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| India-Pakistan |
| Kashmir's thriving economy |
| 2007-05-21 |
| Four years ago, when Jehangir Raina, a UK-based Indian businessman, decided to start an information-technology company in Indian Kashmir instead of in hot spots like Bangalore and Gurgaon, business analysts frowned at the risky plan. But Jehangir Raina saw in this conflict zone what only a few others did: business potential. "Initially, our clients were reluctant to do business with a company not based in a metro, but in a conflict zone in the Himalayas," the Indian businessman told ISN Security Watch. "Once they saw potential in us, their reluctance disappeared." Over the years, I-Locus, Raina's market-research IT company, has managed to woo more than 200 international clients, including Microsoft and Wipro. Raina has come to believe that more than the threat itself, the perception of threat dissuades the outside world from looking at Kashmir as an investment option. His business success story seems awe-inspiring in a region that has been a crucible of terror and fear for 17 long years. Nearly 40,000 people have died since the insurgency began in Kashmir in the early 1990s. However, Kashmir 's economy, growing at nearly 5 percent - although sluggishly compared to India 's national average growth of 9.2 percent - defies the myth that conflict must stymie economic potential. Surprisingly, Kashmir negates all perceptions of a troubled region. Unlike most conflict zones, there are no bombed out houses here, no empty shops, and few people living in abject poverty. What is conspicuous, in fact, is a booming real estate market and a populace that has formidable spending power under the circumstances. That was enough reason for HDFC, a private bank, to open a branch in Srinagar, the state's summer capital, two years ago. Like I-Locus, many prudent financial analysts in the country blanched at HDFC's ambitious move. No private financial institution was then willing to risk investing in a conflict zone often roiled by bomb attacks. "Many businessmen are scared of coming to this dangerous place," Adil Nisar, a senior manager at HDFC, told ISN Security Watch during an interview at his plush office in central Srinagar. "We dared." That daring is today earning the bank rich dividends. After a short period it has accumulated over 8,000 accounts and has fetched business worth nearly INR 2,500 million (approximately US$61 million). This year, the bank plans to start five more branches in the state, two of which will be in Baramullah and Pulwama, both districts often in the news for militant activities. The move, although potentially dangerous, demonstrates instinctive business acumen. HDFC hopes to cash in on a rich orchard-owning clientele that has long felt the void of a full-service bank. Extreme poverty is rare in Kashmir. According to government statistics, in the rural and urban areas, only 3.97 percent and 1.98 percent of Kashmiris, respectively live below the poverty line. In the rest of India, those figures are 27.09 percent and 23.02 percent. Thanks to land reforms in the early 1950s by Sheikh Abdullah, Kashmir 's first prime minister, a majority of Kashmiris are land owners, something that has contributed to the personal wealth of a large population here. Ironically, the conflict, too, has enriched Kashmir in some ways. Over the last 17 years, the state has built a large conflict-economy with the central Indian government in New Delhi granting it special treatment. Since 1990, when the insurgency exacerbated security problems, 100 percent of Kashmir's budget has been financed by New Delhi, of which only 20 percent is repayable. Generally, the central government funds only 20 percent of the cost of federal state development, requiring the states to raise the rest. Also, even though tourism, Kashmir's main revenue earner, declined during the years of militancy, the huge expansion of the Indian armed forces in the region since the insurgency began made up for some of the losses, say local businessmen. Over 600,000 Indian military personnel, all potential buyers for local products, are currently based in Kashmir. Shifting fortunes But now that the violence is ebbing, Kashmir's fortunes may shift, Daniel Markey, senior South Asia Fellow at the Council on Foreign Relations in Washington, says in an email. "Now, we may be seeing the beginnings of a post conflict economy in Kashmir," he says. "Reducing violence means that the cash of the conflict economy can now safely be invested in the state to build lasting businesses." Kashmir's political class seems eager to slough off its image of a conflict-zone. Setting an ambitious target of 8 percent growth in the next few years, Tariq Hameed Karra, Kashmir's finance and planning