Srinagar: Economist who forayed into politics, prefers to stay aloof now, Dr Haseeb Drabu shares his views on Kashmir, economy, investors and the challenges post the reading down of Article 370 in this free-wheeling interview.
Q: In the last one year, no corporate house has invested in J&K, which was seen as the major reason for abrogation of Article 370 and Article 35 A. Why?
For now, I can see only divestments. India has divested its 70 years of emotional equity in Kashmir! And, of course, Kashmir has been divested of its special constitutional position and status as a state!
To befair, post January, 2020, the pandemic has put a huge spanner in the investment plans right across the country and indeed the world. So it is far-fetched to expect corporates to invest in Kashmir now. One hadn’t expected much in any case. But it has turned out to be nothing in the six months between August and the onset of pandemic. Ferrying a plane load of central ministers over a weekend and having a few roadshows run by bureaucrats is hardly the way to whet the investor’s appetite.
Q. From a corporate investment perspective what is the main difference between Kashmir economy pre and post August 5th, 2019
In terms of perception, may be a lot. But procedurally nothing really. Legislatively, neither Article 370 nor Article 35 A were barriers to corporate investments in J&K. The key issue of restriction on land ownership by people from outside the state wasn’t operative for corporates. In J&K land for industrial investments has been available to outsiders and foreigners all through; a 90 year lease, renewable further, in all the industrial estates, has been the stated government policy. That too at throw away prices.
Even the State Subject Notification of 1927, which introduced the restricted land ownership regime, had a provision for corporates and investors from outside of J&K to get land. So, restrictions on land ownership could not have been a constraint for corporate investment.
Q: Do the changes since August 5 not make a difference to investors?
Earlier the legislative optics was bad, the procedural reality was quite different. Now it is the other way round; the legislative optics are looking “good”; outside investors are “free to buy land and invest’. But the operational ground situation may have just become adverse. The enabling environment to do business was never as hostile as it has become now. Not even during the peak of militancy. On the ground and in the streets, private corporate investments are being seen as outposts of the Indian state. That is a huge negative. Investments and businesses have become politicised. This will have long term consequences.
Q: Has there been no “outside” private investment in J&K?
Of course there has been. Over the decades quite a few private companies came to Kashmir. But their track record has not been anything to talk about. I repeatedly pointed out that the total investment made by the non-local business houses in the state was less than the total subsidies given to them and revenue forgone by the government! This has to be a unique situation in India or indeed anywhere in the world!
Q: The central government is keen to attract investors to the Valley. The state government had an investor’s curtain raiser meeting in Delhi sometime back. How do you see it?
The central government would do well to put its money where its mouth is. Why isn’t it investing in J&K through its PSU’s? The 300 odd Central PSUs that have investments of about Rs 25 lakh crore, and employing more than a million people across the country have invested a paltry sum of Rs 150 crore in J&K. And employ 21 people! The Union Government and its companies, faced no Article 35A barriers. Why then has there been practically zero public corporate investment in the last 70 years? The fact is that the Government of India has not invested growth capital in J&K. Obviously, private corporate investment also didn’t venture in. The real deterrent to private corporate investment in J&K is its disputed tag sanctified by the United Nations. That continues to be so. Abrogation of the special status has made no difference to that.
Q: But the general impression is that the Centre has been pumping lots of money into Kashmir?
Yes. The Centre has been funding the Government of J&K. What it has not done is to invest in the economy of J&K. Two important distinctions need to be elaborated, first, between the “government of J&K” and the “economy of J&K”, and second between “funding” and “investing”. It is very important to understand this.
The funding of state government by the centre has resulted in an exclusive focus on fiscal policy with a single point agenda: transfers from the centre to finance public expenditure. The biggest fiscal anomaly, which I pointed out in my first budget speech, is that to spend Rs 10,000 crore on the economy, the government was spending Rs 30,000 crores on itself!!! Second, the type and modality of funding meant underwriting expenditure not financing investment. To invest Rs 1, the state government was spending Rs 3.
