Contextual Framework

Abstract

This chapter lays out the contextual framework, starting with discussion of geographical and demographical aspects of the Jammu and Kashmir (J&K) region. Following an in-depth analysis of the political economy of J&K state, India, since pre-independence era, the chapter analyzes its performance on selected economic and fiscal indicators over time as well as vis-à-vis selected states in the country. It also delves into a detailed analysis of employment situation in J&K state vis-à-vis other Indian states and explains why the issue of quality jobs is of particular relevance to fragile as well as poor-/lower-middle income states which witness a greater degree of economic distress. Finally, it attempts to capture deficits in human capital formation in J&K state by analyzing its status of health and education.

Appendix A: Line of Control (LoC) Trade Involving Kashmir Region

Over the years, economic and geopolitical dynamics have played an instrumental role in shaping trading patterns and development of the Kashmir region. Historically, trans-Kashmir corridor connected Indian subcontinent with the Grand Silk Route, which facilitated trading of silk, herbs, tea, and regional specialties including carpets, shawls, saffron, grains, salt, leather, etc. The Silk Route connected China with Europe, Middle East and India, wherein the Indian subcontinent was connected to Silk Route through numerous interconnected routes of then Greater Kashmir – Ladakh, Gilgit, and Srinagar-Muzaffarabad routes. They not only facilitated economic exchange and cross-cultural interactions but also promoted peace and security in the region. Efforts at restoration of these trade routes have been variably affected by conflictual situations in the region.

3.1.1 Revival of Cross-LoC Trade Routes

In 2008, as a confidence-building measure (CBM), a standard operating procedure (SOP) was signed between India and Pakistan to start duty-free barter trade across LoC (on Uri-Muzaffarabad and Poonch-Rawalkot trade routes). This SOP was marked as a landmark event toward enhancing cross-LoC economic interactions. Another development prior to this step of economic interaction was the establishment of Federation of Jammu and Kashmir Chamber of Commerce and Industry by business communities across LoC, which facilitated first formal non-governmental platform to enhance cross-LoC trade interests (Yusuf 2009: 2). On Uri-Muzaffarabad and Poonch-Rawalkot routes, trade is confined to a mutually agreed list of 21 products of Kashmiri origin, which consist of mainly primary products, including agricultural, handicraft and handloom products. Trading is facilitated by the Trade Facilitation Centres at Salamabad (Uri) and Chakan-da-bagh (Poonch). Initially, frequency and transportation permitted was twice a week for 25 trucks from both sides a day, which was extended to 4 days a week with 100 trucks from both sides per trading day in 2011. Despite narrow list of permissible products to be traded, cross-LoC trade (both traded in and traded out) has expanded over the years (Table 3.13).¹⁰

Table 3.13 Cross-LoC trade pattern, 2011–14

3.1.2 Major Challenges Facing LoC Trade

There exist numerous challenges due to which the actual potential of LoC trade has not be attained. These include major bottlenecks, including problems associated with barter exchange, lack of adequate transport, communication channels and financial arrangements, absence of mechanisms for legal contract enforcement, etc. The existing trade basket lacks comparative advantage, and each year the product list differs with demand. Maini (2009) has argued that the list of 21 products is not concomitant with market realities and defies the rationale for trade as some goods are available at a lower price in the importer’s market, or the exporter has sufficiently lucrative domestic market. Toward this end, in 2015, a revised list of 72 products was submitted by traders for consideration of the Ministry of Home Affairs, Government of India.

The most significant challenge is the barter nature of trade without any formal contract. The traders have to balance trade within a definite period (3 months), which is often difficult to reconcile with fluctuations in market prices and purely based on trust. If the prevailing market prices are lower at the time of balancing than the ones when trade had taken place, it is a loss to the trader who has to exchange the product. When traders are not able to reconcile, it leads to negative trade, with the trade in goods (for J&K) lesser than trade out (Table 3.13). In case of defaults from either party, absence of a legal redressal framework increases related uncertainties. This adds to the transaction costs of traders, making the barter exchange an unviable proposition in the long run. To mitigate the problems associated with the barter exchange, efforts to facilitate banking services at TFCs have been initiated by the government, but with slow implementation. Weak transportation and communication channels are other challenges. In spite of tight security, trucks from the Indian side cannot transport goods to final destination and have to unload goods upon crossing LOC, from where Pakistani trucks take them. This has serious bearing on fragile and perishable commodities.

Another characteristic of LoC trade is its duty-free nature. However, due to lack of clear guidelines on the rules of origin, it has led to access to trade of other goods and even third country products through LoC routes, which creates distortions in trade as traders from other trade routes pay duties, as under the South Asia Free Trade Agreement (SAFTA) (Taneja and Bimal 2015: 23). This not only makes the system susceptible to illicit trade but also undermines assessment of real benefits emerging from LoC trade. While clear guidelines on rules of origin are required, the cost of trade being duty-free should be seen with the benefits the trade ushers in – regional peace and stability. It is worthwhile to note that, during Uri tension recently, LoC trade remained operational. Moreover, there have been talks in policy circles to enhance routes at LoC for further trade and travel. With a long history of being a conflict zone, intra-Kashmir LoC trade has emerged as a silver line, through its contribution to peace and the economy, for people residing in the region. It still faces considerable challenges due to which the actual potential of trade has not been reaped. Going forward, governments should consider revising SOP and related modalities of trade – monetization, opening up of formal communication networks between traders through trade fairs and meetings, with exploring other trade routes with potential of opening up access to erstwhile Silk Route.¹¹