The problem with packages is that no matter how good these are, they are never good enough. A part of the problem being that what the economy needs in times of crisis, the governments can rarely provide, i.e; hard cash.
For a change, indeed an unexpected and pleasant one, the J&K government last week announced a cash infusion of Rs 1,000 crore into the system. A transfer payment, in the form of interest rate subvention, has been done. The government will, for the next one year, bear anywhere between 33 and 40 per cent of the interest liability of commercial borrowers who have been paying their bank liabilities regularly. This is not just a big relief, but an unprecedented one.
Unlike other interest relief packages announced, including by the Government of India, this one doesn’t defer the burden of borrowers; it actually reduces the interest burden. It is tantamount to making the real rate of interest effectively zero for the standard category of borrowers.
Indeed, writing in this newspaper, I had suggested that for private sector stabilisation package, “the principle to be followed with respect to interest payments of business in Kashmir should be: don’t defer, help defray” (Combating Covid-19; The Economic Dimension, Greater Kashmir April 2nd, 2020).
That this relief package seems to have been financed by reallocating the unspent capex budget, which makes its fiscally prudent insofar as it does result in increased borrowings and a higher deficit.
Apart from this, the interest subvention policy needs to be appreciated for fixing 31st September, 2019 as the cut-off date. This makes the package operationally relevant as a lot of regular accounts would have come under stress and become sub-standard in the aftermath of August 5th, 2019.
For all these reasons, the package should go a long way in addressing a pain point of the economy. The problem is that there are at the moment far too many pain points. The economy of Kashmir has been hit by a trio of troubles; it has been considerably weakened by the legislative changes made on August 5th, 2019 and continuing since then, then the manner in which the aftermath has been handled and now, of course the pandemic.
In an economy which has very low and tardy financial intermediation, what is the impact of the Rs 1,000 crores beyond the balance sheet of the standard borrowers? Of course, it is a small macro-economic stimuli. To the extent that this money is pumped in the system, there will be a perk up, if nor a pickup in the economy.
However, the size of this stimulus is not large enough to trickle down to those worst affected both in terms of life and livelihood; the workers, the casual employee, the farm hand, the artisan; basically the informal sector which is the backbone of the economy of Kashmir.
The real problem in designing a package for an artisanal and agrarian economy is that the key sectors are outside the control of government. These are the unregulated, and so to say in the free market sector. While this is reason for their growth over the years, in the times of a severe crisis, the government must provide a safety net.
The year-long lockdown has impaired not only economic growth but has impacted income distribution and poverty. While historically, the economy of Kashmir has had low levels of poverty compared to the all-India average, there is incidence of urban poverty which is being worsened by the pandemic. Also, while the levels of absolute poverty are low in Kashmir – 10 per cent compared to 21 per cent at the all India level – income inequality is becoming a serious concern. The package, doesn’t address this aspect as it has no redistributive component.
In the post-Covid Kashmir, income inequality will widen considerably, especially in the urban economy. This needs to be addressed through direct policy intervention such as the ones proposed in the state budget of 2017-18 to create a social security system for a section of the working class.
And also to make sure that the rural area is insulated from distress, this is the time to ensure than the horticultural sector is helped in realising the value of their produce and protecting their margins. In view of the complete collapse of national demand, it stands to reason to help reduce the costs of packaging and transportation. This will protect their margins and incomes.
One way would be to do a freight subvention for fruit and other exports. The government can even think of deploying the SRTC fleet for ferrying produce from the valley to the main markets in New Delhi, Punjab and beyond. This is especially important as after the clampdown in August, trade links have been badly disrupted and business networks are in disarray. The business confidence has been shaken. This has resulted in the shrinking of the regular trade cycle of supplier’s credit.
As regards the crafts segment, the urgent need is to help trade and enterprise monetise the inventories that are piled up. The interest subvention will reduce the “cost of carry” for the medium and larger players but the same has to be done for small traders. More importantly, there has to be a way to free their capital that is locked up in the form of inventories in the showrooms, shops and workshops. Today, they have inventories that can neither be liquidated nor monetised.
One possible policy intervention for the crafts segment is to provide capital for four to six production cycles so that the artisans can produce, even if they don’t sell. Along with this in the situation where people cannot come to markets, the market must reach the people. But these are long drawn and highly discretionary to implement.
A more desirable and doable way for the government could be to borrow and rejig a financial product, “warehousing” and apply it to the crafts segment. The Government can become a buyer in the crafts market through its public sector undertaking and buy out all the inventory of carpets and other handicrafts. It will not cost more than Rs 200 to 300 crore. They can hold these inventories for two years and then either do a buy back when the situation improves or sell it when the market revives. It will not only regenerate the crafts economy but will also give a fillip to income generation.
Nationally and internationally, the demand in general, and for the exports of Kashmir, has completely collapsed following a massive income shock. What Kashmir exports are essentially luxury items like carpets and shawls. Or non-essentials like apples. When incomes falls, aggregate demand drops, it is the residual demand that is the first to be impacted. So Kashmir economy is facing a far more severe shortage in demand than other state economies which needs to be addressed through pump priming.
Tail piece:
In an ode to mise en scene of Kashmir in Bollywood, the financial relief package has given the “Shikarawals, Pithuwala, Dandiwalas, SledgeWalas, Ponywala” (and a new category of “Camel Riders”!) an income support of Rs 1,000 per month for three months amounting to Rs 12 crores.
Ever wondered why the daily wagers as a class – be it a Mazoor (labourer/farm hand), a Dasil (mason) or a Chaan (carpenter) is never mentioned or provided for in any package? Or why a cultural icon like the “gade-wajin” (fisher woman, whose dress, jewellery, language and the way of conducting herself is folklore) who also loses her livelihood with every bandh, hartal and lockdown is never a part of the government packages?
Why only the “shikarawalas and ghodawalas”.
Well, they need to thank the Hindi films which have romanticised them to the point of fictionalisation. Because of which it is only in these categories that Kashmiris seem to figure in the collective conscience of rest of the country. As in a “Bollywood-ised” Kashmir, Kashmiris never seem to figure as individuals in their own right. As Ananya Kabir, wrote the “Territory of Desire”, “The postcolonial playground, itself a space disjunct from the nation, is sustained through their neo-colonial erasure…..”