J-K Industrial Policy: Old wine in a new bottle

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Among the reasons given for abrogating Jammu and Kashmir’s limited autonomy and its statehood was the promise of a new era of development and industrialization that would bring prosperity in the region — even if not to the natives, as the fine print would suggest.

After imposing a series of new policies to steer the future of J-K, prominently the domicile law and the opening up of lands to outsiders, the regional administration — under New Delhi’s direct oversight — has now rolled out a new industrial policy on 19 April.

The nine-year policy was adopted to “address the challenges faced by the industry and to create a sustainable, balanced, progressive and competitive ecosystem” in the poorly developed land-locked Himalayan region thousands of kilometres away from seaports.

The policy supersedes the previous industrial policy of 2019, which was statedly “more focussed towards the traditional cottage industries”, to encourage industrial expansion. However, response to the industrial policy within J-K is muted; perhaps, knowing well that the policy is part of the authoritarian Bharatiya Janata Party’s broader vision for the region.

Unlike the previous policies, non-local investors will now find it easier to avail benefits of this policy. The new industrial policy has included new sectors — tourism, hospitality, education, health, and renewable energy among others — offering subsidies on the purchase of generators, pollution control, and automation technologies. 

‘Chicken or egg situation’

It is the best policy to boost industries that Annil Suri, a Jammu-based entrepreneur for over three decades, has seen. Unlike Kashmir, the Jammu region owing to its relatively more conducive political environment and all-weather road connectivity with mainland India has seen greater industrialisation.

The policy, along with other packages by the Government of India, would attract investments but there were still some issues to be resolved, Suri said. “One is the availability of land,” he said. “There is no industrial land available right now. They are asking us to use undevelopment and semi-developed for industrial purposes.”

While the previous policies had a single window for multiple clearances, the same was no longer the case, said Suri. Moreover, each district of J-K earlier had an industries department to oversee the setting up of industries which has now been shifted online.

As such, acquiring land had also become a complicated process under the new policy, said Suri. “When you apply for the land they ask for a TIN number. When you apply for a TIN number, they ask for industry registration and place of operation. When you apply for industry registration, they ask for a TIN number, detailed project reports, and lease deeds,” said an exasperated Suri. “It’s a chicken or egg situation.”

If this barrier is crossed, Suri said, a more pertinent question arises of the cost and benefits of investing in J-K. “The cost of production in J-K is already higher by 5 to 7 percent,” said Suri. “We are a landlocked state with only one entry and exit point. We have to source materials from outside and then sell finished products outside as well. That is why we need incentives to offset our local disadvantage.”

Under the previous policies, local businesses were given a subsidy of up to 90 per cent on the import of raw materials and similar subsidies on the export of finished products as well. “But that has been withdrawn in this policy,” Suri lamented. “Why will someone invest in J-K if the same policy is in place in Uttarakhand or Himachal Pradesh, which are nearer to the main market centre of Delhi?”

Despite several deliberations of the local industry leaders with officials of the J-K administration, Suri said suggestions were not taken — but he doesn’t blame them. “The initial drafts [of the policy] were very good but once they went forwarded to the central ministries, they modified those according to their own interests,” he said.

“Unfortunately after the abrogation, all issues are being finalised by the home ministry… The Governor’s office is merely a courier service, we can send them letters but they can only deliver it to the home ministry. If there was a political setup here we could have [better] negotiated with them.”

Policy stability first

The fundamental problem with industrial policies for J-K was its instability, said Vikram Kuthiala, industrialist and former chairperson of the Jammu chapter of PHD Chamber of Commerce and Industry. He welcomed the policy with some words of caution.

Kuthiala pointed out that the Government of India’s industrial policies for the region in the early 2000s was abruptly stopped after a change of dispensation in the federal government. “Investments come into trouble,” he said if policies are changed midway. “There should be a categorical assurance that whatever is in the policy, that there will be additional [benefits] but nothing will be lessened from [the existing policy].”

Presently, there are 25,000 micro, small, and medium enterprises in J-K — comprising eight percent of the gross state domestic product and 90 percent of all employment in the region’s industries sector. The policy, Kuthiala said, however, doesn’t play to the region’s strengths.

“We have not played to our strengths,” he said. “We have limestone here and cement industry is thriving because of it; renewable energy sources are also an industry of a different kind, it has been tapped in states like Himachal Pradesh through mini hydel projects; about 80 percent of [India’s total] apple output comes from here but its value addition is done outside J-K, there is no plant to make apple juice or concentrate here; even saffron and almonds, for oil etc, are processed outside.”

Moreover, the poor road infrastructure, particularly the Srinagar-Jammu national highway, is a constant impediment in the way for intra-regional trade and leading to losses of perishable items such as apples, said Kuthiala. “With value addition, there will be economic prosperity,” he said.

The new industrial policy states that all industrial units that will be operational in commercial production beginning April and the pre-existing units that substantially expand will be entitled to various incentives in addition to the previous policy.

But owing to the COVID-19 pandemic’s crippling effect on the economy, said Kuthiala, industrialists were already busy salvaging their existing operations. If the situation persists, he said, “nobody will have the appetite for expansion no matter how good the policy is. It is already very difficult in the current situation when existing factories are unable to operate on their full capacities.”

As such, the only big investors in the region are likely to be major businesses in states outside J-K. “If there has to be large-scale investment, it can only come from outside,” said Kuthiala. “But the local industry must be supported. The problem is when industries come from outside, they usually bring in their sub-suppliers and ancillary units.”

“If everything is brought from the outside, we will have big investments in the region but the local industry won’t benefit,” said Kuthiala, adding that big industries must help local industries to progress. “At least half of their ancillary needs should be sourced from local industries, only then will we benefit.”

Old wine, new bottle

The new industrial policy was not very different from the previous policies, said Nisar Ali, noted economist and former head of the Kashmir University’s Department of Economics. The focus of the policy should have been industries suitable for the region — such as value addition.

In the early 1970s prime minister Indira Gandhi had rebuked her finance minister for expressing his desires to see industrialisation in Kashmir; the Valley with its fragile ecology, Ali recalled, should be preserved for its scenic beauty. The lack of perspective and promotion of industries would likely impact the region’s environment in the longer run.

Moreover, owing to the region being landlocked and an ever-expanding population, the pressure on land was high, said Ali.  “Basically there is no land” to set up major industries, he said. “You have to rely on the power sector, revival of traditional handicrafts on modern lines, and then consumer industries where the domestic corporations step in.”

“You can have industrialisation of agro-based industries, sheep husbandry dairy products, horticulture, food processing, the power sector and small scale consumer industries, that should be the focus of the industrial policy,” said Ali.

“These [industrial policies] are policy documents prepared in the secretariats by people who are not subject experts who have studied the field on what kind of investment ventures should be encouraged and incentives be given so industrialisation increases,” said Ali. “In a way, it’s the same old wine in a new bottle.”

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