Will new policies cut J&K’s investment chill?
Premium- A flurry of corporate promises, in the last three months, have raised hopes but challenges remain
SRINAGAR : They all look deserted—the roads, the spacious compounds, the rows of factory buildings with their sloping roofs and dour, near-windowless brick walls. The Lassipora Industrial Growth Centre (IGC) in Pulwama district of Jammu and Kashmir (J&K), 25 km southwest of Srinagar, houses 400 industrial units including 25 large cold storages, intended to encourage agribusiness, especially in apples. And yet, on a weekday afternoon, there are hardly any signs of activity. “Our situation typifies the state of J&K’s industry," said Haji Muzaffar Ahmed, president, IGC, Lassipora. “Work is hampered by both the erratic power supply and the 20 km distance from the nearest national highway, which makes our transportation costs very high."
A dramatic industrial transformation was expected once Articles 370 and 35A of the Indian Constitution were abrogated on 5 August 2019, taking away J&K’s special status. The central government held that the special status had been a hurdle for J&K’s industrial development. Non-Kashmiris could now own land and immoveable property in the state, unlike before, which would encourage them to invest.
A host of announcements, intended to improve ease of doing business in J&K, have indeed been made. In February 2021, the Centre released a long list of incentives for new industries being set up in the union territory (UT). The department for promotion of industry and internal trade notified the “New Central Sector Scheme for industrial development of Jammu and Kashmir" with a financial outlay of ₹28,400 crore. The scheme offers capital investment incentives, capital interest subventions and goods & services tax linked incentive among others to both manufacturing and services enterprises.
In April 2021, the UT government, too, set forth a new industrial policy comprising another set of subsidies, exemptions and loan subvention schemes to encourage fresh investment.
Then, in August last year, home minister Amit Shah made an appeal to industry. “The development of J&K is not the responsibility of the people of J&K alone. It is part of our country, so its development is our responsibility as well," he said. “Only when you go there ... will it translate into a relationship of the heart."
Following these inducements, some promises to invest have indeed been made. “We have received applications worth ₹31,000 crore from investors in various categories," said Anu Malhotra, director, Industries, J&K. “We are hoping for more from different corners of the country soon."
Will the promises turn into reality? The state of Lassipora seems to suggest that nearly two and a half years after the abrogation, little has changed. Why are industrialists from outside the UT shy of big-ticket investments? We will come to this later. First, let us check out what the larger corporates plan.
Promises Galore
A flurry of investment promises came in the last three months.
JSW Steel, in October last year, committed to setting up a ₹150 crore facility to make 120,000 metric tonne per annum of colour-coated steel at the Lassipora estate. In a ceremony, home minister Shah handed over the land allocation papers to Sajjan Jindal, chairman and managing director of the JSW group.
Apollo Hospitals has declared that it will set up a 250-bed hospital in Jammu at an investment of about ₹200 crore. “It will later be expanded to 500 beds," a spokesperson said. Sources in the administration also claimed that both the Tata Group and Reliance Industries had shown some interest in investing in sectors such as information technology, tourism, skill development, horticulture and defence.
In late December, addressing a real estate summit in Jammu, lieutenant governor Manoj Sinha mentioned that hefty proposals have been submitted for J&K’s real estate sector alone. At the same summit, the National Real Estate Development Council (Naredco) signed 39 memoranda of understanding (MoUs) for ₹18,300 crore of investment—19 of them in the residential sector, the remaining in commercial. A second such summit is proposed for May 2022.
Since then, the Dubai-headquartered Emaar Group has announced its intention to build a 500,000 square feet mall in Srinagar, while leading retailer, the Lulu Group, also from Dubai, has said it will set up a ₹200 crore food processing and logistics unit. A number of other Dubai-based giants–the Al Maya Group, MATU Investments, GL Employment Brokerage, Century Financial, Noon E-commerce and Magna Waves– have also signed memoranda of understanding with the local government, though the details of their proposals are not known.
Reality Check
However, for all the incentives offered and commitments made, hardly any industrial unit owned by a non-Kashmiri has yet been set up since the abrogation.
The reasons are longstanding: the Valley has frequent power outages; the distances over which raw materials and finished products have to be transported, as Haji Muzaffar Ahmed noted, is a problem. The mountainous terrain, the relatively small local market, and the political uncertainty, with the ever-present threat of terrorism and violence are the other headwinds. Roads are not only in bad shape, but many of them, including the Jammu-Srinagar national highway–the Valley’s only road link with the rest of India–remain snowbound and closed for long stretches in winter.
The clampdown imposed after the abrogation, when communication links remained suspended for months, followed by the lockdowns and restricted activity due to the covid-19 outbreaks in 2020 and 2021, have made matters worse.
Indeed, a recent report by the Federation Chamber of Commerce and Industry, Kashmir (FCIK), maintained that J&K had suffered losses of ₹40,000 crore and 100,000 jobs due to the clampdown and subsequent lockdowns. The first J&K Global Investors’ Summit, initially set for October 2020, was postponed to mid-2021, following lack of sufficient interest, and later, following the renewed covid-19 outbreak, abandoned.
