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State of Jammu and Kashmir's Economy

The 2006-07 Economic Survey for Jammu and Kashmir reveals that despite the privations of conflict, the performance of the economy has improved in recent years. However, unless the two political issues of occupation of land and restrictions on the use of the state's water resources are removed, the full economic potential of the state will not be realised.

State of Jammu and Kashmir’s Economy

The 2006-07 Economic Survey for Jammu and Kashmir reveals that despite the privations of conflict, the performance of the economy has improved in recent years. However, unless the two political issues of occupation of land and restrictions on the use of the state’s water resources are removed, the full economic potential of the state will not be realised.


he 328-page Economic Survey (ES) 2006-07 for Jammu and Kashmir (J and K) looks at the state’s economy from the point of view of the “need for a reformist long-term development strategy – to raise growth, increase employment, reduce poverty, and improve factor use efficiency. In J and K, however, a long-term strategy is also needed to ensure conflict resolution and prevention, and peace through economic reconstruction” (ES, p 1).

The survey lists several benefits of “building economic bridges between Pakistan and India, and between the parts of Kashmir”. Firstly it “could help build peace constituencies that are sorely lacking during this time of bad relations”. This in turn will “give Kashmiris a greater sense that peace is possible”. And the creation of economic institutions would be a “step toward the kind of practical and honourable arrangements that most people believe are essential for a lasting Kashmir settlement”. The report also asserts that “this kind of initiative could help persuade Pakistan that its stake in Kashmir has been recognised”. Thus, by generating youth employment and opening the J and K economy there is a move to promote enthusiasm for the government project of “peace through reconstruction”.

The gross state domestic product (GSDP) of Jammu and Kashmir, at constant prices, grew from 1.83 per cent in 2000-01 to an estimated 5.52 per cent in 2004-05 and averaged 5.27 per cent overall between the two years. This is less than the average of 6.6 per cent of the all-India GDP during the same period. But it does reveal that economic activities picked up in recent years.

The primary sector’s share in GSDP in 2004-05 was 31.9 per cent; that of the secondary sector 17 per cent, and the tertiary sector 51.1 per cent.

The per capita gross income of the state at constant price, grew from Rs 8,644 in 2000-01 to Rs 9,553 in 2004-05 (all-India: from Rs 18,113 to Rs 21,806). Thus the gap between J and K and all-India widened. The inter-district position reveals that Leh at Rs 11,493, Srinagar at Rs 11,275 and Jammu at Rs 10,631 rank on top in terms of per capita income whereas Baramulla at Rs 7,717, Doda with Rs 7,517, and Kupwara at Rs 6,044 rank the lowest. A district-wise comparison debunks the myth of discrimination between the regions based on religion because two of the poorest districts in terms of per capita income are located in the Kashmir Valley. If we turn to employment two things stand out. The unemployment rate in J and K at

4.21 per cent is higher than the national average of 3.09 per cent. Wage employees in J and K account for nearly 61 per cent against 52.4 per cent at an all-India level.

Significantly, the percentage of population living “below the poverty line” (BPL) in J and K (according to the National Sample Survey data for 1999-2000) is

3.48 per cent as reported in the survey, as against the all-India average of 26.10 per cent. The BPL population in rural and urban areas is 3.97 per cent and 1.98 per cent as against the all-India rates of 27.09 per cent and 23.02 per cent, respectively. The ES points out that for 1993-94 no National Sample Survey was conducted. Instead the poverty ratio for Himachal Pradesh was “adjusted for J and K by the Planning Commission”. It also notes that the decline in poverty ratio between 1993-94 and 1999-2000, from 25.17 per cent to 3.48 per cent had been “extremely steep” (p 224). It is important to note that internal war was at its peak during this period. The survey strikes a note of caution by saying that “this steep decline (in poverty) and the

Economic and Political Weekly October 6, 2007

factors underlying for this massive change need a detailed study” since “no authentic and reliable data on BPL population is available for the state of J and K”.

