Home >News >India >A tale of two UTs: Can division have multiplier effect?

Jammu and Kashmir has been separated into two Union territories— J&K and Ladakh. The undivided region’s per capita net state domestic product was at 75% of the country’s average. The UTs, thus, have a long way to go on several counts. Mint looks at their economic potential.

Jammu and Kashmir derives a large part of its revenue from tourism and trade of saffron, dry fruit, wool, apples and handicrafts. But the region also holds great potential for investment in air travel, railways, power and horticulture.

Can J&K reap demographic dividend?

According to Census 2011, the state of Jammu and Kashmir had 4.32 million workers. Just five of the 22 districts in the state were home to 1.9 million of the workers. In decreasing order, the districts are Jammu, Srinagar, Anantnag, Baramula and Rajouri. About 54% of the total workforce was involved in work not related to agriculture or running household enterprises. Further, only about 61% was engaged in full-time work. Like most other states in India, education and skills are a challenge in J&K as well. Of the state’s population of 12.5 million, 26% were in the age bracket of 20-34 years—wherein lie the seeds of demographic dividend. But only about 13% of these 3.17 million young men and women was either a graduate or held a diploma or certificate. Moreover, as much as 26% of the undivided state’s population in this age bracket was illiterate, while another 26% had studied only up to Class VIII.

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What’s the higher studies set-up like?

The state lacks key infrastructure to nurture its young population. Less than 25% of pass-outs from schools enter a college, as per the state’s 2019-20 Budget documents. Around 800,000 primary and middle school students sit on the floor to study, given the minimal infrastructure in schools. The total number of seats for the state’s medical students were increased rising from 500 to 900 recently. It doubled the number of government medical colleges to eight. Construction of two All India Institute of Medical Science campuses, one each in Jammu and Kashmir region, is underway. Each will add 100 MBBS seats and 60 B.Sc (Nursing) seats. Jammu has an Indian Institute of Technology offering around 240 seats, while Srinagar has one of the oldest National Institute of Technology in the country. But in all, the region has no more than 4,000 engineering seats.

What about its agri economy?

The state can broadly be divided into three regions—the Kashmir valley, the plains of Jammu, and the hilly areas of Ladakh. Considering that the region has been in the grip of militancy for almost three decades now, large-scale and formal corporate investment has mostly stayed away. Most private investments have been made in small-scale units and cottage industries, and centred around tourism and agri-based manufacturing of products such as jams, saffron, sauces, spices, pastes and fruit juices. Units making carpets, silk cloth, shawls, pottery, copper and silverware are popular too. Jammu and Kashmir’s cold-to-temperate climate makes it ideal for growing apples, pears, apricots, oranges, peaches and plums, among other fruits.

It also is a big producer of dry fruits such as walnut and almond. The region had produced around 1.88 million tonnes of apples in 2018-19, according to the Directorate of Horticulture, Kashmir. The valley’s output of fruit and dry fruit is 8-10 times that of what is grown in the plains.

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What are the region’s major industries?

Kashmir is renowned for its high quality willow that’s ideal for making cricket bats. Well-known brands such as Slazenger, SS and SG are known for using this region’s willow. Also, the good quality of farm produce, such as fruit, dry fruit and spices, has prompted companies like Dabur India to set up manufacturing facilities for a variety of health and personal care products, including Hajmola, Odomos and Gulabari. Units making cotton yarn and man-made fibre yarn, fabric, and home furnishing are also key to the region’s economy.

The state-owned Jammu & Kashmir Cements, with its Chenab and Jhelum brands, is also a prominent player in the market. Other private cement makers include Shiva Industries and Kamdhenu Cement.

It is also home to coal- and gas-based power capacities, but a large part, as much as 76% of its 3395.48 MW installed power capacity, is based on non-conventional and renewable sources such as nuclear and hydro.

What are the centre’s incentives for firms?

The central government has an “Industrial Development Scheme for the State of Jammu & Kashmir, 2017". Of course, following the bifurcation, the Centre will have to allocate fresh resources to the two Union territories. Under the existing scheme, which is valid till March 2020, the government provides benefits on income tax and goods and services tax (GST), besides employee and transportation benefits. All entities setting up units under the scheme are eligible for a refund of the Centre’s share of central GST and integrated GST for the first five years. Similarly, the Centre’s share of income tax for the first five years is also reimbursed. Transportation costs incurred on ferrying finished goods via railways, waterways and air, ranging between 20% and 33%, are eligible for a discount of 20-33%. The Centre also contributes extra funds towards the pension and provident fund of employees working at units under the scheme.

How does the government propose to boost tourism?

The Kashmir valley is famous for its mountains, the plains of Jammu for their temples and the hilly Ladakh—the “Land of High Passes"—for its stunning geography that offers trekking and biking opportunities, besides its Buddhist culture. According to an economic survey report by the previous state government, 7.3 million people visited Jammu and Kashmir in 2017. Of them, 5.73 million—or almost 80%—were pilgrims visiting the Vaishno Devi shrine in Jammu. Besides them, 260,000 pilgrims were part of the Amarnath Yatra. That left the state only 1.3 million tourists in 2017. This illustrates how the region has not been able to capitalize on its huge tourism potential.

The ministry of home affairs opened up five more tourist routes and four more for trekking in Jammu and Kashmir and Ladakh last December. To ensure smooth movement of tourists within Leh, the validity of the permits for tourists visiting Ladakh region was increased to 15 days from the previous limit of seven days. But, to ensure safety and security, tourists/trekkers are not allowed to spend nights along trekking and tourists routes.

How will bifurcation affect the region’s fiscal autonomy?

The Finance Commission, an expert body, had recommended how tax revenues collected by the central government were to be shared between the Centre and the states. With the loss of its status as a full-fledged state, the two Union territories will now be solely dependent on the Centre for allocation of funds, grants and other financial resources. While the Narendra Modi government has championed the cause of fiscal federalism and vowed to devolve more powers to the states, the share of Union transfers to states (as a proportion of gross tax revenues) has actually declined over the past few years, as compared to the earlier era (five-year 13th Finance Commission period ending 31 March 2015).

A key reason why the states’ share in gross tax revenues has not risen despite the increase in their share in the divisible pool recommended by the 14th Finance Commission lies in the rise of cesses and surcharges, which are not shared with states. As per the 14th Finance Commission recommendations, the share of states in the taxes collected by the Centre was to be 42%. J&K, being a revenue deficit state, is to get the largest share, estimated to be around 60,000 crore, under the ongoing 14th Finance Commission, whose five-year term ends in March next year.

With the 15th Finance Commission expected to submit its report by the end of the year, Ladakh will be keen to find out its share of allocations, considering that it won’t have a legislature of its own, and all policies will be directed by New Delhi.

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