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For A Greener Valley

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[New Tracks: The Baramullah rail service is one of the few infrastructure projects in the state (Pic by Mohid Amin War) So prized, yet so wretched! Jammu & Kashmir (J&K) is worth going to war for, yet it is an abject last on BW’s Indian states’ investment competitiveness ranking. The political unrest in Kashmir since 1989 has prevented the state from making the transition from a basic economy to one thriving on modern skills and technology. The conflict has ensured that administration is the dominant economic activity in the state. Still, there has been a slight thaw in the state — which has virtually been in economic ice age for quite long — in the past few years with the central government subsidising capital and lowering taxes to nudge corporate India to invest, at least in the peaceful part, Jammu. Related Stories How We Did It? State Of Our States The States Quo The Regional Force Federal Dividends The Matrix Of Competition Jack Of All Trades Southern Success Pride And Prosperity Busy With Business Importantly, the new chief minister of the state, Omar Abdullah, has started out by putting economy before politics. Within a fortnight of taking over, he visited Mumbai to convey that message to India Inc. and to exhort them to believe in the future of J&K. However, Abdullah will have to offer more than just hope to bring capital home. There is a lot that needs fixing in the state before it figures on the investment map, especially when there are more economically evolved and business-friendly states in the race to attract industry’s interest. He may have to begin with improving the key development indicators of the state, which look quite dismal. The literacy level is low at 55 per cent, with female literacy at just 43 per cent. The gender ratio is adverse with just 900 females for every 1000 males. And there are only 21 phones per 1,000 individuals. Also, the state government finances are rather twisted, because of insurgency in Kashmir. More than half of its 2008-09 budget of Rs 18,400 crore is funded by central grants and nearly 40 per cent of the expenses are on public administration. Its own tax revenues account for just 20 per cent of the total expenditure. The bloated bureaucracy of the state does not help the cause of investors either. Companies that have invested in Jammu — everybody understandably avoided Kashmir — complain about the vexing attitude of the local officialdom. “They apply the rules in letter and not in spirit,” says one harried investor. “The local babus are consistently difficult,” says another. To make matters worse, the state has recently lost its most luring sop from the central government — a complete excise duty refund. In the 2008-09 budget, the Centre restricted this refund to the value-addition done by factories located in J&K. Ram Sahai, chairman of the PHD Chamber of Commerce and Industry’s (PHDCCI) state unit, says that the inflow of investment has come to a standstill since then. “After the Prime Minister’s Reconstruction Package for J&K in 2002, the state received nearly Rs 5,000 crore investment from outside, but with the central government diluting the incentive half-way into its promised tenure, the feasibility of the investors’ units in the state has gone awry,” he says. {mospagebreak} Raising Hope: Chief Minister Omar Abdullah is keen to put economy before politics Rajan Verma, chief financial officer of Dabur India that has an FMCG plant in Jammu concurs, “The sole selling point of J&K was the tax breaks, as it does not offer either a big market or a talented work force.” Dabur is not planning to invest more than the Rs 35-40 crore it already has. The company now plans to expand in other hill states with tax sops such as Himachal Pradesh and Uttarakhand. Sun Pharmaceuticals, which too set up a formulations factory in Jammu to take advantage of the tax breaks, is also not planning any further investment in the state beyond routine upgrades. The state government has pleaded with the Centre for restoration of the full excise benefit, but in vain. But industry still has a 3 per cent subsidy on working capital, a 35 per cent subsidy on capital investment along with a five-year no income tax break and free insurance for plants and machinery. The nearly 100,000 traders in the state are not so lucky and are now demanding similar incentives. According to Sahai, commerce is and will remain the lifeline of business in the state and the quickest way to boost the state economy is to help traders. PHDCCI has asked the central government to extend the 3 per cent subsidy on working capital to trade as well. The state’s businessmen want expansion of trade with Pakistan Occupied Kashmir (POK) to boost local commerce. PHDCCI has sought opening of more border routes in addition to the Muzaffarabad-Uri and the Poonch Rawalkote roads. It is also lobbying with the government for permission to make phone calls across the Line of Control (LoC) and reciprocal opening of bank branches. But, India and Pakistan are yet to settle the currency denomination for such trade. Also, both countries have put the same items on the permitted trade goods list such as fruits, beans and rice. According to Sahai, the two countries should make the list depending on competitive advantage. He says Indian Kashmir can supply manufactured products such as pharmaceuticals while POK could support the food processing and handicrafts industry on the Indian side. “Lack of communication and banking facilities and illogical trade items’ list have resulted in trade across LoC not taking off,” says Sahai. There is, however, a silver lining to the J&K saga, as things are slowly but surely getting better. In 2002-03, the state government’s budget was less than Rs 10,000 crore, half of what it is now. The per capita annual income has gone up by a third to Rs 21,813 since. Central schemes worth Rs 1,150 crore for improving education, health and roads are helping the rural population. The state is also scaling up power generation significantly — its power generation more than doubled to about 750 MW last October with the commissioning of the 450 MW Baglihar Phase 1 hydel power project. It is now aiming for nearly 3,800 MW to monetise its hydel resources. Not to forget, the Kashmir region finally has a railway line, even though it will take some years before one can travel to Srinagar by train. Omar Abdullah will have to move mountains, sometimes literally, to get J&K on the list of preferred locations for investors. He has to live up to the billing of being the one great hope for the state to shed its medieval politics and embrace a modern economy. feroz(dot)ahmed(at)abp(dot)in (Businessworld Issue 17-23 Feb 2009)