Towards better economics
Kashmir needs a proper framework for investment
AATIF AHMAD MEHJOOR
Many observers have taken the view that the state of Jammu and Kashmir is condemned by its geography to a low rate of economic growth, unlike those Indian states which are maritime such as Gujarat or Tamil Nadu. This view is completely wrong. Kashmir may be far away from the seas. It may be criss-crossed by some of the tallest mountains in the world and suffer from poor road connectivity. However, it is no exaggeration to say that Kashmir has been blessed with abundant natural resources that, if exploited properly, could bring wealth and prosperity to its people and enable them to enjoy living standards at a level close to those prevailing in the world's rich countries.
If one looks at Europe, some of the richest countries are those with tough terrain such as Norway and Switzerland. In fact, despite being surrounded by mountains Switzerland is one of the richest countries in Europe, richer than France, Germany or the United Kingdom, with high-tech industries and a skilled workforce that are the envy of the world. Yet, Switzerland hardly has any mineral wealth. Like Switzerland, Kashmir also possesses two natural resources in abundance: water and natural beauty.
The potential to generate power from our water resources has not so far been exploited to any meaningful degree. Despite having between 10,000 to 20,000 MW potential, only a fraction of that has been exploited, although plans are underway to exploit a large chunk in the 12th five year plan. Tourism has been picking up recently. However, it suffers due to lack of infrastructure and regulation and is starting to harm the environment and thereby put at risk the long-term viability of a sector that employs large swathes of the population.
Tourism and hydro-power are both capital intensive sectors requiring enormous outlays of investment in order to produce the sector's operating assets such as power stations, transmission lines, roads, airports, hotels and resorts. At current levels of wealth and spending in Jammu and Kashmir (with the Government forced to spend most of its funds on current expenses rather than capital expenditure), it is not possible for us to generate the resources needed to undertake these large projects. To create 1 MW of generation capacity requires anything between 7 to 20 crores, so a large-scale project may require outlays of thousands of crores. What we need is investment by investors from outside the state which is properly regulated and which ensures adequate returns to the permanent residents of the state.
Unfortunately, the legal and regulatory framework for investment in these sectors is abysmal. It is incoherent, unclear and in many cases there is no framework at all. It is shocking that the State Government does not even have records of agreements concluded with the NHPC in relation to power projects. Such things should not happen in this day and age, where ordinary people go to much trouble to engage legal assistance in even a comparatively small transaction, such as buying a house.
The regulatory framework must enshrine benefits for the local population, such as job reservations and royalties for the Government, as well as agreed taxes and duties on the foreign investor and protection from confiscation and divestment. If the project is to be done on a BOOT (build-own-operate-and-transfer) basis then there must be agreed provisions on valuation at transfer and payment of compensation. The recent call for the transfer of power projects from the NHPC to the state needs to be examined carefully as it may send the message to foreign investors that the State Government will happily confiscated foreign investors' property: if NHPC has invested capital in projects, its rights should not be confiscated, although it may rightly be subjected to taxation and other charges to ensure it pays for the use of our natural resources. The state should establish a comprehensive framework for hydroelectric and tourism investment that addresses all the issues up-front and after proper consultation with the public, rather than just reacting to sporadic popular protests. This framework should be designed to provide maximum certainty to foreign investors as well as aiming to attract such investors with incentives. Only then can we hope to kickstart investment in our crucial sectors.
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Lastupdate on : Fri, 15 Jun 2012 21:30:00 Makkah time
Lastupdate on : Fri, 15 Jun 2012 18:30:00 GMT
Lastupdate on : Sat, 16 Jun 2012 00:00:00 IST
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