Productive Economy Key to Post Flood Recovery

Floods revealed that Kashmiri society despite depredations is a strong community with an abundance of social capital

THE anniversary of the devastating floods that swept Kashmir in its fury has drawn to a close. On the face of it, Kashmir looks normal. This, however, is an illusion: underneath the patina of calm and apparent normalcy, lies a Kashmir which is wobbly and angry.  Our economy is in shambles; politically we remain in the thrall of deep uncertainty overlain by relations between India and Pakistan that are creaky and leaky. But if there is one thing that redeems Kashmir and Kashmir, that is our society. Even though Kashmiris tend to speak of broader society not in very sanguine, the character, grit and determination displayed by Kashmiris during the flood fury and after that is an eloquent demonstration of the nature of our society:  peel off the façade of Kashmiris, we are , all said and done, a generous and caring and a compassionate society. This is our enduring asset or what economists call, social capital and it is this than government assistance or any other extra social help that saw us through the floods and succors us now. However, at the end of the day, we, as a society and polity need to come to terms with our collective loss(es) and figure out a way to revert to a normal polity and society-economically, socially and politically. This naturally calls for assessment of our losses , introspection and then developing a template to rebuild our economy and polity- a task that is required on an exigent basis lest we suffer the consequences even more intensely. I will begin the analysis with a brief assessment of our economy and how it has been affected. I will then follow it up with measures that we can take recourse to and that are within our hands to rebuild our economy and polity.

Our economy is in shambles. This is both an intuitive point and one buttressed by both observation and anecdotal evidence. The sub structure and the superstructure of our economy was damaged by the unprecedented and devastating floods that hit us last year around this time. The infrastructure and the architecture-both soft and hard- of our economy received such a jolt that, honestly speaking, it will take years to make a semblance of a recovery. No sector was left untouched by the flood fury. The effect given the nature and existence of linkages between sectors got multiplied and an inverse multiplier effect set in- negatively impinging upon our economy.

An economy is a system-either a closed or an open one- whose components are the production, distribution, trade and consumption of goods and services by a set of disaggregated agents  like individuals, households, businesses, firms and governments. Together these form a loop which feed into each other and determine the nature of an economic system. Economics is further sub divided into micro and the macro economy. It is the macro economy or macro economics that is of interest to us in the context of Kashmir’s economy post floods. Macro economics pertains to the behavior in the aggregate economy  and dwells on the interrelations between the interrelationships in the economy wide domains such as unemployment,  trade, national income, economic growth rate , gross domestic product and inflation among other things. This is the textbook delineation of the economy and the economic system. In practice, economic systems vary both in terms of the stage of the economy and its development thereof. Kashmir’s economy is a curious one: it is neither developed nor too primitive. The spectrum it occupies is somewhere in middle of being an agricultural economy interspersed with an underdeveloped productive sector and a primitive services one.  Markets are also underdeveloped here. The state which in  many other parts of the world has gradually withdrawn from the economy and has given market forces more latitude is more or less ubiquitous here. It would not be inaccurate to state that the state is the largest employer in Kashmir and its tentacles are visible and writ large on almost every sector in our economic system. Fed by centre state fiscal transfers,  and given the nature of our economy, capital formation,  the savings rate and concomitantly investment rate and  the tax base of our state is narrow and limited and given the landlocked and resource scarce nature of our economy, except perhaps in hydro power, our economy is hamstrung by structural factors. This condition, by its very nature is a tenuous and a parlous one.

The unprecedented floods threw this already parlous and tenuous state of our economy into a tizzy. The already shaky equilibrium of the economy was thrown into disequilibrium and uncertainty defined by an unprecedented intensity became the defining feature of our macroeconomic condition. It needs to be stated here that macroeconomic equilibrium is an economic state in an economy where the quantity of aggregate demand equals the quantity of aggregate supply. Both have been affected negatively and it will take years if not more to bring these into equilibrium. All this have and will continue to affect our economic growth with investment-held by some economists to be the fundamental determinant of economic growth as a major casualty. This has and will affect capital formation and its growth.

Capital formation requires saving, that is, the sacrifice of some current consumption. An increase in supplies of capital goods can only result from investment, and investment in turn is only possible if a portion of current income is saved. Thus saving is essential to economic growth.

But in Kashmir the rate of saving will now be lower because income of the people is low.  The lower the per capita income, the more difficult it will to forgo current consumption which will affect the savings rate. Since savings will not be sufficient to translate into investment and then used productively, our growth will be hit. Our rate of investment and the capital output ratio will be affected impacting our growth story. The composition of our GDP  consumer expenditure, capital investment, Government spending, exports and imports- have all been affected. The net casualty has been our economic growth which unfortunately is not an event but a process and that too an unlinear one. Even though these components of our GDP have perhaps always existed in skewed relationship, the equation has become more skewed since the floods. It might not be too accurate to say that we have over time evolved into a consumption economy with trading of commodities and services as the thrust areas of our economy. However with a low income effect on account of the floods, our purchasing power may have been affected. This will naturally and inevitably impinge negatively on the volume and intensity of economic activity  having spillover effects across sectors and even socially and politically.

The overall inference that can be drawn from the observations that I delineated is that we have become a risk society (not in the sense conceived by those who coined this term but in the sense of being vulnerable to risk. All this is very bleak and gloomy but there was also an upshot of the flood fury. The immediate aftermath of the floods revealed that Kashmiri society despite the depredations visited upon it is a strong community with an abundance of social capital. This is a very good base line to begin what can be a prudent and sophisticated way to deal with disasters in the nature (May God protect us but prudence suggests we be prepared). A useful starting point for this preparedness would be what has been called an invulnerable development approach. The first prong of this approach would be to begin with a sustainable economic recovery process wherein we , as a community, drive our own recovery that mitigates risk and builds resilience. Government and state support can be a complement albeit a very important one- to this community based approach. We need to become a disaster resilient community.  While this needs a holistic approach incorporating the environment, community preparedness and resilience, public policy redesign, government and state preparedness, and other related themes, my remit is the economy. I would therefore root for a vigorous redesign of our economic systems and processes that transform our economy from consumption oriented one to a production oriented one. The aim here would be to eke out maximum efficiencies from our extant resources and use these as a template for generating maximum potential from these. It is a combination of these measures that may kick start the process of our recovery. We have social capital in abundance but we need to supplement it with ‘economic capital’ to build the vitals of our economy which will, in turn, have a beneficial and positive spillover effect on our society and polity. 

Wajahat Qazi is a senior editor at the Kashmir Observer

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