Quantifying Kashmir’s Economic Winter

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August 2019: Shikaras sans tourists parked on the Dal Lake – KO photo

One year of surviving the double whammy of security and Covid-19 lockdown

Ejaz Ayoub

CONTRARY to the age old wisdom that “Lightning never strikes the same place twice”, the Kashmir economy, already marred with political uncertainties & economic backwardness, witnessed two black swan events of systemically gigantic scale within a short span of only eight months. First, it was the cataclysmic event of August 5, 2019 which froze everything living and paused anything moving and then came this lethal pandemic that  uprooted the very foundations of even the most advanced economies across the globe. Due to this double whammy of nested lockdowns and triple tragedy of the communication gag, logistical restrictions and demand shock, havoc of unprecedented proportion has been unleashed on all sectors of the Kashmir economy. So what is the size of this colossal impact?

Given the financial and operational unfeasibility of aggregating individual losses from millions of households and businesses, economic contraction at a macro level is often calculated using proxy indicators. In order to arrive at an indicative quantum of loss that Kashmir’s economy has incurred in the last 12 months, we shall rely on proxies like historical trends in the economic output as per official Government records and market published consumption related data points. Besides data, the accuracy and relevance of any loss calculation model depend on a thoroughly researched set of assumptions that form the building blocks of the methodology. Therefore it is essential to briefly embark on the assumptions before discussing the results.

First, given the highly skewed geographical distribution of the first systemic shock, the loss assessment is done only for the 10 districts of Kashmir division. Since Kashmir comprises around 55 percent of the region’s population, the economic output figures assumed for calculating loss for Kashmir valley have accordingly been downsized at 55 percent of J&K’s GSDP.

Second, some sub sectors like Public Administration & Defense, Electricity, Gas, Water and other utility services, Mining and Quarrying, Forestry and Logging, Fishing and Aquaculture have not been factored while calculating the losses. It is assumed that these sub sectors were operating at normal capacity because they either fall under the domain of Government spending, survival consumption or are considered insignificant for the purpose of calculations. These sectors comprise around 35 percent of the total economic output, implying that only 65 percent of the economy has been taken for assessment of economic contraction.

Third, the entire period from 5th Aug 2019 to 4th Aug 2020 has been classified into 4 phases. First phase comprises of 120 days of complete shutdown from 5th August 2019 to 3rd Dec 2019. Second phase comprises of 109 days of partial opening of economy from 4th Dec 2019 to 21st Mar 2020. The third phase comprises of 70 days of complete lockdown on account of Covid-19 from 22nd March 2020 to 31st May 2020. And the last and fourth phase comprises of 65 days of intermittent lockdowns, restrictions and choked economic activity from 1st June 2020 to 4th August 2020.

Based on the economic output of all the constituent sectors from primary, secondary and tertiary categories and the assumed drop in economic sectors by around 85 percent the estimated loss for the first phase of the year comprising 120 days of shutdown and communication blockade arrives at a whopping Rs 17,878.18 Crore or a per day loss of Rs. 148.98 Crore.

Interestingly, our per day loss calculation of approximately Rs. 149 crore is in line with two authentic studies. First one was a part of J&K Economic Survey 2016 which had estimated a loss of Rs. 16000 crore for 116 days of lost business during 5 months long political turmoil in the valley. The daily loss therefore from GoJK accounts arrives at Rs 138 Crore. Pertinently the nature of shutdown and communication blockade in 2016 was far less severe in terms of geographical distribution within the valley and therefore comparatively less than what is relevant for the previous 12 months. Another research by SEBI registered and RBI accredited rating agency Acuite Ratings and Research Limited (ARRL), has pegged per day loss on account of lockdown across India at Rs 35,000 crore. Since J&K contributes 0.77 percent to the national GDP, the daily loss to J&K comes to Rs 269.50 crore of which Kashmir’s share is estimated at Rs 148.22 crore approx. (55percent of JK GSDP).

