New Industrial Policy – innovative, inventive or just another policy!
The Lieutenant Governor administration in Jammu and Kashmir, with the consultation of the Union government, has recently announced a Rs 28,400-crore industrial development initiative for the UT, claiming that the new policy would not only lead to socio-economic development but also ensure employment to 450,000 people.
Since the magnitude of the claim too vast, the stakeholders in Kashmir seem skeptical about it, as they view the new industrial policy through the prism of the past experience. They say that such policies and subsequent claims by the governments have proved to be bitter experiences in the past. The business leaders, however, acknowledge the fact that unlike the past, the new industrial initiative is inclusive of certain subsidies and incentives, which may help the prospect industrialists as well as those whose projects have been languishing due to the adverse situations in the Valley.
‘Kashmir Images’ spoke to several stakeholders and experts to get their perspective on the new industrial development policy.
Here are the excerpts:
The government did not consult the Kashmiri stakeholders, in an adequate manner, with regards to the new industrial policy announced recently by Lieutenant Governor. After analysing the policy thoroughly, we see several flaws in it. For instance, this industrial policy has created Special Economic Zones (SEZs) – A and B – to provide special focus to areas that are backward in terms of industrial viability. Some districts of the Valley have been included in the B zone category to improve facilities for stakeholders in these places, which is a good and welcome step. We, however, believe that the entire Kashmir division deserves to remain in this category because of the industrial backwardness of this region. Unlike Jammu, this region has been facing several problems for a long time now while Jammu is in an advantageous position in terms of industrial development for the well known reasons including availability of railways, good road connectivity, access to markets and so on. On the other hand, Kashmir division is caught up in a difficult scenario for past many decades. Thus, the place deserves special treatment for the industrial development.
We had already given our suggestions to the government through representations at different points in times. But most of our demands have been ignored while drafting this policy. Besides other demands, we had highlighted that the existing, but sick, units should be given priority.
Though we don’t know what will unfold in terms of the new industrial policy, but based on our past experience, we are skeptical about several things regarding it. One of them is the implementation part of the policy. For example, the policy promises that all needed assistance to the budding entrepreneur will be forwarded to them within 45 days. We are keeping our fingers crossed for this promise, because we know that there already was a ‘one-window clearance system’ here, but it didn’t work due to bureaucratic hassles.
That said, there are many things in this policy which we appreciate. For instance, there is clear scope for the budding entrepreneurs and for their upcoming projects. I would advise the youth that they should take advantage of this policy without waiting for outside investors. Anyone having a clear business goal must explore the relevant provisions of the policy and try to take advantage of it. Since our businesses have been in trouble for quite some time, our immediate priority is to take advantage of whatever is available to us.
I do not see anything new in the recently announced industrial policy for J&K. If you go through the J&K Economic Survey Report of 2017, you will find the same policy had been drawn and drafted then as well. Calling it a new policy does not make it new or innovative. It is like putting old wine in a new bottle.
All previous industrial policies did promise incentives, subsidies, and bank loans and so on and this policy does the same. Nothing has changed because these policies are made by the bureaucrats and administrators, instead of being drawn and drafted by the experts. These officials do not know and understand the technicalities of such policies. For example, I was recently in a meeting along with some other experts, where an administrator failed to respond to our query regarding the technical issues of this industrial policy, simply because he was not an expert on the subject. Then I explained to him that our failure to conduct a cost–benefit analysis (CBA) so far, has rendered us unable to understand our requirements to boost our industrial sector.
In the absence of CBA, we do not know which ventures fetch us larger benefits in fewer costs. We need to identify ventures, which suitable for us in terms of profits and employment generation. As far as my understanding of the subject is concerned, I would say that if the central government is really concerned about the development of Jammu and Kashmir, it must provide us with a big package for building tourism infrastructure here. For instance, Doodhpathri has a great potential to become a dream destination. However, to develop the place to that extent, it needs ten thousand crore rupees for world-class infrastructure development. If it is done, this place will generate thousands of jobs as well. We have planned it out in the past. When Mufti Sahib was the chief minister, we identified as many as 55 places, which could be developed as tourist destinations, with 12 to 14 of them as dream destinations. If the infrastructure is developed at these places, this lone industry will change the destiny of Jammu and Kashmir, in terms of economic and developmental growth. There are several instances, where countries have made this industry as a key source of their development and economic growth and they are successful. Take the example of Maldives. The ninety-five percent of its total income comes from the tourism industry and the rest five percent from the fish export. The currency value of this tiny country is four times higher than that of Indian currency. This is called the growth and development.