According to the 2001 Census, there are 15,92,000 cultivators and 2,46,000 agricultural workers in J and K. They form 49 per cent of the total workforce of 3.73 million. The average landholding size is

  • 0.66 ha (13 kanals) which is less than half of the all-India average of 1.41 ha. Nearly 82 per cent of the holdings below one ha operate in 45.29 per cent of the total area. Irrigation covers 3,11,000 ha out of the net cropped area of 7,52,000 ha. Of this irrigated area, 92 per cent is irrigated through canals.
  • Against an estimated requirement of
  • 1.35 million tonnes of cereals and 0.6 million tonnes of vegetables, the likely production during 2007-08 is only 0.62 million tonnes and 0.46 million tonnes, respectively – a near 40 per cent deficit. The state has set itself the target of reducing the deficit from 40 per cent to 25 per cent during the Eleventh Five-Year Plan period. Now maintaining an overall growth rate of 8 per cent requires agriculture to grow by 4 to 5 per cent annually. In this endeavour the ES sets out “thrust areas”: land consolidation by legislation and strict implementation; high-yielding varieties of rice and grains; hassle-free credit to farmers; farm mechanisation and introduction of power tillers in hilly areas; agri-business, etc. The central government plans to open an Inter national Trade Centre at Pampore and also open an office of the Spice Board to promote marketing of saffron and chillies. These are all positive moves to augment farm product marketing.
  • As against farm production, horticulture is spread over 2,67,000 ha in 2005-06. Of this 1,74,000 ha are under fresh fruits and 93,000 ha under dry fruits. Fruit production has increased from 1.33 million tonnes in 2004-05 to 1.42 million tonnes in 2005-06 (ES, p 54). Export of fruits, however, declined from 8,24,000 tonnes in 2004-05 to 7,68,000 tonnes in 2005-06. The reason for the decline in exports is mainly on account of “C” grade apples being “procured at a support price of Rs 5 per kg for processing into juice concentrates in the locally established juice processing units” (p 55). Beginning in 1997-98, the development of fruit and vegetable markets has also picked up. So far out of 19 such centres envisaged, four are functional and another four are under construction. This does suggest that policymakers have become mindful of the need to augment the growth of agricultural produce and its marketability.

    According to horticulture department information cited in the survey (p 60), two million people are directly or indirectly employed in this sector. The ES points out that apple production “provides 77 per cent higher mandays of employment (95 per cent higher in case of paid workers and 71 per cent in case of family workers) as compared to the cultivation of agricultural crops” (p 60). Because agriculture and horticulture continue to provide employment for nearly 70 per cent of the population in agriculture and allied activities, the question of land becomes important.

    On November 19, 2006, J and K chief minister, Ghulam Nabi Azad, said that two million kanal or 2,50,000 acres of state land had been encroached, whose market value was, according to him, Rs 25,000 crore. While this encroached land has been regularised through the land order promulgated on December 31, 2006 at a fraction of its market value (now estimated to fetch less than Rs 500 crore) there is nothing in the ES on this issue either by way of calculating the loss to the state exchequer or the gains to be made from its regularisation. Similar is the silence on the occupation of productive land by security forces. With more than six lakh security forces present, according to the former deputy chief minister on the floor of the assembly on August 1, 2006, their demands for land for camps, training fields, shooting range, etc, would be substantial. The opposition to this is widespread.1

    Even otherwise, large deployment has an impact on economic activities as all movement to and from the village to fields, markets and towns are affected.Were this land to be freed of occupation, which is accompanied by encumbrances placed on mobility, it would contribute immensely to increasing agricultural/fruit production and generation of revenue and reduce net outflow from J and K. While this is not dis cu ssed, land figures in another way in the ES.