“Leave aside the political situation, or even the bureaucratic set up, it is very challenging for beginners to get an entry into Kashmir," said Saba Bhat, a Kashmiri by birth, who runs a software firm and a construction company in Delhi. “I would like to start something in Kashmir, but non availability of raw materials at the price at which they can be obtained in Delhi is a major bottleneck. The finished product will not be able to compete on price. Selling is also a problem because the local market is so small."
Economists who have studied J&K agree with her. “This is a landlocked area, where in addition, economic activity is often disrupted due to political instability," said Delhi-based economist Santosh Mehrotra. “Unless basic concerns are addressed and the political situation is stable, no one will want to waste money by investing in Kashmir," he added.
Other economists agree with that view. The industrial climate can’t change unless the security situation is perceived to be normal.
Meanwhile, the problems of existing industries in J&K have not yet been addressed. Shahid Kamili, president, FCIK, put the new concessions announced by the Centre and the UT government in perspective by pointing out that industry in J&K had always been given incentives in the past to compensate for the region’s natural disadvantages. But, with the abrogation and J&K’s conversion from a full-fledged state to a union territory, all the earlier ones had automatically lapsed. “The earlier concessions are gone and the existing industrial set up is in shambles," he said. “Even before the 2019 clampdown and the 2020-21 lockdowns, we had been reeling from the impact of the severe floods of 2014 and the political disturbances of 2016."
Kamili noted that he had been part of a delegation of Kashmiri businessmen, which recently met home minister Shah in Delhi. “We explained why industrial units in Kashmir had been shutting down over the years and pointed out that many existing ones are also near closure," he said. “We demanded that incentives which had been guaranteed earlier should also be added to the new industrial policies announced last year. The government only needs to pass an administrative order to do so," he added.
Some well-meaning government initiatives, too, have not had the desired impact. Kashmiri businessmen were encouraged, for instance, to list on the government’s e-marketplace (GeM), which would provide their products and services a nationwide market. “But it has done us no good because we cannot compete with enterprises based outside J&K," said Imran Murtaza, who heads the Industrial Association Khunmoh in Srinagar district. “Our products are costlier because of the unavailability of raw materials locally."
Similarly, the introduction of GST in July 2017, and subsequent abolition of entry tax in the state from January 2020, has made it even more difficult for locally manufactured goods to compete. Udhay Vir Singh, president, Jammu Industrial Estate, repeated Haji Muzaffar Ahmed’s Lassipora story. “Our industrial estate is categorised as ‘A’ grade, and yet we still lack basic facilities like adequate water and road connectivity," he said. “With the toll gate at Lakhanpur on the Punjab border done away with, and GST replacing Value Added Tax, goods from outside are even cheaper than before. The backbone of our industries is broken."
The Road Ahead
Despite the setbacks of the last decade, the J&K economy has not done too badly. The gross state domestic product (GSDP) increased at a CAGR of 8.51% between 2015-16 and 2020-21 to reach ₹1.76 trillion ($24.28 billion), according to the India Brand Equity Foundation (IBEF), a trust established by the department of commerce, ministry of commerce and industry of the government of India. J&K’s net state domestic product (NSDP) increased at a CAGR of 8.61% from 2015-16 to 2020-21 to touch ₹1.49 trillion ($20.49 billion).
Unemployment, however, remains very high at 15% as of 15 January, more than double the national rate of 7.1%, according to the Centre for Monitoring Indian Economy (CMIE).
Though results are still not visible on the ground, the union territory government has been pushing to improve both the power situation and connectivity. Transmission lines are being overhauled and power substations upgraded. From the abrogation up to July 2021, 52 new power projects have been inaugurated. Four new national highway projects, estimated to cost ₹3,612 crore, have been promised, while the 8.5 km long road tunnel between Qazigund and Banihal, which reduces travel time between Jammu and Srinagar by 90 minutes, has finally opened.
The 356 km railway line from Jammu to Srinagar and Baramulla, in the making since 2002, is expected to complete its final Katra to Banihal stretch and become operational by August 2022, which will connect the Valley to the rest of the country by rail for the first time.
The government has also acquired a 6,000-acre land bank, spread across both Jammu and the Valley, to house the new industries it expects to draw, nearly half of which has already been transferred to the department of industries and commerce for leasing. It hopes to set up 292 new industrial zones, whose locations have been finalized–150 of them in Jammu and the remaining in Kashmir. It insists that requests for land allotment, on a 99-year lease, will be cleared within a time bound period. Separately, to help industries acquire private land, it has expressed willingness to allow conversion of agricultural land into non-agricultural.
Delhi-based economist Megha Nath is optimistic. “Let’s give J&K another chance," she said. “Investors entering J&K should start with products which have a large local market, so that marketing is not a worry, or go into services like tourism or health. I also hope the new industrial areas the government has earmarked are close to main roads which will keep investors’ transport costs in check."
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