J&K Economy: A Report Card
Last week it was six years for J&K to be directly administered by the Union government. While the enabling environment for business has improved dramatically with no bandhs and hartals, the performance of the economy hasn’t seen a turnaround, neither optically nor anecdotally. Even though it had been announced and was widely expected that the new regime would result in unprecedented and equitable economic prosperity and welfare. Not a bargain that Kashmiris have been willing to accept, but even so, the economic performance needs to be analysed.
What follows is a macroeconomic assessment based on ten indicators: State Income, Per capita income, Unemployment, Inflation, Capital stock, Government debt and deficits, Credit offtake, Trade activity, Power capacity and Human development. Data is drawn from government sources Centre, State, RBI and NITI Aayog which include the State Budgets, Economic Survey, Digest of Economic & Statistics and State Finances. The Pre 2019 period uses data from 2011 to 2018 and post 2019 is based on data from to 2019 onwards till latest available data.
State Income: The J&K State Domestic Product (SDP), sum of all the economic activities within the local economy, has grown at a slower pace post 2019. Prior to 2019, the compound annual growth rate was 10.20 per cent which has dropped to 8 per cent. The fall in real income is much sharper. The growth in GSDP at constant prices slumped to less than 4 per cent from nearly 7 per cent. The share of J&K in the national GDP has declined to around 0.77 per cent from an earlier high of around 1 per cent indicating lower than national average performance.
Per capita Income: The average income earned per person in J&K i.e., total income divided by total population, has grown slower post 2019. Per capita income, a universal metric to assess the standard of living and economic well-being of the population, shows a slower growth in average incomes. The per capita income has grown but at almost half the rate that it was growing in the earlier period. The per capita income has been lower than the national average for quite some time, but the gap between the two has widened the post 2019 period. In 2011-12, per capita income of J&K was 84 per cent of the national average but now has declined to 76 per cent in 2023-24. The gap between the two is the highest ever in 2024-25.
Unemployment: Unemployment has been volatile post-2019, with temporary spikes much higher than pre-2019 levels. Unemployment rate declined from 6.7 per cent in 2019-20 to 6.1 per cent but spiked to 23.1 percent in March 23.1 per cent and continued at 17 per cent in 2024. The national average is 8 per cent. J&K has the highest unemployment rate after Haryana. Himachal is not far behind with 13.9 per cent. The unemployment rate is high despite the Labour Force Participation Rate (LFPR) increasing from 56.3 per cent in 2019-20 to 64.3 per cent 2023-24, and Worker Population Ratio (WPR) also rising from 52.5 per cent to 60.4 per cent. The improvements in LFPR and WPR are structural suggesting greater in job access, though quality and stability remain concerns. This mismatch between these ratios and the level of unemployment are indicative of economic instability.
Inflation: Inflation has normally been aligned with or slightly above national averages, which is expected of an import-dependent sub-national economy like J&K. There is a sharp spike in 2019, most likely caused by the supply chain disruptions. Post that the inflation threshold seems to have settled at a higher level. Consumer Price Index (CPI), peaked in 2023-24 at 6.7 and has moderated since. But post-2019 inflation consistently exceeded national averages. Inflation was higher and more persistent post-2019, worsening socio-economic conditions compared to pre-2019 stability. High inflation along with lower growth in per capita income is bound to have eroded real income and purchasing power.
Capital Stock: One of most important metrics responsible for growth is the size and structure of capital investments. The invested capital, which adds to the fixed capital stock of the economy, basically plant and machinery, drives growth. The Annual Survey of Industries shows some shocking trends: both the invested capital and fixed capital have declined in absolute terms post-2019. The invested capital has dropped from Rs 13,918 crores in 2016-17 to Rs 11,905 crore in 2022-23. As a percentage of the GSDP, it has dropped from 11.5 to 5.4 per cent. The same trend is borne out by fixed capital. This data doesn’t fit with the investment numbers released by the UT government many times. The UT government recently stated that J&K has attracted investment proposals worth Rs 84,544 crore across 42 industrial sectors. In 2023, actual investments on the ground reached Rs 2,518 crore, with 266 industrial units registered in Jammu and 148 in Kashmir.