    The law in J and K restricts ownership of land by non-state subjects. The ES claims that “(a)ccording to one estimate, 30 per cent of the state’s population is directly or indirectly connected with this activity (tourism) subscribing 16 per cent of the state’s domestic product” (ES, p 98). This remains a bald statement without corroboration. Indeed The Hindustan Times (September 12, 2006) cites the head of department of economics, Kashmir University as saying that “hardly 4 per cent of the population depend on tourism directly or indirectly”.

    Tourism as Solution?

    However, the head of the Working Group on Economic Reconstruction, C Rangarajan,



    A Research Associate (Consolidated Pay Rs. 13,000 per month) for a period of one year (extendable to second year). The candidate should have an M. A./M.Phil. degree with suitable publications. The age should be below 30 years. The applicant with working experience of at least two years in the field of social sciences and humanities will be preferred. Candidates with proficiency in English, readiness to do field work and having interest in any of the themes of citizenship, forced migration, gender rights, human rights, law and justice, peace studies, autonomy, globalisation, and development studies will be preferred.

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    Economic and Political Weekly October 6, 2007 is of the opinion that “tourism is the backbone of the state economy, and for making the tourism sector more sound, the state government has to clear its policy on land-lease”. According to him “(o)n these issues including land-lease provision should be made to invite outside investors interested in the tourism sector” (Economic Times, December 2, 2006). Guided by this understanding, of tourism as the “backbone”, the J and K government passed a cabinet order on land-lease dated October 23, 2006. Under clause 2 of this order, state land was going to be allotted to any outsider with the mere approval of the administrative secretary to the government (tourism) as the prescribing authority. The area thus affected was a mere 550 kanals of virgin meadow in Dobhi Ghat in Gulmarg. But its implications were far wider given that this would have set the precedent for transferring other scenic spots. Because of public protest including by the Kashmir Chamber of Commerce and Industry (KCCI) which claimed that leasing of Gulmarg, Sonmarg and Pahalgam to outside investors as being akin to “Selling of Kashmir”, the government had to back down. Interestingly, the KCCI claim that there are huge local deposits in banks to finance 14 tourist spots (The Times of India, May 3, 2006). Aggregate deposits of Rs 19,052 crore in June 2006 tend to lend weight to this claim (ES, p 235). It is also worth noting that the credit-deposit ratio in J and K of 44.48 per cent is less than 71.63 per cent for the country. In fact, per capita credit disbursed in J and K at Rs 7,327 is nearly half that of all-India average of Rs 13,769 (ES, p 29).

    If land is one area of concern, the other issue is water. The Indus Water Treaty (IWT) has been a sore point because the governments of India and Pakistan came to an agreement, over the heads of the people of J and K, whereby the Indus, Jhelum and Chenab waters were virtually handed over to Pakistan, whereas the Sutlej, Ravi and Beas rivers water were given to India. Since, these latter three rivers do not traverse J and K whereas the first three do, it meant that J and K’s rights as the upper riparian party, were not adequately protected. The IWT places restrictions on both use of water for irrigation and for harnessing power, because flow of water cannot be interrupted or reduced by building reservoir or controlled through placing any impediment in the path of water flow. Several political parties have pitched for compensating J and K for an estimated loss incurred of over Rs 6,000 crore because of the IWT. Apart from this in the last 60 years, J and K with an enormous hydro-electric potential has lagged behind and the state, has remained an “area of darkness”. And even projects which exist do not meet J and K’s own needs. The ES remains oblivious of the public debate in J and K.

