Indian Defence Review

Map not to Scale

“Brexit” has allowed coining of a new terminology and explore areas in formation of nation and nation states, something which was treaded with caution till now. Britain has voted to be out of the EU (European Union). How long the process of separation takes is a matter of conjecture at this point in time, but surely it will be a long and painful separation. Would it happen cleanly? The answer seems to be NO.

It is suggested by many that majority of British have voted for an exit hoping that this option would give them a better future, something the “Leave” voters and their leaders were promising throughout the campaign. Yet no sooner the referendum was over and the result announced, many of the Leave camp became skeptics and many ordinary British wondered if they were misled. Only history can sit on judgement now in case of Britain’s exit from the EU. Interestingly Great Britain as we know is a group of many nations, namely England, Scotland & Wales. When we add Northern Ireland, it becomes UK. In this case it’s the UK which voted for referendum. And it is now known that at least Scotland and Northern Ireland are not inclined to leave the EU.

This preamble was necessary to layout the context in which we need to understand the case of J&K wanting to exit from India. The idea repulses most nationalistic Indians but theoretically this possibility exists. We need to analyse the consequences even if it is hypothetical and the conditions and situations which could follow the exit. Unless a prognosis is done this question will remain an emotional issue.

Demands for Separation from the Indian Union

The demand for an independent J&K has been persistent since India’s independence and the history of how it ceded to the Indian Union is well known. Pakistan our westerly neighbor has been claiming Kashmir, which is part of J&K, on religious and geographical grounds. On its official sites whenever Pakistan refers to Kashmir it means the state of J&K. Even today its UN website continues to refer to Kashmir as the state of J&K[1]. Lately protests in the Kashmir valley has grown into a civil strife, where demand for independence has increased. There is a large section of separatist in the Kashmir valley who have been demanding independence for a long time from India.

Thus there are enough elements who are demanding JKexit (borrowed from Brexit) from the Indian union. Independent Kashmir is more a rhetoric than a real expectation, as there has been no documented study done by anyone till date to understand what does this independence encompass. There is no white paper or roadmap even with the separatists. This paper makes an attempt to argue purely on economic grounds what would the fate of Kashmiris, if hypothetically, they are given an exit.

Everyone understands that the state of J&K encompasses three regions namely the region of Jammu, the Kashmir valley and the region of Ladakh. Just like in Great Britain, in India too, Jammu & Ladakh regions do not wish to separate from India and have no desire to participate in any activity remotely connected with exit from the Indian Union. Which means a JKexit would actually come down to only a Kashmir exit -Kexit. Let’s first understand how difficult it is to work on ground. The access to Ladakh runs through the Kashmir valley and an independence to Kashmir valley would jeopardise the access of India to Ladakh, a strategic fallout which will not be acceptable to India. The only way to resolve this strategic tangle is, either to upgrade the alternate axis which goes via Manali to Leh; the capital city of Ladakh, to carry the full tonnage of supplies which the state requires on a daily basis and the stocking for winter months. Or alternatively an independent state of Kashmir would have to grant full and unhindered rights to passage of trade and tourism through its borders. Both these options look unrealistic in today’s context and yet both are within the realms of a theoretical possibility.

Macro Economics of J&K

The state of J&K has been mired in political controversy ever since its independence. Successive governments and political parties have done nothing to alleviate the cause of an ordinary Kashmiri. The government of India has treated J&K under special provisions, i.e. under the article 370. This gives J&K special powers which are not available to other Indian states. The government of India, ever since merger of the state of J&K with the Indian Union, has been doling out large amount of aid to support the people of J&K. Unfortunately in spite of all that financial aid, the state of J&K remains one of the poorest state in India. Let’s look at economics of J&K as it stands.

