up an Institute of Gem and  Jewellery on the pattern of New Delhi in the State once the Govt. of India agrees to our proposal as HMT is under Govt. of India.

4.            Increasing the financial resources of the state for promotion of Kashmiri brand by allocating specific funds from the INDIA BRAND EQUITY FUND so that the Kashmir brand is re-claimed internationally—for this an amount of 10 crores as corpus be provided by the Central government.

5.            A fund of Rs.85.00 crores for replacement of 40,000 carpet looms as a grant from Ministry of Textiles, Government of India on the funding pattern of 80:10:10.

6.           A fund of 30 crores to subsidize the interest for inventory support to the handicraft products for 2 years of holding of inventory as the export of handicraft is to the tune of 1,700 crores per annum and due to economic meltdown/recession, exports of handicraft items have fallen drastically.

7.  Kashmir specific initiatives

a.            Flower Centre

b.            Integrated Textile Park

c.             Mega Food Park

d.            Cold Chain

e.            Modernization of Abattoir

f.             Food Streets (Four)

g.            Integrated Sericulture Project

h.            Comprehensive Handicrafts Cluster

Development Scheme (CHCDS).

i.              Comprehensive Powerloom Cluster Development Scheme (CPCDS).

j.             Comprehensive Handloom Cluster Development Scheme (CHCDS).

The total project cost for above mentioned projects will be Rs.425.00 crores which is already provided in the schemes of concerned Textile, Food Processing Ministries of Govt. of India and the funding pattern should be in the ratio of 80:10:10 i.e. (Rs.340.00 crores) 80% grant from Govt. of India, (42.50 crores) 10% from State Govt. and (42.50 crores) 10% from private sector. We would like necessary grant of Rs.340.00 crores which will give employment to minimum five lakh people in the sectors/industries which not only are our thrust areas but viable sectors.

4- Industry

There is a need for urgent measures to not only revive but also organize the industrial sector properly:

i) Debt relief to sick units:

Owing to incessant incertitude in the state, 87.13% of industrial units turned sick as per a survey conducted by Entrepreneur Development Institute, Ahmadabad, entrusted with the job for the purpose of seeking a debt-relief package from central Government for revival and rehabilitation of such units.

Hon’ble Prime Minister, in June 2002, while unveiling the central package of incentives for new units at SKICC, Srinagar had assured the existing units that said debt-relief package was under positive and final consideration of Central Government. It is pertinent to mention that recommendations for the package were even made by an inter-ministerial Committee constituted by Union Government for the purpose.

As suggested in the preamble there is needed to make the slate clean by complete debt relief which will amount to not more than the 600 crores.  Corpus of 100 crores, from the 1000 crores envisaged by the RBI as per a circular for the revival of sick units.

ii) Acquisition of land for industries

•             Marble cluster in Kupwara

•             Food processing parks in all districts of Kashmir.

•             Silk/ wool/ handloom parks in all districts of Kashmir.

•             Aromatic plants/ herbal processing Clusters in all districts of the Valley.

•             Floriculture centre in Srinagar.

For this necessary budgetary support (100 crores) be given to the State Govt.

iii) Applicability of the package

The applicability of central package of incentives is restricted to new industrial units or those having undergone “substantial expansion”.

The incentives under the package are also available only to those units who have set up their units on “specified khasras” in selected locations of the State.

The incentives are also not available to units having taken “effective steps” prior to 14th June, 2002.

Owing to these riders, most of the industrial units particularly by the state subjects have not taken a single rupee benefit from the package which perhaps has never been the intention of central Government. Therefore following corrective measures are required to be taken by the central Government:-

a.            That the package of incentives granted in favour of North-Eastern States from the current fiscal year be also extended to the State of Jammu and Kashmir.

b.            That the applicability of package be extended to all industrial units, both new and old, without any rider of “substantial expansion” or “effective steps”.

c.             That the specific location bar be waived off and units located in any location of the State of Jammu and Kashmir be extended with the incentives provided under the package on the pattern of the State of Himachal Pradesh with no Khasra riders.

d.            Cost of land should be also subsidized in case of J&K as the cost is exorbitant in comparison to other States because of land scarcity.

These above steps will be important and the financial outlay with the projected investment of minimum 25,000 crores for a period of 5 years will amount to 7,500 crores based on NE pattern.


As recommended by Dr. H A C Prasad, Chairman of the Committee on promotion of exports from Jammu and Kashmir in his detailed report in Feb., 2001, a non lapsable fund by earmarking 5% budget for J&K by key Central Ministries like Rural Development, Health, Education, Tourism, Food Processing Industries as is the case with North-East which in their case is presently amounting to Rs. 16,447 crores announced in the Union budget of 2008-09, so far 5 years the total fund will be 82,235.

2.            KASHMIR AS BRAND

Kashmir is one of the most widely known brands of India, even if it is commonly known as the generic name “Cashmere”, spelled differently. It is known the world over as a place with finest materials to produce textiles and warm clothes. It is associated with warmth and it is a special gift of love. A good Cashmere sweater costs between 250 and 500 Euros in Europe. A very good one can cost 1,200 Euros.