    According to the ES, out of the identified potential of 16,200 MW of hydroelectric potential, only 1,481 MW has been tapped. Of this, state generation capacity is a mere 311 MW as against 1,150 MW in the central sector. Of this measly 311 MW, 175 MW is gas-based,

    17.37 MW diesel, leaving just 118.73 MW of hydroelectric power. Moreover, actual generation in the state sector is 277 MW. Besides, supplies from central power units (CPU) fall in winter to 600-610 MW, as against the state’s entitlement of 975 MW

    Call for Papers Annual Conference on Money and Finance in the Indian Economy

    The Indira Gandhi Institute of Development Research (IGIDR) will be hosting its 10th Annual Conference on Money and Finance in the Indian Economy on 18 and 19 January 2008. Submissions are invited for contributed papers on all theoretical and empirical aspects of monetary and financial economics. Papers on the following topics are particularly welcome:

  • 1. Financial stability, globalization and monetary policy
  • 2. Financial inclusion and microcredit
  • 3. Financial innovation and derivatives: Laying off or increasing risks?
  • 4. Global imbalances and exchange rate regimes
  • 5. Capital account convertibility or controls or a combination of the two?
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  • Ms. Ananthi [Email:]
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  • 3. All the papers should reach on or before 14th December 2007, at the above email addresses. All submissions will be reviewed and the authors will be informed by 31st December 2007.
  • 4. A few papers submitted and presented at the Conference could be considered for possible publication in the Journal of Quantitative Economics or Journal of Macroeconomics and Finance in Emerging Market Economies.
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    Ashima Goyal, R. Krishnan, Naveen Srinivasan Indira Gandhi Institute of Development Research, Gen. A. K. Vaidya Marg, Goregaon (East), Mumbai - 400065, India.

    Economic and Political Weekly October 6, 2007

    from CPUs as its share. Thus the actual availability of power is lower and in 2005-06 the deficit ran up to 1,000 MW. It is estimated to be 1,250 MW for 2006-07. Power generation throws up sharply how even where the state has a natural advantage, it has become dependent on outside sources to meet 80 per cent of its requirement. For long, J and K has been asking New Delhi to transfer the 390 MW Salal project, which is free of any encumbrance, having paid for its cost. This would have enabled J and K to not just reduce its outlay on power purchase, which is running between Rs 1,300 and Rs 1,500 crore annually, but also earn additional revenue of an approximate Rs 1,000 crore. This would have reduced the deficit in the power sector, running at Rs 2,000 crore – which is met by a special grant from New Delhi.

    On December 22, 2006 the Rangarajanled committee recommended that the 390 MW Dulhasti hydro project should be transferred to the state instead of the 390 MW Salal project. Dulhasti in Doda has been plagued by cost and time overruns. The project began in 1985, work commenced in 1989 by a French consortium. The project cost then was Rs 1,290 crore. In 1992 when some of the French engineers were abducted, the consortium pulled out. Four years later, Jai Prakash Industries was roped in to complete the project by October 2003. The project cost ran to Rs 3,900 crore. Now it is supposed to be completed by 2007 end while the cost has gone up to Rs 5,200 crore (of which Rs 1,500 crore is interest). It is this project which the panel wanted transferred. Although the panel says this transfer will be at “accessible tariff” and it is for the centre to compensate the National Hydel Power Corporation (NHPC). Now the J and K chief minister too has argued for transferring the Dulhasti project to J and K in order to compensate for the losses suffered by J and K (The Tribune, July 2, 2007). The problems for J and K do not stop here. The Baglihar 450 MW project cost overrun will cross Rs 1,000 crore. And as a result, the per unit cost is supposed to rise from Rs 2.50 to 3.33 per unit. (Economic Times, October 28, 2006). The J and K state has committed Rs 3,500 crore of its money for the project (Economic Times, December 2, 2006).

    Once the Baglihar project comes on stream, this dependence on CPUs will reduce and so will the state’s power deficit. But there is some apprehension that the rising cost of Baglihar and Dulhasti projects with their higher per unit costs could compel the state to export this power to service its debt. Social sector: As for education, literacy according to the 1981 Census was 26.27 per cent when the all-India figure was

