J&K’s money drought

Post floods of September 2014, there was a sudden increase in economic activity and people restored to savings, insurance claims and debt in order to replace their damaged assets and re-establish businesses and livelihood.
J&K’s money drought
Representational Pic

For the last few decades J&K's economic output has behaved in a very mystifying manner. Ten years back in 2005 when Indian GDP was booming at 9.48%, J&K had a GSDP growth of 5.78% and since then the two lines have moved in perfect contradiction to each other. As per the most recent data available for J&K's economic output, the state has went down south to minus 1.57 % in 2014-15 compared to national GDP growth of 7.30%.

Despite the sluggish numbers printed in J&K's economic survey, the state in the last decade has never faced a money drought of the kind it is facing since last few quarters. The markets look still and money velocity stranded. Go to an apparel shop and you will find it deserted, the restaurants have scanty crowds, hotels are empty, exporters spend time fishing, shopkeepers opt for candy crush, farmers are hopeless and even brokers of peace and conflict are feeling the burn. Post floods of September 2014, there was a sudden increase in economic activity and people restored to savings, insurance claims and debt in order to replace their damaged assets and re-establish businesses and livelihood. The aftermath of this short lived economic activity is not pleasing and the state is pushed into a deep slump with extremely low economic activity, poor money circulation and sustained financial distress. 

Being a conflict zone J&K has limited income routes governed by Export, Agriculture, Tourism, Conflict and Govt Salaries. The first factor i.e. the export which has sustained valley's cottage industries and home based artisan economy is feeling the heat of the prolonged global recession. World renowned Kashmiri handicrafts products have always found buyers in the international markets. J&K's export houses have played a crucial role in generating foreign exchange for the state and sustaining the domestic economy in troubled times. Drained Arab economy due to falling crude oil prices and Russian economic fissures has directly impacted the demand of elite Kashmiri products. The exporters are left with piled up inventories and tied up capital. 

The second factor i.e. the agriculture, forms the base of any economy and J&K is no different. The sub segment of agriculture i.e. Horticulture contributes equal to the much hyped tourism sector to the state's economy. In 2014 floods, agriculture sector incurred a huge loss of Rs 3675 Cr. Paddy, Saffron, Apple, Cereals, Fodder and vegetables; flood engulfed everything. Last year's negative growth of 16% in this sector is showing its repercussions now. Normally, good income in the primary sector creates sustainable demand pull in an economy. It provides the needed impetus to Industries and service sector. Failure of J&K's agriculture to generate income has severely impacted the money supply in the system.

Third factor is the state's failure to restart the tourism industry after Sep 2014. The valley witnessed a sharp rise in construction of hotels and guest houses after floods in anticipation of tourism. This tied up a lot a capital in fixed assets which are yet to generate any cash flows.  The frequent news in national media regarding flood threats and violent incidents have made sure that the assets created remain underutilized and cash flows remain stunted. To add insult to the injuries, the airlines are playing a perfect villain by unprecedented escalation of airfares. There is a huge category of people deriving living from this sector including Hoteliers, taxi wallas, shikara wallas, handcraft vendors and a whole bunch of travel entities. Their cash flows are at their worst in the recent times and this is straight away getting converted to poor demand in the economy.

It is a matter of fact that Kashmir's money supply has direct linkages with the conflict. Talk of operation Sadhbhavna alone, Indian Army has spent around 450 crore in over a decade. Then there are initiatives like Udaan and Himayat aimed at containing youth alienation by providing employment. IG police's recent revelation regarding a state sponsored informer base also strengthens the case that there is a substantial money flow in J&K's economy through conflict route. On a similar note the violent and non-violent freedom struggle in the state has its sponsors from across the globe. As per Indian Minister of State for Home Haribhai Parathibhai Chaudhary, the valley based militant groups receive funds from various sources through different Hawala channels which are routed through Gulf and other countries by their mentors for spreading activities in the state.  However, this inflow too has seen some cuts due to improved Indo-Pak peace process in the recent times. In such a situation it is difficult to decide whether to be happy or sad about it.

This leaves us to the last money route i.e. The Government Salaries, the size of which in this year's budget is projected to be around Rs. 20,000 Cr. This is possibly the only inflow which is unnerved despite conflict, flood and political uncertainties. This sector supports five lakh families and is primarily the only sector which is acting as a ventilator to an otherwise economy in crisis. This too has its repercussions in the form of poor deployment of funds towards asset creation and development; as the salary and pension bill consume around 43% of J&K's state budget. 

This is surely not an exhaustive list of the troubled state's income heads, but undoubtedly these are the ones that matter. In order to get out of this money drought the state needs to focus aggressively on revamping its primary sector and re-positioning its tourism sector. Instead of quick fix solutions and championing the failed subsidy approach, the state needs to put in place a long term strategy with quantifiable goals. In addition to sound policies, the state needs an aggressive political will to rescue the state from this deadly money drought.

(Ejaz Ayoub is the co-founder of The Silk Route Consulting Group – a Kashmir based initiative for creating an enabling environment for start-ups in the state of Jammu & Kashmir. He has done his Master's In Business Administration & CAIIB in Financial Risk Management. His areas of interest are capacity-building and conflict economies with a focus on J&K.)
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