Deconstructing a paradox

“Economic change in all periods depends, more than most economist’s think, on what people believe...” Joel Mokyr

J&K stands at a curious juncture. Since 2019, the Union Territory has received unprecedented infrastructure investment over ₹32,000 crore committed across highways, railways, power projects, and urban infrastructure. Investment applications approximately totaling 1.69 lakh crore sit in government pipelines promising lakhs of jobs. J&K appears to be entering an economic renaissance.

Yet on the ground, a different reality persists. Unemployment among youth stands at 18%, one of India’s highest. The credit-deposit ratio languishes at 62.01%, far below the national average, indicating banks remain reluctant to finance local enterprise. The jobs created have been largely from low-value micro-enterprises. Youth continue fleeing to metros for opportunity, and government positions attract nearly 100,000 applicants for 1,200 positions. A desperation revealing structural economic gaps that highways and tunnels cannot bridge.

This paradox reveals a fundamental economic truth that both policymakers and investors often overlook. Infrastructure and capital investment are necessary prerequisites for modern economic growth, but they are decidedly insufficient. Moreover sustained, inclusive development, as demonstrated by Joel Mokyr the American Israeli Nobel Prize winner for economics in 2025 through his analysis explains sustained technological progress and growth emerged only in specific historical contexts where knowledge ecosystems complemented physical investments. J&K’s experience illuminates why and more importantly, what must accompany infrastructure to translate it into genuine prosperity.

The relationship between infrastructure and economic growth is neither direct nor proportional. Empirical research confirms that while infrastructure investment yields positive economic returns, the magnitude varies dramatically by context. A 10% increase in public infrastructure investment yields roughly 1.2% long-term national output growth, meaningful but modest. More critically, the returns diminish rapidly when infrastructure arrives without complementary institutional, human capital, and knowledge investments.

Consider the fundamental mechanics. A new highway reduces transportation costs and benefits commerce. A railway tunnel cuts travel time, attracts tourism, and enables market access. These are real gains. But they solve only one problem, the friction of geography and distance. They do not address the deeper question:

What economic activities will flow through this newly accessible infrastructure?

In J&K’s case, infrastructure improvements have reduced friction but have not generated corresponding economic transformation. The region’s services sector dominates GSDP while employing only 31.3% of workers. This composition reveals the issue of high-productivity sectors like services and tourism generating output without proportional job creation. Meanwhile, agriculture employs 42.8% of the workforce while contributing to less than 20% GSDP. This indicates chronic under productivity in the sector engaging the plurality of workers. This productivity gap cannot be solved by roads.

The employment challenge is particularly stark. Despite investment in industrial units since 2019, the new jobs created are positions concentrated in low-value activities such as food processing units, packaging operations, ancillary services. Some of these ventures depend heavily on government incentives rather than market viability. These jobs exist, but they do not represent the foundation for rising living standards, precisely because Mokyr shows that physical capital alone cannot generate the knowledge feedback loops required for sustained productivity growth.

Infrastructure connects people to markets, it does not teach them to compete in those markets. J&K’s labor force while growing, remains poorly aligned with economy-wide productivity requirements. The region suffers from what economists call the “skill-jobs mismatch”; workers lack the technical competencies, management training, and creative capabilities demanded by high-productivity sectors.

Consider apples, Kashmir’s flagship horticultural product. The region’s apple orchards produce roughly 10 metric tons per hectare. Modern high-density systems achieve 45 metric tons per hectare. This 4.5 fold productivity gap exists not only due to lack of infrastructure or investment capital. New highways reach every major orchard cluster. Irrigation infrastructure has improved, the gap also reflects limited access to propositional knowledge. Understanding the biochemistry of rootstock-scion compatibility, genetic improvement of varieties, soil chemistry, pest management science, Mokyr identifies this as essential for translating practical craft into systematic progress.

The knowledge exists globally but Kashmiri farmers lack systematic channels to access, learn, and apply it. Agricultural workers in Jammu use outdated techniques when precision farming and soil monitoring could double yields. The infrastructure connects them to markets, but they arrive unprepared to compete. This pattern repeats across sectors, handicraft artisans command global prices for their work and yet operate largely in isolation from design innovation networks, material science, and digital market platforms that would multiply their competitive advantage.

The presence of new IIT and IIM campuses in J&K represents meaningful institutional advancement. Yet these institutions remain largely disconnected from the traditional economic sectors that employ the majority. Research agendas follow national and international priorities rather than emerging from engagement with local practitioners. Students graduate and migrate, brain drain remains acute despite local education opportunities.

