Charting a New Economic Course

On March 7, 2025, Chief Minister Omar Abdullah will present his highly anticipated maiden budget in the Jammu and Kashmir Legislative Assembly. This marks his first time leading the Finance portfolio, bearing the responsibility of shaping the region’s economic future. Amid Jammu and Kashmir's complex economic and political challenges, expectations for rapid transformations must remain realistic. However, these constraints do not prevent the Chief Minister from charting a bold, forward-thinking course for development. By establishing a business-friendly framework that prioritizes stability, fosters private sector growth, and strengthens local capabilities, this budget can lay the foundation for lasting prosperity, boosting key sectors like industry, agriculture, and tourism for sustainable growth.

For economic progress, the government must foster a business-friendly environment with policies supporting revival, modernization, technological upgrades, and sector diversification. This involves addressing policy misalignments, removing bureaucratic bottlenecks, and simplifying regulations to align with "ease of doing business" principles. Such reforms will optimize current infrastructure, attract investment, and drive sustainable growth, especially in the industrial sector.

Jammu and Kashmir has, unfortunately, not been an integral part of India’s industrial growth trajectory over the decades. While the region recognized the importance of industrial development in the late 1960s, it initially focused on public sector enterprises to generate employment and enhance productivity. However, the industrial base remained weak, primarily due to limited diversification, leading to reliance on external markets and an inability to meet local demand. It wasn’t until 1975 that the government shifted focus toward fostering entrepreneurship, introducing policies aimed at boosting private sector growth. The establishment of institutions like SIDCO and SICOP played a crucial role in supporting small-scale industries, with the number of industries rising from 5,000 in 1975 to 34,000 by 1989.

However, the outbreak of political unrest in 1989 brought industrial development to a complete standstill. The deteriorating law and order situation caused widespread disruptions, with industries frequently shutting down and facing mounting operational challenges. Over the next three decades, industries in Jammu and Kashmir lost over 2,500 days of productivity, and many businesses collapsed due to the turmoil.

Despite several policies introduced to revive the industrial sector, such as those in 1995, 1998, and 2004, these efforts largely fell short. Instability and failures to deliver promised support hindered successful implementation. The 2002 Central Industrial Scheme, launched by Prime Minister Atal Bihari Vajpayee, also faced rejection from local industries, which felt that the scheme did not sufficiently address their post-turmoil struggles.

A pivotal meeting in Srinagar, attended by stakeholders and government officials led by the then Union Secretary of Department of Industrial Policy and Promotion (DIPP), highlighted the deep frustration among local entrepreneurs. During the meeting, the Secretary urged businesses to either establish new units or significantly expand to qualify for benefits under the policy. A poignant remark by the late Mohammad Yasin Durrani, a prominent FCIK leader, captured the sentiment: “Mr. Jagdeshan, isn’t it like asking a mother to abandon her ailing child and bear one more?” His words underscored the emotional and financial toll on local businesses, already grappling with persistent disruptions. In response, the government diluted some provisions of the scheme, but these efforts fell short. While the scheme was extended beyond its initial 10-year period to 2017, over 95% of the incentives from total disbursement of 1120 Crores were concentrated in just within 2 districts in Jammu region, demonstrating stark inequality with other 20 districts.

Jammu and Kashmir now operates under three overlapping industrial policies—2016-2026, 2021-2030, and the New Central Sector Scheme (NCSS) 2021-2037. Rather than offering clarity, these conflicting policies have caused confusion for both entrepreneurs and government officials. Over time, incentives from previous policies have been gradually withdrawn, while those promised under new policies have been significantly reduced due to funding shortages.

A major concern is the NCSS-2021, which has an outlay of 28,400 Crores for incentives but has been inexplicably reported as "exhausted," despite only 100 Crores being spent over the past four years. The remaining funds are reserved for enterprises that have merely expressed interest and registered, while local businesses that have completed projects and commenced production are denied benefits for not registering earlier. This approach undermines support for existing businesses and violates the principle of equality to opportunity. It is a unique situation where businesses that were first to establish units are penalized, while those potentially established years or even decades later are prioritized.

