Understanding Unemployment

J&K has a 32 percent unemployment rate among the youth.  A recently released statistics by the Government of India shows this to be the highest in the country. To impart a sense of perspective, the unemployment rate in Maharashtra is 3.2 percent; exactly one tenth of the J&K unemployment rate.

What this statistic means is that one of every three young persons in the age bracket of 15 to 29 is unemployed. Worse still, the gender bias is stark with one out of two girls in the productive age bracket unemployed.

These unprecedented unemployment numbers when juxtaposed with other macroeconomic indicators like the inflation and output growth present a disturbing scenario.  For quite some time now, the rate of inflation in J&K has been sticky at a high of 5.5 per cent, but the growth in per capita income is subpar with share of J&K in the national declining.

This combination of output stagnation, and employment slowdown flies in the face of the Bhartiya Janata Party narrative of a development dividend of the abrogation of Article 370. The policy dilemma is to reconcile the big investment numbers that the UT administration publicises with the stagflationary situation. It needs to be analysed in terms of statistics and the strategy.

First, the statistics. The total labour force of J&K, persons who are either working or willing to work and actively looking for work, is estimated to be 41 lakhs. As such the 32 percent unemployment rate, based on an annual random and panel sample survey, means there are 13 lakhs unemployed in the state. With an average family size of 5.6, it is an issue of almost two and half lakh families in the J&K. As such, the magnitude of the problem is large no matter it is looked at; individual, family, social and economic perspective. Besides these, unemployment is also a macroeconomic problem insofar as the human resource available is not being utilised which results in a weakening of the purchasing power of the masses. The same capacity can be put to positive and productive use to create incomes for people.

The instant Maggie noodle solution, promised in all manifestos and proffered by everyone of any consequence, is to fill up the government vacancies to reduce unemployment. On any given day the vacancies in the state government have been a lakh and plus. Even if this is done, it addresses less than 10 per cent of the problem. It is like prescribing a band aid for a condition that needs a surgery.

Besides, with a total population of 1.5 crore, J&K already employs 5 lakh people. Given the average household size of 5.6, it means one member of every family works for the state government. To put this number in perspective, Bihar with a population of 13 plus crore -- almost ten times that of J&K – has lesser number of employees than J&K. And Bihar is not a terribly well managed state!

To be prescriptive without being diagnostic doesn’t help. The reasons for unemployment must be analysed. No one employs people for the sake of giving them jobs. They are employed to be productive; to produce output and generate incomes. As such, employment is a derived variable of output growth. The employment problem in J&K, could be a consequence of slow growth in the state gross domestic product. Macroeconomic data shows that the average growth rate of J&K has slumped from almost 11 per cent during 2014-2018 to about 6.5 per cent from 2019 to 2024.

At the policy level, growth strategy, if at all there was one, has been replaced by the political economy of development. The J&K economy shows all the characteristics of structural – social and sectoral – disarticulation. This means there is uneven sectoral development and a lack of correspondence between the production and the consumptions spheres in Kashmir. The resource endowments of the economy and the local stakeholder are not at the centre of the existing economic strategy. It has been so all along, perhaps since the mid-sixties. The structural disarticulation restricts the Kashmir economy’s ability to absorb the surplus labour force resulting not only in high unemployment but also chronic underemployment.

The tried-tested-failed strategy to bring in corporate capital into Kashmir, set up industrial estates, build physical assets is intrinsically flawed for two reasons; it doesn’t fit into the underlying structure of the economy. More importantly, it is not where the world is headed. The drivers of today’s economic growth and business prosperity are not physical assets but knowledge products. In the age of Fintecs and Regtechs, Kashmir’s economic policy is still placing premium on manufacturing corporates and old economy industrial assets.

The Valley economy is fundamentally a rural one with an egalitarian subsistence agricultural sector, a vibrant commercial farm economy and a diversified artisanal sector; the last two being export oriented. A large part of the output is consumed outside the local economy and an even larger proportion of the consumption is imported from outside the local economy. This diminishes the efficacy of the output and employment multiplier in the economy.

Given the structure of the Kashmir economy, and the global growth of the knowledge economy; assets are not as important as skills. And the valley abounds in these. It is extraordinarily skilled artisanal economy. The crafts economy is a skill and knowledge enterprises that use very little technology ad capital. It has urban agglomerations which together with the rural artisans drive the booming tourism related local retail trade and domestic and international exports from the Valley. So is the commercial farm economy which is now seeing some transformational traction to a tech enable enterprise.

The policy focus should not be on unemployment in the form of another hairbrained CM employment scheme, of which there are aplenty, but on employment. The cause of unemployment is not a dysfunctional administrative system but a disarticulated economy. What is required is a strategy to engender growth and increase the macroeconomic output in line with resource endowments and skill profile of the local economy. The rest of the country is to be factored in as a huge market for Kashmir’s output rather than seeing it the other way around.

By way of an example, a few years back, an economic survey of household enterprises estimated then 7 lakhs household enterprises in the crafts and trade sector employing 14 lakh people. Basically, on an average two people per enterprise. With a marginal design, marketing and finance intervention, the employment can easily be doubled with economies of scales. That alone is 14 lakh jobs.

So too with the horticulture sector. Barring the fits and starts of the high-density initiative, there has been no technological intervention to improve the productivity of the orchards and incomes of the growers. India is the sixth largest producers of apples in the World on the back of Kashmir Valley, which on its own, is the sixth largest producers of apples in the world. Kashmir can propel India to be become the second largest apple growers in the world, next only to China.

The entire eco-system will create far more jobs than currently required but issues of employability, in terms of modern corporate skills. There is a serious shortage of functional skills like a CFO, CPO or a CTO or on the operations side, a supply chain manager, or a logistics head. The skill deficit is high, and supply side can become a binding constraint if not addressed ahead through policy subventions.