COVID-19 Pandemic and the Kashmir Economy

Kashmireconomy is suffering from low industrial output; high import-export ratio;large scale unemployment; low capital productivity, high fiscal imbalance with excessivereliance on the Indian union. All these are symbolic of underdevelopment of thestate’s economy. This is being mainly attributed to the small and shrinkingproduction base in different sectors of the economy. Kashmir economy wasfortunate enough to have many sunrise sectors like, tourism, handicraft, sportsgood industry, cement industry, food processing industry, silk industry, woodbased industry, leather tannery & allied industry. The state is alsoendowed with huge potential in hydropower generation. if exploited fully itcould have become major contributor to the state economy. All these potentialsectors were capable of making the state one of the most prosperous states inthe country. Initially the state could not make much head way in the economicprogress due to policy paralysis which is reflected in infrastructural,entrepreneurial, and promotional bottlenecks. Political uncertainty with whichthe state is suffering right from the beginning has been the underlying causefor many of these and other bottlenecks.

In spite ofthe above bottlenecks, the state economy could make some progress. With theonset of political unrest in 1990s, the state economy got bulldozed. However,in the decade of 2000, though the state’s economy had faced many roadblocks atregular intervals in the form of 2008, 2010 & 2016 agitations and 2014devastating floods yet, it witnessed some progress which is reflected in thegrowth figures of different sectors of an economy. The state’s NSDP increasedat CAGR of 10.02 per cent from 2011-12 to 2017-18. The state’s NSDP has reachedto Rs. 1.34 trillion (US$ 20.73 billion) in 2018-19. However, before the stateeconomy could fully emerge from post Burhan Wani crisis in 2016, it has towitness the worst ever lockdown post abrogation of Article 370 and section 35A.For around 5 months there was a total lock jam of the economy which hasinflicted huge losses across all sectors of the economy. According to apreliminary loss assessment report by Kashmir Chamber of Commerce andIndustries, services sector alone including tourism suffered a cumulative lossof Rs 9191 Crore in first 120 days after abrogation of article 370 on August 5.The sector also witnessed a whopping 1,40,500 job losses, the report added.

   

It is a factthat the turbulent times since the decade of 90’s, has developed some kind ofresilience in the Kashmir economy. The people in Kashmir have learned how tonavigate even under the most trying conditions though with limited flexibilityand options. But the lockdown imposed to fight the spread of Coronavirus hasresulted into a total lock jam of all the sectors of economy be it; primary,secondary or territory. Currently only health sector works, all other sectorsof an economy are in complete lock jam which is expected to be lifted butpartially in the near future. Even if everything goes well, still it isexpected that it will take another 6 to 9 months to be fully free fromrestrictions. WHO has warned that “make no mistake we will have a long wayto go. the virus will be with us for a long time and can easily  ignite. It is a long battle to fight whichwill cost very dearly to the economies worldwide.

Apart fromthe tragic human consequences of the COVID-19 pandemic, the economicuncertainty it has sparked will cost the global economy $ 1 trillion in 2020 asper the UNCTAD. It is reported by S&P that the economic impact of COVID-19is longer and more intense than thought, as a result has lowered macro economicforecasts. S&P has estimated global GDP falling by 2.4% this year, with theU.S. and Eurozone contracting 5.2% and 7.3% respectively. As per IMF Chief,under any scenario, the global growth in 2020 will fall….how far it will falland for how long, is difficult to predict which would depend on the timelinessand effectiveness of our actions. Parallels are being drawn with the impact ofCOVID-19 pandemic with the financial crisis of 2008 and the great depression of1930.

The Indianeconomy in no way will be immune to the economic risks caused by the Coronavirus.The Indian economy which was already sluggish before the Coronavirus outbreakis now sure to suffer recession. By various rating agencies, it is beingreported that the GDP in India will contract in 2019-20 from 4.5% to 2.5 –1.5%. Automobile sales have been down by a whopping 65%  in March in comparison with the correspondingmonth of the last year. However, there are some who believe that there will be’V’ Shaped recovery i.e. a sharp decline will be followed by an equally sharprecovery once restrictions are removed fully. But more realistically, it seemsthat there will be ‘U” Shaped recovery i.e. initially there will be sharpdecline followed by slow and gradual recovery and finally once the threat ofCoronavirus disappears fully and global economy particularly global supplychains stabilizes, there will be a sharp recovery, however, with a caveat thatproper and elaborate fiscal and monetary measures have been initiated bydifferent countries to help businesses. There are also serious apprehensionsthat the virus will reemerge in communities that have flattened the curve whichwill force governments to re-impose lockdown disrupting the economic activitiesagain. For such people vaccine is the only way to control the pandemic which isestimated to take around 12 – 18 months. There is no doubt that fight againstCOVID-19 is going to be somewhat a long and painful battle in terms of humanand economic costs.

As per theEconomic Survey 2019-20, Services is the major sector of the Kashmir economy,contributing 58 per cent to the states GDP. Industrial and agricultural sectoraccounts for 27 per cent and 15 per cent respectively of the state’s economicoutput. Services sector in the union territory mainly consist of tourism andrelated activities. Agricultural sectors will get impacted by the COVID-19 butnot to the extent to which other sectors will witness downward spiral. Thehardest hit sectors will be tourism, hospitality, aviation and entertainment.Besides, there will be sufficient decline in consumer spending particularlyfrom the middle and lower income groups owing to falling incomes. Therefore,Kashmir economy is going to be hit the most as tourism being the most importantsector which unfortunately was not yet out of woods after crippling impact ofthe post abrogation of Article 370 restrictions.  Kashmir handicrafts an important activity forthe livelihood of large number of people in the union territory will be equallyhit by economic meltdown caused by the COVID-19 due less footfall of touristsin the country and the valley. The restrictions imposed to control pandemicwill at least continue for another 6 to 9 months for tourism, hospitality,aviation and entertainment which means that there will be complete loss of thisyear’s tourist season thereby resulting into revenue losses of thousands ofcrores and job losses to around 2 lakh people.