State Debt and Government Deficits: Pre-2019 debt levels were high but manageable, with internal debt at Rs. 42,221 crores in 2018-19. In just five years this has trebled to Rs 1,25,205 crore in 2023-24. This is unprecedented. The total liabilities of the government have also surged to Rs. 1,25,205 crores in 2023-24, making it more than half of the SDP. The liabilities-SDP ratio peaked at 59 per cent in 2020-21. Fiscal deficit rose to 5.36 per cent in 2023 (budget target of 1.6 per cent). Loans to J&K increased fivefold, with Rs. 24,000 crores borrowed in 2023 as against the planned Rs. 12,000 crores. The states own revenues have increased from Rs 7819 crore in 2016-17, to Rs 21,550 crore in 2025-26. It is a three-fold in eight years, thanks to GST. The tax-to-GDP ratio rose from 5% to 8%, suggesting heavier taxation on residents. In the post 2019, the fiscal mismanagement and over-reliance on central borrowing weakened J&K’s financial position. Fiscal health deteriorated significantly post-2019, with higher debt, deficits, and taxation compared to pre-2019 stability.
Credit Offtake: Pre-2019, J&K’s commercial sector enjoyed robust bank credit growth of around 11 per cent, compared to 10.8 per cent earlier. and then the lockdown. In the absence of growth in investment, the sharp improvement observed in the credit-deposit ratio can be problematic. A higher credit growth is likely to be financing consumption which is a sure recipe for a debt trap. Yet, in 2025, 13 out of 20 districts in J&K saw a decline in credit disbursed; negative credit growth compared to March 2024. This continued low level of credit is validated by the credit-to-GSDP which is as low as 38 per cent in 2024, compared to say Maharashtra where it is 99 per cent. The low level of credit adds to the shortage of capital in an already capital scarce economy and will have a crippling effect on the growth potential of the economy.
Trade Activity: The tertiary sector, which accounts for 60 per cent of the local economy, is caught in a slowdown. The rate of growth of the tertiary sector of which trade is a large part, halved to 5.8 percent in 2023-24 from 11 per cent in 2022-23. Within trade, income growth from the Hotel & Restaurants declined from 38 per cent to 13 per cent.
Power: Most of the above indicators are key ratios which should give the broad pulse of any economy. If there is one physical indicator relevant to the growth story of J&K, it must be power. In theory, potentially the key driver for an economic boom in J&K. In practice, the biggest constraint to growth. It will come as a surprise to many that the installed capacity has declined even if very marginally.
Human Development: On the human development side, J&K has historically been better than the national average. In 2017, J&K’s HDI was 0.68, higher than states like Andhra Pradesh and Gujarat. In fact, except Kerala and Haryana, life expectancy of 74 years in J&K was higher than the national average of 68. Between 2009 and 2017, J&K’s infant mortality rate had declined to 23 per 1000 from 45 per 1000. in Kashmir, by global standards, this is still high, it is far ahead of the rest of the country. The all-India infant mortality rate at 33 is worse than even Africa, while Kashmir, sits in the company of South-east Asia’s Indonesia. In J&K 75 per cent of the children were fully immunized.
The comparative all India average is 62. Even prior to 2019, 87 per cent of the girls in Kashmir are enrolled in school compared to 65 per cent in a developed state like Gujarat. The limited point here being that the high level of social development of J&K predates 2019. J&K had a stellar record in all the social indicators; be it infant mortality, poverty, life expectancy at birth etc. In general, almost all the Human Development Indicators were better than the national average. Poverty at 10.3 per cent in 2011-12 vs. national 22 per cent were strong pre-2019 but stagnated post-2019 due to economic disruptions. In 2015-16, multi-dimensional poverty rate was 12 in J&K while the national average was 21.2 (NITI Aayog MPI, NFHS-4). In 2018-19, it was 10.5 and 15 respectively.
