Opinion | Lessons for Kashmir’s economic integration with the rest of India

It will be a slow process and the Centre may have to take the lead by increasing infrastructure investment to boost tourism

In the course of his speech defending the decision of the Narendra Modi government to withdraw the special constitutional status given to the erstwhile state of Jammu and Kashmir, home minister Amit Shah said that the way ahead will be determined by the ability to offer economic opportunities to young people in the Kashmir valley. In other words, political integration needs to be followed by economic integration. The worst fears of his many critics will be realized in case this does not happen.

The story of the rest of India is instructive in this context. India first got politically integrated in 1950. Economic integration followed more slowly. This is in sharp contrast to what happened in Europe after World War II. Europe first became a common economic zone—from a small initial agreement to coordinate steel production to the ambitious creation of a common currency. And it then took a shot at political integration, though that dream now seems in tatters after the rise of nationalist parties that are suspicious of transnational governance.

India has been a common civilizational unit for many centuries. There was some internal trade as well, but most of it was rooted in traditional caste networks. However, the economic integration of the territory began in earnest only under colonial rule, especially after the British built railways to move troops around, bring raw materials to ports for export to their home country, and deal with famines. One indication of the early economic integration through the spread of railways was the growing correlation between food prices in various parts of India.

However, the big thrust towards economic integration came from the public sector in the age of planning. Not enough importance is given to the fact that the public sector—be it the bureaucracy or industrial units—had a big role to play in the creation of a national middle class.

In 1966, the Planning Commission appointed a committee headed by economist R.K. Hazari to examine whether there had been regulatory capture of the industrial licensing process by influential business houses. Hazari found ample proof of this. His report had a feature that appears intriguing to the modern eye. Most of the large business groups in India had only a regional presence.

The Parsi groups had most of their investments in Maharashtra and Bihar. Punjabi investment was concentrated in the Delhi-Punjab area. The south Indian groups had invested in their part of the country. Indian capitalism was regional in nature. The only major exceptions were the Marwari groups, which is perhaps linked to the fact that they had migrated across the country.

The pattern of public sector investment during the high noon of planning was far from regional. It was spread all across the country. The manifold failures of the Indian public sector are common knowledge. But it also created the managers, scientists, technicians, administrators and bankers who once formed the backbone of the Indian middle class. The public sector was thus an important driver of economic integration.

That role has now been taken over by the private sector. Large conglomerates are today not rooted in any one part of the country. The creation of a common Indian market through the goods and services tax reflects the rise of a truly national business class. Migration is also a powerful driver of economic integration, but it is a more complicated issue given cultural sensitivities in several states.

What are the lessons here for Kashmir? Economic integration will be a very slow process, as was the case with the rest of India. The government may have to take the lead. The old strategy of putting up public sector industrial units in the quest for balanced regional development is no longer viable, given the financial health of enterprises owned by the government. Infrastructure spending is a more realistic option, especially if it pulls in more tourism.

Private sector investment will be needed, but that is unlikely to happen overnight given the current state of investment activity across India. Massive migration will unleash the same cultural fears that periodically bubble up to the surface in other parts of India, and more so in a former state witnessing a huge political transition.

The end of the special status for Kashmir is part of a political project—and will largely be seen through that prism. However, the political project will flounder unless it brings economic opportunity in its wake. Finally, a few lines from the autobiography of B.K. Nehru, who was governor of Jammu and Kashmir from 1981 to 1984: “The long-term aim of India should be the full integration of the people of Kashmir with the people of India. This is going to take more than just one generation; all that one can do today is to support the forces which strengthen the tendency to integrate and weaken those which oppose this trend. The integration can only be complete when it is emotional but this involves very fundamental changes in the thought process of [Islam’s followers] and of the politicians of India. For the moment, this need not detain us, but the other means of integration which is more practicable is the rapid increase in economic links between Kashmir and the rest of India as well as as much movement as possible for employment, education and other similar purposes into other parts of India."

Niranjan Rajadhyaksha is a member of the academic board of the Meghnad Desai Academy of Economics

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