Besides the tourism industry, we have many other high-potential industries such as production from forests, traditional handicrafts, oriental crafts, horticulture, and so on. In horticulture, our thirty percent apples gets damaged and then wasted, but even this damaged fruit can be converted into jam and juice, which has a huge export market value. All that is needed is infrastructure development.
Similarly, our traditional handicraft sector can be developed up to the modern requirements. For example, with Research and Development (R&D), software-based new designs on Pashmina and Kani shawls and carpets can be introduced.
An industrial policy focused on all these industries of high-potential and sustainable values will also enable us to forecast our growth. That means we will be able to predict the stages of our future development as well. Whereas, the current industrial policy with routine components such as subsidies, incentives, and bank loans, etc, may help the concerned individuals but it will not benefit the overall development and sustainable growth of Jammu and Kashmir.
Let me assure you that we have seen many such policies in the past as well and the most important among them was announced in 2002 by Prime Minister Vajpayee. This was also a long-term – for eighteen years – policy. Even at that time, the government had claimed that the policy would boost economic development besides creating jobs in Jammu and Kashmir. However, in contrast, we have had a different experience in the years that followed. In the past 18 years, this policy could not do anything compared to places like Uttarakhand and Himachal Pradesh, where the same kind of industrial policy was introduced with the same kind of concessions and incentives. Lakhs of crore rupees of investment came to these regions. But only 3500 crores worth of investment came to Jammu and Kashmir, and if we divide this amount over 18 years, it means that not even 200 crore rupees worth of investment was made every year. One of the reasons for the failure of this policy was the nature of providing uniform incentives to investors investing in all the districts of Jammu and Kashmir without considering the advantageous or disadvantageous positions of the districts. This uniformity in granting incentives led to uneven, imbalanced growth across the two regions and across the different districts of Jammu and Kashmir. For example, those who invested in districts like Jammu, Samba, or Kuthwa, which are located in the plains and have easy connectivity with the rest of India, received the same incentives as an investor who invested in far-flung Kupwara area of North Kashmir. The uniformity in the distribution of incentives paved the way for unbalanced and uneven growth. This is because the investments that came in from outside or elsewhere were encouraged in only three or four districts of the Jammu region because of having easy connectivity with the rest of the country.
The equitable growth can be well gauged by the figures: The total amount of Rs 1120 crore has been disbursed in terms of the Industrial Policy of 2002 over the past eighteen years and shockingly more than 95 percent of the amount has gone to only four districts of Jammu region. We already had an idea about this unbalanced and inequitable growth and that is why in 2009 when we met Prime Minister of India in 2009, I as President Federation Chamber of Industries Kashmir, along with my delegation handed over this policy to him (symbolically) and said that the government must take it back. Even at that time, we had informed the Prime Minister that this policy has created unequal growth in Jammu and Kashmir.
As far as the newly announced industrial policy is concerned, we are yet to see the guidelines. However, given our past experience, I would say that unless the existing industrialists are made comfortable, nothing will change. I say this because I know how these industrialists have struggled with the turmoil and the unfavourable environment over the last three decades. These units are in thousands. As per the official records, more than 12 thousand units are registered in the industry. Apart from these, about 5 thousand units are directly registered with forests and around 8 thousand units are agro-based and Animal Husbandry industries. All these 25 thousand units are facing huge problems as they have faced almost three thousand days of stoppage of business due to imposed curfews, strikes, and natural calamities in the last three decades and have never been compensated by the government for their losses.
There is an investment of 2500 crore of depreciated value locked up in the Kashmir Valley. These locked-up investments need to be unlocked through certain concessions and incentives to get them back on track.
If the government fails to make existing entrepreneurs comfortable and fails to support these units in difficult moments or situations, the budding entrepreneurs will always distrust its policies and will not dare to start their units. The government needs to restore the faith and confidence of the existing players and thus boost the confidence of the prospective entrepreneurs. Unless the implementation of this policy is equally beneficial to the existing units, it will not bring any benefits. I am afraid, in that case, the new policy may suffer the same fate as did the industrial policy in 2002.
Since the economic liberalization and industrial reforms were made in 1991, industrial development schemes have frequently been coming up in different regions of India.
