Kashmir & Fourth Industrial Revolution

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Embracing the opportunity

AS a matter of unfortunate fact, Kashmir valley’s economy has been a victim of sustained political and sometimes even ecological shocks in the past three decades. Thanks to some of the stable drivers of the economy (discussed in the last column), Kashmir has somehow managed to survive the onslaught with tremendous grit & perseverance in the past. However, the intimidating cacophony of the emerging challenges in the form of political instability, pandemic, global slowdown and domestic demand shock, is making the present situation even more precarious.

Unfolding Challenges in Tourism, Export & Foreign remittances:

Take, for example, the tourism industry. For tourism business to thrive, there needs to be a balance in two sides of the equation. One is a safe, peaceful and ecologically fulfilling destination supported with efficient logistics and reliable communication system. The other is a sustainable demand. Unlike previous occasions when the regional unrest used to impact the feasibility of the destination, this time, the other side of the equation i.e market demand, which otherwise used to be stable, has been completely wiped off by the pandemic. The shock is on both sides and the corresponding impact on this industry is extremely painful. Irrespective of being abused as a part of peace promotional narrative, the fact remains that tourism was contributing approximately 7-8% to J&K’s GSDP. Tourism is essentially a part of luxury need and depends highly on residual income. With seriously impacted household incomes across India and the fact that Covid-19 infections continue to expand, the probability of this industry coming to senses any time soon is extremely low. Moreover, as this column has been repeatedly highlighting, the export of traditional Kashmiri handicrafts and even fruits experiencing a sizeable contraction amid global slowdown, is another unfolding threat. This is besides the negative impact on foreign remittances flowing from thousands of people working outside J&K.

Chronic manufacturing failure & the recent disruption:

Manufacturing sector which employees around 1.5 lakh people in the region is currently grappling with piled up bank loans, troubled supply chains and choked cash flows. Besides recent disruptions, the sector has been chronically underperforming due to a host of systemic as well as poorly formulated policy induced reasons. Our manufacturing plants are still stuck in 18th century industrial practices figuring out the processes of making high-quality jam from apples. Rest of world is flying and our factories are barely crawling. It won’t be wrong in saying that we are the Neanderthals of the present day manufacturing systems. The outputs from these industrial outlets have not been able to even cater to the domestic demand properly. To put things into perspective, with an annual GSDP of around Rs. 1.71 lakh crore, J&K in total and Kashmir valley in particular imports goods worth approximately Rs. 60,000 and Rs. 33,000 crore annually respectively, from other states of India. The additional layers of misery on account of Aug 5 2019 & Covid-19 are on top of the existing chronic issues of geographical & climatic disadvantage, costly logistics, power deprivation, inaccessibility to formal channels of equity financing and dearth of skilled human resource. Despite being pumped with huge capital subsidies, tax rebates, thousands of kanals of land banks and interest remissions, the fact that this sector has not been as effective in contributing to the state economy in terms of productivity and job creation is a stark reality which needs to be acknowledged.

4th Industrial revolution & emerging opportunities:

With shrieking sounds of imploding economic pillars clearly audible, are there any options left with Kashmir’s economy for sustaining these emerging risks?

Interestingly, global economy is at the cusp of the fourth industrial revolution comprising of varied disruptions unfolding simultaneously and exponentially. Fields of Artificial Intelligence, Robotics, Internet of things, 3-D printing, Biotechnology, Block-chain, Augmented & Virtual reality are putting millions of jobs at risk on one hand and creating new business opportunities and jobs on the other. According to the recent McKinsey Global Institute Report, 375 million jobs will vanish by 2030. Most of these will be in Manufacturing and Service industry.

Contrary to the challenges that Kashmir’s manufacturing sector has been facing traditionally, the fourth industrial revolution, if handled consciously and with effective policy responses, throws open more opportunities than threats. Yes, competing in markets of robotics and biotechnology might sound like wishful thinking for us, but, we have very encouraging examples of green shoots in the software development and offshore technology driven service support sector established in the last two decades. Valley based Information Technology companies like BQE, iQuasar, Lelafe, STC and many small and medium sized IT ventures have not only survived, created jobs but also managed to grow and register profits. Factoring the limited Government support when compared to manufacturing and the frequent internet downtime and power challenges, catering to global audience profitably in a highly competitive market is no mean feat.