Phase-2 comprising 109 days of partial opening of economy from early 4th Dec ‘19 till 21st Mar 2020, belongs to the most economically inactive portion of the calendar year. With hostile weather, all educational institutions shut, sarkari darbar in Jammu, regular CASOs in every nook and corner of the valley and a perceived threat of demographic change, the economic output is assumed to have dropped by a drastic 45 percent. The resulting loss  amounts to Rs 7308.45 Crore.

March 22nd witnessed the mother of all lockdowns encompassing entire India, which, on paper, lasted for 70 days till 31st May 2020. With a per day loss of around Rs. 149 crore, phase 3 has cost the 10 districts of Kashmir economy with a back breaking amount of Rs. 10,430 Crore.

Similarly, 65 days of unlock 1.0 and 2.0 from June 1st till 4th Aug 2020 too were marred with frequent covid-19 infection outbursts, ineffective unlock, total closure of transport sector, tourism sector and e-commerce. Export sector which contributes over Rs 1,700 crore to the export economy annually, was already gasping for breath from sustained high speed internet blockade and was now getting overwhelmed under the debris of a severe global recession. Our, otherwise steady, annual stream of Rs. 1300 Crore foreign remittances from Kashmiris working across the globe too started facing the heat of global lockdown. Domestic businesses suffered huge income losses resulting in widespread bank defaults, rampant job cuts and foreclosures. Consumption too was severely devastated due to accelerating job cuts which in turn shook the demand mercilessly. The economic output is assumed to have nosedived by approximately 55percent, resulting in an unavoidable loss of Rs. 5326.75 Crore.

The assumed percentage drop in economic output in various phases of last 12 months have been carefully mapped with various consumption data points like sale of cars, tractors, two-wheelers, commercial vehicles, mobile phones and occupancy in hotels and resorts etc.

For example, compared to an annual sales figure of Rs.650 Crore and Rs. 750 Crore for FY 2017-18 and FY 2018-19, the mobile phones market in Kashmir valley, with an aggregate sales figure dropping to Rs 250 crore, registered a contraction of over 66percent in FY 2019-20.

Likewise, compared to automobile sales of 64,445 units for J&K for last four months of 2018 calendar year, the sales data for the same period from September ‘19 to December ‘19 nosedived to only 34,271 units registering a contraction of over -53 percent. The months of April 2020, May 2020, June 2020 and July 2020 were even worse with a respective YoY (Year on Year) contraction of -100 percent, -98.57 percent, -87.60 percent and -53.50 percent. Pertinently, these figures are for entire J&K and given the geographical distribution of the economic slump, the figures of Kashmir valley alone are expected to be even worse.

Based on the above discussed assumptions and methodology, the cumulative loss therefore for the 4 phases arrives at a whopping Rs. 40,943.38 Crore. With a nominal GSDP of Rs 1.587 Lakh Crore for entire J&K and Rs. 87,285 Crore for Kashmir valley, a loss of Rs. 40,943.38 crore means a respective contraction of 25.80  percent and 46.90 percent for the previous 12 months. These are not just simple numbers. A contraction of this scale which has wiped almost half of the Kashmir valley’s GDP in just 12 months period will have serious and long lasting ramifications on the ground. With draining household savings and eroding business capital, Government’s loan bonanza is falling woefully short. This economic catastrophe is already wreaking havoc with lakhs of bread earners losing their jobs, businesses closing down amid rampant bank defaults and average households finding it excruciatingly hard to make the ends meet. Policy responses on the other hand are not only short in size but late in delivery. It is time that both, the UT government as well as the union government put their heads together and respond with a sustainable fiscal stimulus so that Kashmir survives this brutal economic quagmire with dignity.

Ejaz Ayoub has been working in the BFSI industry in the field of Financial Risk Management, Strategy and Foreign Exchange. He can be reached at:ejaz.ayoub@gmail.com.

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Ejaz Ayoub

Ejaz Ayoub has been working in the BFSI industry in the field of Financial Risk Management, Strategy and Foreign Exchange. He can be reached at:ejaz.ayoub@gmail.com.

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