The shift in the public procurement policy has left local manufacturers at a disadvantage. Over 90% of government procurements in the past five years have been made from external suppliers, sidelining local manufacturers. Furthermore, payments to local MSME suppliers have often been delayed for years, crippling their operations.

The situation has worsened, with many MSME sector bank accounts now non-performing. Banks have focused on loan recovery rather than implementing revival policies, and national collateral-free schemes have seen limited success in the region. Meanwhile, credit to priority sectors continues to decline, exemplified by the RBI-imposed penalty on the lead bank in Jammu and Kashmir for failing to meet lending targets. The bank was required to park `8,372 Crores in the Rural Infrastructure Development Fund (RIDF) at a low interest rate. If overseen properly, these funds could have generated `33,000 Crores in business, `3,000 Crores in GST, `600 Crores in profits for the bank and created 100,000 jobs, thus supporting the region's economic growth.

A significant disparity exists in the distribution of industrial plots between Jammu and Kashmir, with the Valley having only one-third of the developed plots compared to Jammu. To address this imbalance, there is a pressing need to establish more industrial estates in Kashmir, ensuring equitable distribution across all districts of Jammu and Kashmir.

The crafts industry in Jammu and Kashmir, known for its rich heritage of Pashmina, Kashmiri carpets, and papier-mâché, holds significant potential for economic growth and exports. By positioning the region as a hub for traditional crafts, investing in marketing, skill development, and craft clusters, the government can create jobs, preserve cultural heritage, and boost exports.

One long-standing issue has been confusion between promotional and regulatory functions. Officers transferred from regulatory departments to those promoting industrial growth often act as regulators rather than facilitators. This lack of cohesion is evident as files circulate for months between DICs and the Directorate for clarifications. For example, while provisions granting exemptions like stamp duty relief are meant to be uniform, subordinate offices often insist on duty deposits based on their own interpretations. Additionally, policy provisions are inconsistently applied across the two provinces.

Equally concerning is the diminishing stakeholder participation in decision-making committees and boards, which has overlooked the crucial grassroots feedback they provide. These insights are vital for shaping policies that genuinely address the needs and challenges of local industries.

These missteps, among others, highlight the urgent need for coherent policies, effective implementation, and genuine support for local industries. Stakeholders have called for a review of all three industrial policies in recent meetings with Chief Minister Omar Abdullah. It is encouraging to note that the CM has publicly acknowledged the urgency of advancing development through a comprehensive policy framework. He seems to agree with stakeholders that unlocking the potential of 40,000 industrial manufacturing units, with a locked-up investment of approximately 40,000 Crores and the capacity to generate 300,000 additional jobs, should indeed be a priority.

The proposed industrial policy should prioritize growth, equity, and sustainability. Key measures include the establishment of an Industrial Advisory Board, a robust skill development mission, and a more empowered MSME Facilitation Council. Additionally, a Public Procurement Policy favoring local manufacturers and a comprehensive mechanism for the revival of sick units through financial restructuring are essential for fostering long-term industrial resilience.

While embracing emerging technologies like digital platforms, Artificial Intelligence, and knowledge-based industries is crucial, it’s equally important to unlock the potential of Jammu and Kashmir’s traditional industrial sector. A comprehensive, uniform industrial policy that ensures equitable opportunities for all is the first step. Integrating digital technologies into existing industries and fostering innovation in knowledge-based sectors can help build a balanced, resilient economy. Additionally, promoting the substitution of locally producible goods to reduce dependency on imports will strengthen traditional industries, create jobs, and improve self-sufficiency. By harmonizing both traditional and modern industries, the region can create a more self-reliant economy that supports local businesses and enhances its position in both domestic and global markets.

Syed Shakeel Qalander is a social activist and an industry leader