By virtue of its intangibility, industries of fourth revolution are mostly immune to logistical challenges and geographical disadvantages — the precise reasons for our manufacturing failure. The industry is also less demanding in terms of capital investment, energy consumption and dependence on migrant workforce. This puts our economy in a very advantageous position in terms of leveraging the unfolding opportunities in this sector. Luckily, this is the trajectory of the tide which the world economy is riding currently and will continue to do so in near future. It’s time we start preparing our resources in order to tame this tide effectively.

The steep rise of the potentially exponential and holistically varied fourth industrial generation can be anticipated with the comparatively linear and solely IT and communication driven third industrial revolution growth registered in India. Pertinently, from FY 2008-09 at USD 66.87 Billion, the Indian IT industry has registered an impressive compound annual growth rate (CAGR) of over 10% to reach to a whopping USD 191 Billion in FY 2019-20. The revenue is further expected to reach USD 350 billion by 2025. From a microscopic 0.4 percent in FY 1991-92, the IT industry has contributed around 8.4 % in 2019-20 to the Indian GDP. This share is expected to increase to ten percent by 2025.With effective and timely responses and Government support in terms of policy, slicing a chunk from this huge revenue pizza is very much doable for Kashmir economy. With two decades of significant experience of serving global customers, the Kashmir’s IT industry has everything that can transform this tiny segment of our economy into a significant and reliable driver. Four immediate reforms that should therefore guide the Government policy in order to leverage this unfolding economic revolution should revolve around:

  • Revision of IT policy: Besides establishing a favorable business environment and regulations, IT industry in Kashmir needs a written guarantee regarding non-disruptive internet connectivity and power supply. These are the lifelines on which the entire castle of this economic powerhouse rests. Any vulnerability in these two essential bed rocks will ensure failure even before it is started. It can be easily done by demarcating special IT Zones/Parks etc which should be made immune from political & law and order compulsions. In addition to this a subsidy component on installation of IT equipment, proprietary software products and IT export incentives should be liberally introduced in order to attract investment & quality human resource in the sector.
  • Reforming education & skill development institutions: There is a need to align our vocational institutions like the ITI’s and Poly-technique institutions towards industry demands. The same needs to be done with engineering and other university programs. Courses on mobile app development, machine learning, block chain and AI should be introduced across educational levels. R&D at university level on the fourth industrial revolution should be financially supported as well. This will help in catering to the human resource needs of the industry effectively.
  • Global market outreach: Government has already been spending a fortune annually on sponsoring tourism meets across India and sometimes even outside India. Export promotional events too are a frequent affair. Although support for the existing industry should continue, but, the Govt also needs to widen its horizon and start providing sufficient support to IT industry for market exploration and export of IT services.
  • Establishing a formal equity route for financing: The stringent and inflexible nature of the debt contract and the volatile nature of our economy are logically poles apart. The survival of business in this turbulent environment depends largely on its ability to absorb income shocks. Equity financing in once such route that gives the businesses an inherent capacity to mitigate such risks. This route however deserves to be formalized by establishing a small Govt regulated stock exchange for IT and even MSMEs. This can help companies raise funds and improve their risk bearing & even expansionary capacity and it will also give investors an opportunity to be the part of the growth story.

We have been laggards in manufacturing all these years. Although we should continue to endeavor for creating domestic manufacturing capacities but as a policy, we should also look towards diversification of our industry into more profitable, futuristic and importantly those industries where we have the capacity to compete. Fourth industrial revolution provides us with one such unique opportunity. We are at the crossroads and the collective set of decisions as policy makers and as entrepreneurs we take will determine the shape of our future trajectory. The line passing through the digital divide will be very significant and the path we choose now will determine on which side of the divide we are going to find ourselves in future.

 

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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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