Thegovernment in India has already announced financial package worth $.22.5billion for the poorer sections of the society, construction workers’, informalsector etc. and is likely to announce massive fiscal and monetary package fordifferent sectors of an economy. In view of the crippling impact of thelockdown imposed post abrogation Article 370 on the Kashmir economy and greatervulnerability of its key sectors to the cascading impact of COVID-19, there isan earnest need for the Indian union to come-up with Kashmir specific andtargeted revival package. It is also a fact that the fiscal and monetarypackages announced at the national level benefit very least to the people inKashmir for certain obvious reasons. Industrialists, hoteliers, tour operators,transporters, traders  and others weremade to bear huge losses by the government by imposing lockdown for monthstogether after the abrogation of Article 370 and 35A in the state particularlyKashmir valley, therefore, it is morally incumbent on the government tocompensate for such huge losses. Though the government was constrained toimpose nationwide lockdown to save precious lives from the vagaries ofCoronavirus yet, in spite of suffering revenue losses of Rs 3.5 to 4 lakhcrores, the government offered a financial package of $22.5 billion dollars tohelp vulnerable sections of the society and the massive fiscal and monetarypackage for supporting different sectors of an economy is in the offing. But itpains to see that no such financial help was offered to the people in Kashmirfor the losses made to bear for no fault of theirs by imposing unprecedentedrestrictions in the state post abrogation of Article 370. For survival and togain growth momentum of the Kashmir economy, the revival package shouldinclude:

  • Moratorium on loan repayments by the banks and other financial institutions for financial years 2020-21 and 2021-22.  .
  • Waiver in the payment of interest payable at least on term loans for financial years 2019-20 and 2020-21.
  • All the loan accounts which have turned substandard after August 2019, should be classified as standard.
  • Debt restructuring by the financial institutions for already declared loss accounts with the requisite credit facility at favorable terms.
  • Credit Guarantee to the businesses across all sectors of the economy will be important to ensure easy access to credit which in turn will also solve the problem of subdued credit demand in the economy.
  • Interest subsidy across all sectors for all types of commercial loan accounts for the financial years 2020-21 and 2021 -22.
  • Tax holiday for the financial year 2020-21 and 2021-22
  • Exemption from the payment of electricity charges and other government fees for the current financial year and a discount of 30 per cent for financial year 2021-22.
  • To avoid layoffs particularly in the tourism industry, provide income subsidy of Rs. 3000 PM per employee for six months starting from March 2020.
  • Offer financial support of  Rs 5 000 PM to tourist taxi drivers at least for six months starting from March 2020.
  • Weavers and Artisans may be given social security subsidy
  • Significantly push government developmental spending by undertaking infrastructure projects which on the one hand will accelerate economic activities and on the other hand offer  livelihood opportunities to the people.
  • To allow international flights to operate from Srinagar International Airport with round the clock flights which in the long run is importunate for development.
  • During most of the period, air fare to and fro remains very exorbitant, even higher than the international routes, thus affecting tourist flow etc. Therefore, the government needs to regulate air fare purely on commercial principles so that widespread profiteering by the airlines is checked for greater good.
  • Coronavirus pandemic on the one hand has vividly exposed significant infrastructural inadequacies in the health sector in the state and on the other hand revealed how critical is the health sector for the existence of human race. The doctor-patient ratio in the union territory is 0.27 doctor to 1000 patients which is abysmally low by all standards. The current crisis has made all of us to realise that the human race will vanish like anything regardless of economic and military might if we again fail to create requisite health infrastructure for future. Therefore, this is the most opportune time for the policy makers to resolve once for all that we should also priortise government spending towards health sector. In the current budget the allocation towards health and medical education has been a mere 1.13 per cent which comes to just Rs 1268 crores. If we increase allocation towards heath sector only to Rs 3500 crore annually which will account for just 3.05 per cent of the total budget size, within a few years we will have state of the art health facilities available provided the expenditures are properly planned and made. Big Push strategy aiming to expand and strengthen the existing medical infrastructure is in fact the need of the hour with a caveat to adopt best practices in the sector

Final Word

Key for thesuccess of any package will surely lie in its planning and implementation.Generally, in our country even the best schemes/ programmes fail to achievetheir stated goals due to favouritism, nepotism and corruption. Institutionswhether, political, social, cultural, economic provide direction fordevelopment in all spheres of life. When these institutions fail to deliver,aberrations are bound to take place. Unfortunately, almost all the institutionsin the country have degenerated into monumental incompetence and malpractices.As Gita Mehta in her book “Snakes and Ladders” argues passionately that therewas “lightness in India’s leaders, fighting for independence was a game forthem but a very pure game. Now we are clawing our way back 70 years ofinstitutionalized corruption.” Political system which has evolved over a periodof time is root cause for many ills in the country which unfortunately thrivesgiven the kind of democracy has evolved in the country which unfortunatelysuffers from serious fault lines.

Author is Professor in the Dept. of Commerce, University of Kashmir)

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