Q: Isn’t a rather large percentage of the population in government employment?
Out of a population of 1.25 crore, 5 lakh people work as government employees. Bihar with nearly 10 times the population of J&K, has 4 lakh employees. If the population below 20 (which is about 45 per cent) and above 60 (which is 15 percent) is excluded, then one out of every ten people is on the payrolls of the government! The average size of a family in J&K is 5. So one person from every other family is in government.
Q: It is often said about border-states that provision of government employment is a way of buying loyalties. What does that mean?
Absolutely. Not just employment. Broadly speaking, in all troubled areas, the macroeconomic policy has been one where public expenditure has been preferred over public investments. This has many facets. One important aspect being that transfer payments are an easy way of corrupting the people and as you say, buying loyalties. Corruption as a mode of cohesion is tried and tested policy in Kashmir and North East. Apart from the political economy of public expenditure, it has also caused serious macroeconomic distortions, e.g an asset price bubble in the land market.
Q: Kashmir’s economy is not understood well. How is it structured?
It is an export oriented, import dependent economy with very favourable structural vitals be it the low levels of poverty or the less skewed income or asset distribution. In a syndrome, classic of underdeveloped colonies, the exports are primary products while the imports are value added goods. This results in adverse terms of trade which drains out local capital as well as reduces the domestic multiplier and dampens local income generation. It is a micro and small enterprise driven economy; about 8 lakh enterprises employing about 16 lakh people.
Q: What are the challenges of doing business in the Valley?
I once said, the only people who are doing Jihad in Kashmir are the entrepreneurs and businessmen! They have to fight for the most basic things. The biggest challenge of doing business is the lack of a peaceful environment. As simple as that. This makes every business – be it trading, or manufacturing — unviable. Second is the lack of basic infrastructure in particular logistics in the sense of global supply chain solutions. Third is the complete lack of a supportive macroeconomic policy which could create the enabling conditions. With no peace, value creation is hampered. Because of lack of infrastructure and logistics, the correct price is not being realised. And the absence of a macroeconomic policy results, the two parts of a business – value creation and price realisation – are not being complementary and mutually reinforcing.
Q: If there is one thing that the government should focus on what should that be?
Logistics. The state needs a logistic infrastructure. For a commodity intensive economy with a landlocked geography, the single biggest need is a logistics and global supply chain network. Nothing drives the point of its deficit home more than the apple economy. Even though the valley produces 75 per cent of the apples in the country, it has only 0.3 per cent of national storage capacity. There are just 36 cold storages in J&K out of the 6,000 in the country. The setting up of a dry port with DP World, signed with much fanfare in the presence of the Prime Minister in Dubai in 2018, is still caught is some inexplicable bureaucratic maze! The biggest roadblock to the economic development of Kashmir is the deep state in India. Not the political establishment.
Q: What’s the way forward for Kashmir’s economy?
Most certainly not the way it is being taken forward right now! The way it is going – 10,000 kanals of land have been last week earmarked for 37 new industrial estates – Kashmir will at best look like the old mill area of Bombay and at worst the sweatshop of Dharavi.
Kashmir can be the model for sustainable economies of tomorrow. I see Kashmir as a cultural economy at the heart of which is the incredible craft sector that is social in its organisation, material in its production and sustainable in its development. It needs technology, innovation and disruptive collaborations. The artisanal economy that Kashmir has can be a viable force in opposition to existing systems of production through the humanization of work and commerce. Globally, it is the culture and creative economy which is now growing exponentially as a result of online shopfronts and home-based micro-enterprise.
Then there is the apple economy, the horticultural sector if you like. The Valley, on its own, is the sixth largest producer of apples in the world. With very little investment it can become the second largest apple producer in the world. Finally there is a tourism and visitor economy with its services sector linkages.