Business Today

Industrial Graveyard

The economic stagnation in Jammu and Kashmir cannot be attributed to law and order problems alone.
Ishfaq Naseem   Delhi     Print Edition: November 5, 2017
Industrial Graveyard
A caretaker is seen walking between two lines of more than a century-old decrepit machines inside one of the three fi latures of a silk factory

While the law and order situation in the state and its demands for political independence dominate the media discourse on Jammu and Kashmir, little attention is paid to the economic decline that has also overtaken it. Manufacturing, in particular, is in the doldrums, with the political turmoil in the state only partly responsible - bureaucratic delays and poor infrastructure are equally to blame.

Industrial gross state value-added growth has been dismal for the last five years with 2013/14 - when it grew 9.69 per cent - the only exception. (See Poor Progress.) In 2015/16, it was as low as 0.4 per cent against a national manufacturing growth of 7.4 per cent, though it recovered the following year to 6.06 per cent, while the corresponding national growth was 7.9 per cent. The state industrial policy offers a host of incentives to manufacturers - 30 per cent capital investment subsidy, five per cent working capital subsidy, as well as reimbursements for units which introduce automation or set up high-end pollution control devices. But clearly these have proved insufficient.

The entire state has only 86 large and medium scale industries which employ a total of 19,314 people. Neighbouring Himachal Pradesh, which has similar hilly terrain and difficulties with creating infrastructure, has in comparison, 503 large- and medium-scale industries, providing 60,908 jobs. Separately, Kashmir also has 30,120 small-scale industries where 142,317 people have found employment. But all these three categories - small, medium and large - added only 5,000 jobs in the last 10 years. In the current financial year, proposed investment in the state - compiled from industrial entrepreneurs' memorandums (IEMs) and letters of intent (LoIs) - is a paltry `568 crore, compared to `31,367 crore proposed for Gujarat or `22,868 crore for Karnataka. (See No Takers.)

The worst indictment is the joint report of the World Bank and the Department of Industrial Policy and Promotion (DIPP) on the "ease of doing business" (EODB) in different Indian states and Union territories, based on an assessment of their implementation of the business reform action plan (BRAP) between July 1, 2015 and June 30, 2016. India's global ranking on the EODB scale is bad enough - 130th out of 189 countries - but even within India, Kashmir ranked near the bottom with only Meghalaya, Manipur, Nagaland and Arunachal Pradesh below it. (See Stultifying Environment.) J&K was ranked 29th in a list that had Gujarat in first place, Andhra Pradesh in second and Jharkhand in the third.

The cumbersome procedure of getting permissions for starting a business in Kashmir deters many an entrepreneur. It takes months, for example, to get a no objection certificate (NOC) from the Power Development Department (PDD) for an electrical connection for a new unit. It is the same story with construction permits or pollution control certificates. Burhan Khan, a small- scale entrepreneur, who runs Ababeel Enterprises, at the Lassipora Industrial Estate on the outskirts of Srinagar, for example, says he had to face any number of hurdles trying to set up his PVC conduit pipe making unit. "The state government promises to grant permissions in time, but it needs to deliver on the promise," he says.

Shortage of available land and poor infrastructure are equally big hurdles. The State Industrial Corporation (SICOP) runs 24 industrial estates, but land is currently available on only one of them - 200 kanals (25 acres) at the Vesu estate in Anantnag. "We are trying to acquire another 25 acres of surplus land from Hindustan Machine Tools (HMT) on Srinagar's outskirts," says Bilal Ahmad Bhat, Director, Industry and Commerce, J&K. But officials maintain that even taken together, these two areas will not be able to accommodate more than 400 new units.

Not that the remaining industrial estates are fully occupied and buzzing with industrial activity - a number of them, including some that SICOP has spent funds developing, cannot be used because they are prone to flooding or do not have road networks connecting them to urban centres yet. One of the biggest industrial estates of about 125 acres, at Ompura, on the outskirts of Srinagar, is yet to be constructed because of objections from the Indian Air Force. The IAF has an ammunition depot close by and claims any construction on the estate would be a security risk. The matter has remained unresolved for three years, but with Chief Minister Mehbooba Mufti having been apprised of it, a resolution is expected soon. "IAF has objected to factories, but there are other things that can be done with the land," says a government official. For a start, there is talk that a depot of the state forest corporation will be relocated there from Srinagar.

The biggest infrastructural shortcoming is lack of continuous power, with frequent outages during peak working hours badly affecting industrial output. Industrialists reveal that this is especially so in winter, due to the widespread use of electric heating gadgets . "There is a deficit in meeting the energy demand in the state due to high power and transmission losses," the State Electricity Regulatory Commission (SERC) conceded in a recent order. Central Electricity Authority figures show the state's low tension industrial power consumption in 2016/17 at 577 million units (MUs), and high tension consumption at 983 MUs, but this is way short of demand.

Lack of adequate marketing facilities, especially outside the state, are another problem. "Industrial output has shrunk due to the state's geographic disadvantage," says Mushtaq Ahmed Wani, former president of Kashmir Chamber of Comm- erce and Industries (KCCI). "Most of the business units here have their markets only inside the state and are not export-driven. Even so, there are a few industries which are doing well such as steel fabrication plants, cement factories and flour mills."

Finally, there are curfews, bandhs and strikes, which since July 2016 meant loss of 130 working days, amounting to total losses of `13,261 crore - Rs 6,548 crore by private units and `6,713 crore by government ones. The disturbed atmosphere has also made banks wary, due to which they have disbursed fewer loans to entrepreneurs than targeted. Loans to micro, small and medium enterprises (MSMEs) increased by only 0.92 per cent in 2016/17, over the previous year - from `11,313 crore to `11,417 crore. Besides, the target for both heavy and medium enterprises was not met - against a target of `207 crore for the former, only `150 crore was disbursed; while for the latter, against `300 crore, only `119 crore was advanced. "Even the State Industrial Development Corporation, which was earlier guaranteeing the loans to heavy and medium enterprises, has stopped doing so," says a government official.

The government, no doubt, is well aware of the deteriorating situation, but its options are limited. The state's industrial policy of 2016 admits Kashmir has failed to draw sufficient investment and asserts it will try to obtain `2,000 crore every year, and create 15,000-20,000 new job opportunities. On the power front too, it notes that "Jammu and Kashmir is still lagging behind in meeting domestic and commercial requirements of electricity, coupled with high transmission and business losses," adding that "assured/uninterrupted power supply to industries/factories everywhere may not be possible to be made available immediately". Its solution has been to offer 100 per cent subsidy on 10Kw-2,000Kw diesel generator sets to industries, but not all entrepreneurs can afford their running costs. "The cost of power increases by at least 50 per cent if generators are used," says a government official. "That is why many prefer not to install them. Besides, not all industries are covered under the policy."

The government is trying to build a larger land bank. "The plan is to create a land bank, but a proper survey is needed before that to determine demand and supply and understand what we need and model our industries along those lines," says Bhat. "Geographic disadvantages make procurement of raw material difficult for entrepreneurs, but we are trying to see what we can do. We also want to create better marketing facilities. But there is no doubt the civil conflict is also impacting industry."

The author is a Srinagar-based writer

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