minister, says the region's economy is at a "take-off stage." The government, in a bid to lure investors, has for the last few years been offering industries setting up operations in Kashmir 100 percent excise tax exemption for 10 years from the date of commencement of commercial production. In its annual budget this year, India 's finance minister announced that this tax holiday would continue for five more years, until 2012. Initiatives in IT are new in a state where almost 90 percent of the population has long eked out a living on agriculture, handicrafts and tourism. Buoyed by the tax incentives offered by the government, BQE Software Inc. set up office in Kashmir six years ago. Since then, its manpower has gone up from six to 40. A software company based in Torrance, California, and owned by Shafat Qazi, a Kashmiri-American, BQE sources a major part of its software development to its Kashmir office. Kashmir offered Qazi some advantages. One, the work force came considerably cheaper, nearly at half the rate compared to other Indian cities. Two, setting up business infrastructure was cheap and relatively free of red tape. In a region that virtually shuts down after the sun sets due to security concerns, observes office manager Ikhlaq Bhat, his staff's office hours have transcended the work culture generally prevalent in this troubled region. "Now the staff works late hours," Bhat tells ISN Security Watch. "Work continues even if there's a hartal [strike] in the city, or even if a bomb goes off." A drive down a smooth macadamized road 10 kilometers from Srinagar leads you to Rangreth, a mammoth, high security industrial estate that houses some 189 small and big business and industrial units, including fruit processing, electronics, power generation and IT. Set up in the mid-1990s by the Kashmir government, this was intended to woo businesses. Amid the whirring of generators in the estate, it is hard not to notice a few units that remain desolate. A few industries, because of security concerns, packed up and left Kashmir for good in the 1990s. In the last couple of years, some as enterprising as I-Locus and BQE, have begun exploring opportunities here again. Even if there is a terror attack close by, work continues unabated in this cocooned estate. The government is doing its best to spruce up infrastructure to lure businesses. In the vicinity of the estate, the Software Technology Park of India (STPI) has come up which provides broadband connectivity. However, over the years, the scale of businesses has remained very small compared to the rest of India. In a country bursting with the excitement of an economic boom, as India Inc. has taken a strident leap, Kashmir Inc. is still far behind, local businessmen rue. At US$419, the per capita income of the region is only two-thirds of the national average of US$632. Unemployment in Kashmir - regarded to be a reason that lures the youth towards militancy - stands at 4.21 percent, according to the National Sample Survey Organization (NSSO), against a national rate of 3.09 percent. Kashmir, according to government statistics, today has 183,000 unemployed youth in the highly educated category. Analysts say that Article 370, a piece of legislation that guarantees autonomous status to Kashmir, is also a big obstacle towards the economic development of the State. Article 370 prevents non-Kashmiris from purchasing land or any immovable property in the state, thus dissuading investors from showing interest. According to government statistics, the militants declared hartals disrupting work for 1,356 days between 1990 and 2003, forcing many private businesses to remain shut on many of those days. Nissar Ahmad Baba was forced to dissolve his business of electrical spare parts in 1991 after perpetual hartals compelled him to shut shop for more than 100 days of the year. With a government loan, however, in 1997, he started Alba Power, a small-scale industrial unit manufacturing transformers in Rangreth. In the in the last two years, Alba Power has emerged as a leading manufacturer of transformers across northern India. But manufacturers like Alba Power are forced to keep the scale of their operations small to minimize risks and have a small, yet assured profit. Despite the potential, heavy- and large-scale industries in the valley have not been set up due to a dearth of investments. With nearly 600,000 Indian security forces in a state home to some 8.5 million people, Kashmir has the highest soldier-to-civilian ratio in the world. And concerns over the security situation are still keeping investors at bay. "We need more private investors in Kashmir," says Abid Shah, a supervisor at Alba Power. "This is a state with talented human capital. It still needs to unlock its full potential." |
| Posted by:John Frum |