Policy Logjam: Beyond Subsidies and Land Banks

J&K Industries need holistic reforms which go beyond the archaic approach of providing stimulus through subsidies and creating land banks

“INTEGRATION will give a boost to investment, innovation and incomes”. This was one of the many optically pleasing statements showered from New Delhi after the abrogation of article 370 on August 5th 2019. Attracting investment into J&K post 370 abrogation seems to have remained a sustained focus of the central Govt. Probably, also because “370 as an impediment to investment” was the central arguments around which the entire narrative of abrogation was spun.

A brief chronology

Soon after the abrogation, the Government announced a very ambitious project titled, “Global Investors Summit” and scheduled it on 12th to 14th Oct, 2019. With precarious situation on ground and indecisiveness of policy makers, the Government on 20th Sep, 2019 decided to postpone the event till March 2020. In January 2020, a pre-summit investor’s meet was held in New Delhi. Besides showcasing the sectoral opportunities in J&K, the Government also announced its plans of deploying a whopping 6000 acres of land for industrial purposes. To put things into perspective, the current area under industries in the entire J&K is only 242.25 acres. A few road shows promoting the summit in major Indian cities also took place in the month of February and March 2020. To further lure the investment houses to J&K, the Government approved 4 sector specific policies on 20th March 2020 which included tourism as well as hydroelectricity. However, with the pandemic unfolding exponentially across the world, this entire exercise came to an eerie halt. Not a single penny came.

Fast forward to 27th Oct, 2020, the Central Government amended the Jammu and Kashmir Development Act, 1970 for setting up, “J&K industrial development corporation”. Besides industrial promotion, the amendment empowered the newly created corporation to acquire and hold property, both movable and immovable, for the performance of any of its activities, and to lease, sell, exchange or otherwise transfer any property held by it on conditions as may be deemed proper. Three days after this amendment i.e. on 31st Oct, 2020, an area equal to 3000 acres (24000 Kanal) was transferred by GoJK to the Industries & Commerce Department. It was, moreover, said that another tranche of 3000 acres shall be notified for industries after clearance from the forest department.

The Industrial Policy 2021

On 7th of January 2021, J&K’s lieutenant governor announced a Rs 28,400-crore industrial development scheme that he said would usher in socio-economic development of the Union Territory. Despite the fact that this amount is arrived at by aggregating the incentives of 17 long years till 2037, the package is surely a lot better in terms of the percentage and variant of subsidies provided to the industry by the centre.

However, the four page list of highlights which they refer to as a policy, stands woefully short of being holistic or potent to make any real difference. Given the involvement of some very powerful and comparatively competent bureaucratic offices from both centre and the UT and the amount of time it took to come up with a tangible policy; the expectation was something of the scale of industrial reforms encompassing the entire industrial ecosystem and not just the rudimentary financial components of Plant and Machinery. The four page list of highlights that is available in the public domain is still an elementary document of subsidies, land banks and plenty of rhetoric. It is a matter of fact that our manufacturing backwardness can’t be cured by interest and capital subsidies alone. Investors invest in an industrial ecosystem. If we think that business houses will shift their manufacturing plants to an isolated Himalayan region marred with conflict just because we are providing them a piece of land and basic incentives on establishing factories, then we are grossly mistaken.

Without going into the details, the larger focus of the policy has again been myopically aligned towards enhancement of manufacturing capacities alone. Manufacturing plant is only one of the cogs in the wheels of the supply chain. No matter how much resources you push into this one cog, the strength of the entire chain will still be determined by its weakest link. Flooding our manufacturing capacities with subsidized resources and deploying more land is hardly going to make a difference. There is a whole gamut of weak links which if given equal attention can culminate into better economic outputs in terms of industrial production, employment creation and revenue generation.

The smooth movement of goods in the supply chain demands a robust intra-region and interstate connectivity. A lone road link which keeps on hanging on a strand of thread and an internal road connectivity which is still at the mercy of horses for delivery speaks volumes about the priorities we should be focusing on. Men, material and markets – all these essential components which ensure the optimum utilization of the industrial capacity, needs smooth and reliable logistical connections. No matter how good your plant and machinery is, if your raw material gets choked for 15 days on Jammu-Srinagar highway and your finished products are not even able to reach Sonmarg, you are bound to fail. No amount of subsides can cure this chronic disease marring the potential of our industries. The concept of establishing a dry-port for mitigating logistical disadvantages was a step in the right direction, but never saw the light of the day. This policy was expected to address that.

Dearth of skilled human resources is also starving our manufacturing plants during winters when skilled migrant laborers leave the valley and the manufacturing capacities remain underutilized. Aligning our ITIs and Polytechnics to meet the skill deficit in the industrial sector is long overdue. The policy was supposed to address this as well.

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. Facilitating listing of business on SME stock exchanges & opening equity route for the manufacturers would be one reform in such direction. Seeking relaxed norms in terms of repayment cycles from the RBI for lending towards manufacturing, in areas under Disturbed Areas Act, can also make a huge difference. Nothing of this critical impediment has been embarked upon.

Importantly, unless Industries in J&K are given non-disruptive supply of internet connectivity and power, no amount of subsidies are going to help. These are the lifelines on which the entire castle of manufacturing and service industry rests. Any vulnerability in these two essential bed rocks will ensure failure even before anything is started. Industrial areas and IT Parks should at least be demarcated and made immune from political & law and order compulsions vis-à-vis the internet.

Lastly, the absence of research and development has time locked our local industries in 19th century industrial practices. This has resulted in blind spots wherein manufacturers are unable to look at indigenously available resources with a new perspective. Breakthroughs happen through research and the kind of resources that we have in J&K deserve to be studied with a fresh perspective. This is where policy reforms are needed in terms of knowledge support and financial incentives.

J&K Industries need holistic reforms which go beyond the archaic approach of providing stimulus through subsidies and creating land banks. As long as chronic issues of poor logistical connectivity, electricity deprivation, paucity of skilled Human Resource, unreliable high speed internet, inaccessibility to equity and investment in research and development continue to be ignored, Industrial policies will continue to yield poor results.

  • The views expressed in this article are the author’s own and do not necessarily reflect the editorial stance of Kashmir Observer

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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:[email protected]

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