KCCI believes that the global knowledge of Cashmere as a brand represents a unique opportunity to generate wealth for people of Kashmir where it all originated. The historical reasons why the CASHMERE global generic brand never created wealth and opportunity for Kashmir are known to all who have studied India. There are few questions about Cashmere´s true origin in the Himalayas. Of course, there is no doubt that the ORIGINAL is written KASHMIR.

The ORIGINAL KASHMIR brand as Geographic Indication has a global potential when used to promote ORIGINAL KASHMIRI PRODUCTS and KASHMIR itself. Kashmir Pashmina, Kashmir Carpet, etc. can easily be positioned in the main markets as luxury items. Of course, Kashmir as a place too can be promoted on the pattern of incredible India.

The national communications part is extremely important as the internal market in India is as good for Indian luxury items as it is for top foreign brands like Cartier, Tiffany, Dolce & Gabbana, Chanel, etc. There are tens of millions of consumers of luxury products in India.

The KCC&I is preparing a special project to make the people of Kashmir benefited by the equity value of Kashmir brand. Through our initiation initially the GI registration was got through the support of the State and Central Governments.

A special allocation of 20 crores in the first instance which will include cost of laboratory to test Pashmina fabric is needed and also there must have funds for promoting Kashmir products and services like Tourism at targeted places.

On the above it is suggested that the funds be provided to the KCC&I (100 crores for 5 years period) as has been the case by Govt. of India who have given funds to CII for India Brand Equity Fund.


It is requested that Department of Banking Operations & Development provide necessary interventions as suggested by us in the special monthly SLBC meetings held for the last four months regularly.

Increase in time of Pre-shipment credit from 3 months to 2 years keeping in view the time taken to manufacture our high ended carpets.

Increase in Post-shipment credit from the present 360 days to 2 years as our handmade carpets being of high value need presently to be given on a longer credit terms to foreign buyers.

Interest to be charged for PCL and PSL which presently varies from 9-11.5% to not more than 7% as in case of Agriculture keeping in view the high employment in this industry and our competitors being subsidized by their governments wherein interest paid by exporters is very less in these countries.

We have two important export businesses in Kashmir i.e, Handicraft and Walnut Kernels.

In both the cases we have submitted to the State Government a 6-8% interest subvention and as the number of people involved run into lakhs and there is a fear of unemployment of highest magnitude.

We feel that Govt. of India should give budgetary support to the extent of 40 crores to the State for taking care of increasing in holding capacity of all segments of Handicraft, Industry as well as Walnut Kernel Industry i.e.  artisans, wastkars, traders, exporters, raw-material suppliers and growers.


A.  Transport

We hope priority is given for construction of four lane national highway from Jammu to Srinagar as well as Srinagar to Baramullah. In this regard the KCC&I feels that certain roads need up-gradation to National highway standard for which already Srinagar-Gulmarg and Pahalgam-Anantnag  have been taken up while as there is a need for Srinagar-Sonamarg and Srinagar-Yousmarg should be taken up also for which necessary funds be provided by Ministry of Surface and Transport. One of the most important Roads which should be completely financed by the Govt. of India particularly the cost of tunnel. This road is essential to connect Rajouri, Poonch  to Kashmir.

Another important Road which will be connecting the Chenab valley with Kashmir and have a important bearing economically. This particular project also needs to be funded by Govt. of India.

Due to increase of traffic within Srinagar city it is important to provide special funds for construction of flyovers at important intersections in the city of Srinagar to take care of the present traffic congestion which has reached alarming proportions and the same should be provided for future traffic requirements.

Financing and interest subvention for transport :-

Following interventions are decided:-

During the turmoil period of 1990-98 all our industry/trade including transport lost 1382 days due to strikes and curfews which resulted in loss to the Minibuses and buses. On top of this the State High Court did not allow the vehicles of more than 25 years to ply. The State Govt. is seized of this issue and had asked J&K Bank to form a special package for old vehicles to be replaced by new vehicles keeping in view this fact.

J&K Bank is ready to finance and there is a dire need to provide a interest subvention of 8% which will amount to 9.60 crores which will amount to in 10 years 96 crores

With looking up of tourism there is a dire need of replacing taxis and coaches for individual and transport companies to modernize this sector. There is a case of interest subvention of 8% required to make this industry viable as the tourism season is limited. This will require for about 1000 vehicles roughly an amount to 5.60 crores per year and for a period of 10 years an amount of 56 crores.

In case of coaches the number of vehicles required will be 300 the interest subvention of 3.60 crores per year which for a period of 10 years will amount to 36 crores.

B.              Development of Srinagar city

KCCI feels that Srinagar which is a heritage city should get necessary funds for up-gradation of its civic infrastructure including sewerage and drainage.

Although the State Government has got funding from multi lateral agencies like Asian Development Bank but there are certain structural shortcomings like time taken for completion of these projects is very high resulting in  cost-over-runs  as well as   facility being delayed.

House Boats are one of our unique marketing products of heritage importance in tourism sector. Their sewage disposal should have been the first priority and we understand from the Asian Development Bank that they are going to  take  up this project but  in  the later stage of the project.