The recently announced industrial scheme for Jammu and Kashmir, therefore, is not something happening for the first time. There have been industrial development programs in the past too, both at the state as well as central level. However, the fact remains that the dismal growth in industrial development, when compare to post-liberalization growth in this sector at national level, continues to deter J&K’s potential for greater economic output. The stated objective of the new scheme aims to address advancement of industries and creation of employment opportunities. I fear the response in terms of the policy falls woefully short and tragically myopic. Instead of a holistic policy encompassing all the components of the prevailing weak industrial ecosystem, the only thing that makes the latest scheme different from the previous ones is the change in the mix and quantum of subsidies and creation of land banks.
The basic premise based on subsides and land banks on which the entire vision of the policy stands is absolutely flawed. No doubt these are very essential ingredients of any industrial development program, but in case of J&K there are other and more pressing areas which because of the chronic overlook have become serious impediments in the region’s industrial output.
No matter how good your plant and machinery is or how big your industrial estate is, if you are not providing a reliable and robust logistical pathways for the finished goods produced in these plants to reach to the markets or source raw material from outside, the entire industrial resource remains absolutely underutilized.
We have a single surface link to the outside world to bring in raw materials and send products to outside markets. This single road mostly remains closed down during winters, leaving loaded trucks stuck on it for days and weeks. No other place in India faces logistical problems of this magnitude. Unlike J&K, most of the other regions have all-weather and 24×7 road & railway connectivity to surrounding parts of their respective states. Due to lack of road connectivity, our manufacturers have confined themselves to a very limited market. As a result the manufacturers of Kashmir in particular have developed a very small market size comprising of the valley alone.
For decades we have come across announcements that the railway link and all weather road is under construction. We also heard that a dry port is coming up. But so far nothing has happened and unfortunately nothing on this very essential aspect has been said about it in the industrial policy.
Similarly, to run the plants a sustained and reliable supply of skilled people who can operate these machines and create value is most needed. We have an acute shortage of skilled human resources. Seventy to eighty percent of the people working at the operational level in our factories are migrant workers. Our ITIs, Polytechnics & other vocational training centers were supposed to produce such skilled human resources. Unfortunately, these institutions only focus on teaching things like plumbing and car repairing. The unavailability of a skilled workforce exposes the factory owners to risks of keeping their manufacturing at bay during harsh months of winter when other state workers migrate to their respective villages.
Besides this, the mix of financing that keeps our industrial ventures operating need a judicious mix of debt and equity. Operating in a politically volatile region where disruptions in the income flows is a norm, relying heavily on stringent bank loan contracts is a perfect recipe for pre-closure and bankruptcy. J&K needs formal platforms for equity financing which has an inherent property of absorbing risks. Industries financing in other parts of India or in the South Asian region rely on owner’s equity, bank debt and public equity. Public equity is most important for industries because it enhances the risk-bearing capacity. For example, if you take a stake in a company and it faces a loss, the share holders enhances the risk appetite drastically in absorbing such losses. Such formal options have not come up in J&K. Our factory owners don’t even know how to get listed on SME exchanges neither do we have a customized version of an SME stock exchange for regional requirements. Servicing the debt shouldn’t be at the mercy of packages every time a political or natural calamity befalls the region. Equity provides such immunity on a sustainable basis. This should have made it to the policy document at least.
Selecting a location for setting up a manufacturing plant depends on a whole gamut of factors. For example, nearness to the market, proximity of raw material, availability of workers, power, internet and an enabling regulatory environment comprising of facilitative local Govt, easily accessible finances, relaxed tax policies and supportive incentives. Among all these factors if there is something which, in J&K, has a huge scope of value addition is the indigenously available raw material. Due to lack of research and development there has been lack of innovation and breakthroughs leading to obsolete industrial outputs which are not able to survive competition. The policy should have focused on creating incentives and handholding programs for manufacturers for research and development on indigenously available raw material. This can be time consuming and laborious but something which can be a game changer. This should also be supplemented with exchange programs with other industrially advanced states so that transfer of technology, knowledge and vision is catalyzed. Nothing on this aspect seems to have crossed policy makers’ minds.
None of these problems are addressed or at least discussed in our industrial policy. In fact, this policy does not answer most of our problems.
The lack of engagement with manufacturers, experts and those who understand the requirements of industrial sector, while drafting such an important policy document, has resulted in a policy which seems to be disconnected from reality and might not be able to have the desired impact. In conclusion, I would say that our industrial units may survive more with the incentives and subsidies promised in this industrial policy, but I am skeptical about the impact on industrial expansion and job creation. A manufacturing plant is but one piece in the entire supply chain. If the forward, backward and adjoining linkages are not taken care of, nothing is possibly going to change.