    43.57 per cent. Since no census took place in 1991 in J and K the next figure from the 2001 Census shows that it had risen to 55.52 per cent against 64.84 per cent for India as a whole (p 130). Between 2002-03 and 2005-06, 3,542 new primary schools were opened, 2,612 primary schools upgraded to middle level, and 5,839 centres under the Education Guarantee Scheme were opened. Without minimising the significant progress made there is another side of the story. On August 28, 2000 a scheme called Rehbar-e-Taleem (ReT) was begun in J and K. Under this scheme 26,363 educated unemployed were employed at Rs 1,500 per month on a five-year probation. In addition, 6,006 teaching guides were engaged. In July 2006, more than 32,000 teachers thus employed went on a protest and demanded an end to “contractual exploitation” and wanted a reduction of the probation period from five to three years, a hike in the monthly stipend, etc. The state government assured them that their jobs would be regularised. Last January 10, they again protested non-regularisation. On January 24, the deputy minister of education informed the legislative assembly that ReT would be “regularised” subject to a five-year probation. He also claimed that whereas in the first three years they would receive an honorarium of Rs 1,500 per month, in subsequent years it would be Rs 2,000. And that the proposal to raise the honorarium to Rs 3,000 was under “active consideration of the chief minister”. Importantly, 8,603 posts of teachers and non-teaching staff are lying vacant. These include 2,167 posts of lecturers, 1012 of masters’ courses, 5,424 of teachers and 297 of lab assistants. So far 3,242 posts have been referred to the state services selection board. So what accounts for the delay in regularisation?

    Fiscal Constraints

    In Chapter 12 the ES notes that “the weakness of J and K state finances arises not from lower revenues but higher expenditures” (p 230). The ratio of revenue expenditure to the GSDP of J and K at

    39.2 per cent is more than twice that for the all-state average of 17.4 per cent, although only marginally higher than the north-eastern states, where it is 38.8 per cent, as computed by the Twelfth Finance Commission. And J and K’s revenue covers only 25 per cent of its expenditure. The ratio of central transfers to total revenues which, at 78.6 per cent for J and K, is twice that for all states at 38.5 per cent, compares with the 67.6 per cent for the north-east. But J and K’s debt to GSDP ratio is higher than others and has been 50 per cent to start with. Thus, more than 50 per cent of J and K’s own revenue goes towards servicing debt.

    However, despite

    low own revenues, the public expenditure level of J and K, at 51.4 per cent in contrast to 20.2 per cent for all states is higher than that for all states as a percentage of GSDP and on a per capita basis, the capital expenditure in J and K of Rs 2,285 is more than thrice the all-state average of Rs 626, albeit marginally higher than for the north-east which is Rs 1,924. If revenue expenditure is included then J and K’s total expenditure of Rs 9,661 is not very different from that for the north-east (Rs 8,637). But it is nearly thrice the all-India average of Rs 3,969. And yet, these higher public expenditures in J and K have not translated into growth mainly for two reasons. The first reason is the higher unit cost of service delivery – the cost of providing schooling to a child or the cost of providing healthcare to person are typically higher than the all-India average because of sparse population density, difficult terrain, poor connectivity and a host of other causes. The second reason is that the beneficial impact of public expenditure spills over beyond J and K as much of the contractors payments are transferred to and purchases are made beyond the state – a phenomenon referred to as ‘missing multiplier’ (p 232).

    This is as clear an admission as one will get about the limited impact of public expenditure.

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    Economic and Political Weekly October 6, 2007

    The ES also advocates a “moratorium on filling vacant posts” (p 171). But the government, going by the introduction of “employment intensive growth” in its budget 2007-08, is moving to fill vacancies running at 23,000. In addition the state government has plans to increase the size of the armed police force to nearly 1,00,000. In any case, recruitment for five battalions of the India Reserve Batallion (these are raised by respective states but fully financed by the central government) and five battalions of J and K police means a further job creation for 11-12,000 youth. (In addition J and K has demanded another 15 battalions or 16,000 additional police posts.)