Effective economic transformation requires what Joel Mokyr’s economic history research identifies as “institutional bridges” mechanisms connecting researchers with practitioners (savants and fabricants), translating scientific knowledge into practical application and systematizing feedback between theory and practice. These bridges are conspicuously absent in J&K. Had such bridges existed, outcomes would have differed markedly. India’s IT clusters (Bengaluru, Hyderabad) succeeded not merely due to infrastructure, but because research institutions, practicing engineers, entrepreneurs, and services firms formed dense knowledge networks and co-located, collaborated, continuously improved capabilities. J&K lacks such ecosystems in its existing sectors.

J&K’s credit-deposit ratio of 62.01% reveals a critical gap. Financial capital is not flowing to local enterprise in proportion to investment policy intentions. Banks remain hesitant to lend to MSMEs and agricultural ventures. This reflects both objective constraints (higher perceived risk in conflict-affected regions) and structural issues (weak borrower financial literacy, limited collateral, underdeveloped credit information systems). The result is infrastructure exists, but capital does not flow to productive activities at scale.

J&K’s economy remains extractive rather than transformative. Raw materials and labor flow out, value-addition happens elsewhere. Apples are exported as fruit, but branded and marketed in other states. Wool is exported, premium knitwear is produced in Gujarat. Handicrafts are sold as artisan products, design innovation and brand development occur in metros. This pattern reflects not resource constraints, but absence of an entrepreneurial ecosystem capable of capturing value-addition opportunities. A gap Mokyr attributes to missing cultural and institutional openness to knowledge recombination.

Even excellent infrastructure yields modest returns without complementary reforms. Land markets remain partially restricted. Procurement regulations often source from established suppliers in other states rather than nurturing local supply chains. Property rights in intellectual property (crucial for design-intensive sectors like handicrafts) remain underdeveloped. Labor regulations, while nationally set, are implemented inconsistently, creating uncertainty for employers considering significant local investment. None of these require large capital expenditures. They require institutional clarity, political will, and strategic policy sequencing elements that infrastructure, by itself, cannot provide.

J&K presents a test case in the limits of infrastructure-led development. Between 2019 and 2025, the region received ₹41,735 cr for 47 highway projects, ₹32,000 cr was announced for development initiatives, infrastructure modernization across power, railways, telecommunications, and massive policy reform in land laws, policies and sector strategies. Yet unemployment has remained persistently high. Youth unemployment (15-29 age group) stood at 18% as of recent data compared to national unemployment around 10%. The contradiction is stark, infrastructure expansion coupled with rising joblessness suggests the two are not connected in this context.

The explanation lies in sectoral composition and productivity. Tourism and services have expanded markedly benefiting from improved connectivity but these sectors are inherently capital intensive and employ proportionally fewer workers per unit of output. Agriculture, the largest employer, lacks the technological and institutional transformation needed to improve productivity and living standards for those within it, confirming Mokyr’s thesis that physical capital without knowledge ecosystems yields only temporary gains.​ ob creation statistics mask this reality. Manufacturing while positive in absolute terms, concentrates in low-value activities. Reported job creation often reflects incentivized micro-enterprises, temporary positions, or low-wage work lacking career progression. True economic development requires sustainable employment offering rising productivity and incomes. This remains elusive despite infrastructure advancement.

Conclusion:

Infrastructure represents a necessary condition for modern economic growth. Regions without roads, electricity, and telecommunications cannot prosper. J&K’s infrastructure modernization in this sense was essential. However, necessity does not equal sufficiency. Joel Mokyr’s framework clarifies why a highway from Srinagar to Delhi matters little if Kashmiri entrepreneurs lack the propositional knowledge, institutional bridges, and cultural openness to compete in Delhi’s markets. Fiber optic cables enabling digital commerce are valuable only if knowledge networks exist to utilize them. Railway tunnels reduce travel time, but only if productive enterprises generate the traffic to justify them.

J&K’s trajectory will ultimately depend on whether the region can build what Mokyr calls ”culture of growth” interactions between propositional and prescriptive knowledge, institutional agility supporting experimentation and norms valuing openness over secrecy. The railway line to Srinagar stands ready but the question is whether knowledge ecosystems will fill it with economic activity. The highways are expanding, the question is whether entrepreneurial capabilities will flow through them. The investments mount, the question is whether they will compound into rising living standards for the majority. Until the discussed complementary elements align with infrastructure, J&K risks remaining a region with excellent roads but limited reasons for people to stay. A paradox visible across emerging economies, where infrastructure has outpaced knowledge development. The region’s future prosperity depends less on the next ₹32,000 crore than on intentionally building the institutional bridges and cultural foundations Mokyr identifies as the true engines of sustained growth.

Dawar Ashraf Mir, an entrepreneur managing infrastructure and agricultural ventures in Kashmir. He is also a fellow of the Ananta Aspen Global Leadership Network (AGLN)