Srinagar is  on the verge of environmental disaster and Govt. of India should put in place  schemes for this city for sewerage and  disposal of garbage. For this funds required must in totality be provided by the Govt. of India.

C.              Compensation to the economic sector

As the fiscal scenario in the valley remained inhospitable for two decades, almost all industrial activities suffered heavy losses.  To make good the losses, KCCI suggests that the Commission recommends to the Govt. of India in regard to compensation to take the following steps without further delay:-

The modus operandi and mechanism of fixing the details and the form of calculation of compensation.

The compensation should be across the whole gambit of our economy which is enumerated below with our suggestions in regard to mechanism for calculation of compensation.

a)            Transport Sector:-

The Transport sector in Kashmir has different segments comprising of the following:-

i.              Tourist Taxis

ii.             Mini Buses and Buses

iii.            Trucks

In the case of Tourist Taxis  there are two elements on which compensation has to be calculated i.e. days lost due to strikes/curfews and  another element is because of nil or low level of tourist loss occurring to Taxi operators during the period.  Mini buses & buses have two problems wherein one element is the days lost because of strikes/curfews and another element is the loss in earlier replacement of vehicles due to High Court order of limiting the life span of the vehicles to 25 years. The loss of truckers is because of non-plying and loss in vehicles particularly due to recent agitation wherein not only transport vehicles were damaged, one driver was killed and other drivers injured who may not be in a position to do again their jobs.

b)            General Trade:-

In this also the business loss due to strikes/curfews needs to be calculated as trader could not revolve the money if the situation would have been normal resulting in huge loss of profit.

c)            Industry:-

This has different dimensions, one of the dimensions is the days lost due to strikes/curfews and non-operation of factories and the other dimension is loss due to occupation by burning/damaging of machinery by forces occupying industrial units and also collateral damage because of presence of forces in these units leading to fire fights. The Kashmir Chamber of Commerce and Industry has been on record to project this issue in its totality to Home Ministry, Government of India based on which we have already sent a test case to the Home Ministry, GOI wherein  uptill now no reply has come although it has been sent more than one year before.

d)            Horticulture Sector:-

The Horticulture sector has also two dimension, one dimension is the loss to our orchards by the Security forces wherein production of Apples and other fruits was reduced and no compensation has been paid upto date whileas during the recent turmoil this industry has further lost because of rotting of fruit due to economic blockade and subsequent after effects leading also to deaths of innocent people and damage to fruit.

e)            Tourism:-

This sector has been one of the most prone sector which has got effected in particular and this sector is comprising of following sub-segments:-

i.              Hotels & Guest Houses

ii.             Houseboats

iii.            Shikaras

iv.           Ponywallas and Sledge workers

v.            Retail outlets handling tourists

All these sectors need to be compensated in totality and this sector has lost completely as this sector is very much depended on the situation in a particular Place and at a particular time.

f)             Handicrafts:-

This sector got affected during the whole period because of constant curfews and crack downs resulting in losses of production than what could have been produced. Due to recent economic blockade also the problem of cancellation of orders has given further loss to this industry.

D.            Compensation of Business Losses

This issue has different dimensions, which we will like to bring to your kind notice.

i)             Inordinate delay in settling such cases:-

There are instances where these cases have been delayed for years together as the process is very cumbersome and even occupation certificates are delayed by security forces on flimsy grounds.

ii)            Calculation of compensation:-

The calculation of compensation is flawed when the industrial unit is told that his assets like building plant and machinery will be based on depreciated cost and not on replacement cost. The result will be people will have to accept the amount but will not be able to restart their businesses.

iii)           Calculation of rentals:-

The calculation of rentals in industrial units is being assessed on the basis of square feet rates while as an industrial unit was not meant for renting out but for production and as such the compensation should be based on production loss, which is justified. There have been cases where this has been done under court orders and majority of our unit holders want to avoid going to the courts.

It is important that the compensation is paid on the above principals to our commercial establishments i.e. Hotels, Industries, Trading units etc. as then only the unit holders will feel that justice has been done.

As per our information our Jammu counterparts for 100 days during Amarnath Land Row have asked for compensation of 10,000 crores. As the economy of both regions is almost similar the loses which have incurred from year 1990 will then amount to 200,000,00 crores as unfortunately uptill now the State Govt. has not fixed the modus operandi of calculation for compensation.

E. Railway track from Udhampur to Srinagar:-

This is one of the oldest pending projects of Railways and people of Kashmir are looking forward to the day when they will be connected to rest of the Country through train. Necessary funds need to be allocated for this prestigious project on priority.

F. Constructing of Metro for Srinagar City:-

As Srinagar city is having a lot of problem in regard to traffic and keeping in view the scenic beauty it is important that a metro be constructed which compulsory may not be underground so that travelers in this metro could enjoy scenic beauty of Srinagar. The said metro should also go around  the Dal Lake and also cover the interior city as well as be connected to Railway track already constructed from Qazigund to Baramullah.

For all the above specific funds be allocated by the Govt. of India to save the ecology and environment which will be consistent with sustainable development.


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