    On December 11, 2005, barely a month after taking over as chief minister, Ghulam Nabi Azad claimed that 50 per cent of the 2,73,508 government employees “had no work to do”. If true then to enlarge government employment would add to the ranks of those who have little or no work to perform. Dependence on the centre to cover the revenue deficit is likely to go up. Of course it is being hoped that with an increasing number of tourists, transfer to J and K of the Dulhasti project, and the likely completion of the Baglihar project’s first phase by end 2007, J and K will raise its own revenue. But the additional burden of government salary and pension will more than wipe out any increase in revenue.

    Summing Up

    The ES for J and K does show how despite the disruptions and privations caused by war, economic performance has improved. Quite apart from sweeping statements about employment in horticulture and the importance of tourism, it does, however, skirt the fact that without addressing the issue of occupation of land by troops and restrictions placed on the use of water resources, both intricately linked to a political solution, problems will remain in the path of realising the full economic potential of the state. The opening of some sectors of economy such as tourism to the outside investor and promotion of unfettered tourism in the Himalayas can cause environmental degradation.2 All these steps will not reduce J and K’s dependence on New Delhi. The ES lists several reasons why J and K’s “vulner ability should be taken into account in programmes of assistance provided by the union government” and considers as “appro priate” a “relatively higher level of official assistance” (p 5). It pitches for a sensitive, environmentfriendly exploitation of non-renewable resources and wishes the government of India supports J and K “both with advice and finance”.

    While improvement in economic performance and employment is welcome, these cannot replace the importance of a search for a democratic solution to the six-decade-old dispute which alone can restore the dignity of the people and bring about sustainable progress.




    1 The People’s Democratic Party, led by Mufti Mohammed Saeed, in a resolution adopted on February 11, 2007 states “with distress…that over the last 15 years thousands of acres of orchards and agricultural land have been acquired in the state particularly in Kashmir Valley, districts of Rajouri, Poonch and Doda by the Armed Forces”. The resolution also says that “many institutional buildings including hospitals and schools have been occupied by the armed forces”. In 2003 a member of parliament, Abdul Rashid, was told in Rajya Sabha that the army and Central Para Military Forces (CPMF) have 41,594.767 acres (3,32,760 kanals) in J and K. This comes to about 170 sq kms for which records exist. But an equal amount, if not more, is under illegal occupation, according to The Economic Times (December 6, 2006). In 2006, it was reported that the army’s Northern Command has acquired 8,000 kanals in Awantipora. There have also been reports of Indian Air Force wanting land for a new air base in Manasbal and in the same area three Rashtriya Rifles (RR) has submitted a request to acquire nearly 1,500 kanals adjoining its garrison. Manasbal also highlights another feature of land occupation. Villagers complain that since the irrigation canal passes through land which the 3RR wants, irrigation will turn into an instrument of control.

    2 See ‘Pilgrims Progress Causes Regression’, EPW, July 8, 2006. Furthermore, M N Koul, president of the Geomorphological Society of India is reported as saying, in response to the melting of the Amarnath shivalingam, that the effect of the 40 fold increase in the number of pilgrims between 1989 and 2006 and the presence of security forces in large numbers, “(t)ranslated into climatic terms, nearly 10,000 pilgrims on a daily basis, with +37 degree Celsius body temperatures are breathing out carbon dioxide and the heat trapping greenhouse gases, in and around the (Amarnath) cave, can be dangerous”, Indian Express, July 4, 2007.

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    Call for Research/Study – Aspects of child rights and status of children

    Proposals are hereby invited to study aspects of child rights and the status of children in the 0-18 year’s age group. Studies to be considered under this call shall include but are not restricted to the following:

  • Status of right to education, children’s participation in schools, conditions of public institutions such as hostels, ashram schools, shelter homes, orphanages and so on;
  • Status of children’s access to right to health and nutrition, functioning of the ICDS program and challenges of universalisation;
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    The proposals should reach the undersigned within 30th October, 2007 positively.

    Member Secretary National Commission for Protection of Child Rights

    Economic and Political Weekly October 6, 2007

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