If one compares economy of the state of J&K with the poorest countries in the world, one would get some idea as to where it stands. In 2014-15, its per capita income at 2004-05 (base year) prices in AE (Advance Estimates) was Rs 30612/-[2]. In US dollar terms it comes to US$ 473.31. (Rs 70/- = 1US$) Compare this figure with the list of the world’s most poor countries on GDP per capita basis:

(Source:http://www.mapsofworld.com/world-top-ten/world-top-ten-poorest-countries-map.html)

By this measure J&K would be slightly better off than Zimbabwe and worse off than Liberia. This does not account for the 60% of the debt it owes to the center in terms of its GDP amount. J&K ranks 2nd in the list of highest grant receiving state from central govt. amounting to 7.55 billion USD. This makes J&K one of the most indebted state with a debt-GSDP ratio of around 60%. If that debt is factored in, J&K would probably become the poorest country in the world, should it become independent. The state of J&K economic survey of 2014-15, states that the macroeconomic condition of the state is far from healthy. “Fiscal position of the State had seen a steady deterioration in the finances of the State Government, for host of reasons including rising cost of salary and pension bills, burgeoning hidden subsidies including power deficit, rising interest liabilities and loan repayments.[3]

This paper considers only two parameters that are listed to substantiate this point. The first is the contribution of the center to the revenue receipts of the state.

(Source : Table 5: summary of fiscal transactions ,economic survey of J&K 2014-15,pg 35)

If one analyses the table given above, it would be evident that in a revenue receipt of the order of Rs 27128 crores, the share of center is Rs 17625 crores which is 65% of the total amount. Add to that a revenue deficit of Rs 4554 crores which was required to cater for the expenditure of Rs 31686 Crores, was also funded by the central government bringing its contribution to the tune of almost 80 %.

The second parameter is the Return on Investment (ROI). Quoting once again from the economic survey of J&K 2014-15 report, the state government in 2014 had spent Rs 533.27 crores up to 31 March 2014 on various statutory corporations, government companies and joint stock companies. The ROI on this was of the tune of Rs 128.88 crores which in percentage terms came to 24.17%, and if the interest on borrowing of funds was to be factored in, which was 7.07% average, then the ROI net figure comes down to 17.10 %, which is very dismal by any industry or corporate standard.[4] This effectively means that for every Rs 100/- invested by the J&K government in 2014, it only got back Rs 17/- , thus incurring a loss of Rs 83/- for the state government.

When the two parameters stated above are combined, it reflects that the state of J&K has no capacity to sustain on its own and is heavily dependent on outside agencies, which in the current situation is the government of India.

An independent country or state with this kind of macro-economic numbers is doomed from the beginning. Probably the reality is that people of J&K have never given a thought to their own macro-economic situation as it dulls the argument of “Azadi”. Some might argue that after gaining independence J&K would come of its own as it would be able to guide its own affairs. This argument has no economic backing as the state has no industrial economy and relies mostly on Agro and Tourist industry, both of which are prone to vagaries of nature and political climate. The point has been amply borne out in the economic survey , with J&K registering a negative growth in 2014-15 owing to floods in Srinagar and surrounding areas and the unrest of stone pelters in the valley.[5]

Macroeconomics of a Merger

Considering what has been stated above it would be hard to understand the logic of asking for an independence status. Assuming that in spite of all odds J&K did get an exit from the union of India, the chances that it could survive on its own are very low. In such a case the option with J&K most probably would be to merge with Pakistan. Having got out of the Indian Union this would be a Hobson’s choice. Let’s look at the impact of this merger. It would be like the poorest state merging with another poor big brother which is waiting to feed on whatever resource it gets.

Pakistan’s macro-economic condition is equally dismal if not worse. Pakistan hovers around 135th position on the richest or the poorest nations amongst the list of 185 nations. India does not figure too well either because these are list drawn based on per capita. But in real terms the story is quite different. GDP (Nominal) of India and Pakistan was $2050 billion and $250 billion respectively in 2014. On PPP basis, GDP of India and Pakistan was $7,376 billion and $882 billion respectively.

By nominal method India is 9th largest economy in the world and 3rd largest economy in PPP (Purchasing Power Parity) terms. Nominal ranking of Pakistan is 43 and PPP ranking is 26. Out of 33 Indian states/UTs (Union Territories), 24 states/UTs are more richer than Pakistan.[6]If that is not convincing enough, an analysis by comparing the economic indicators between J&K and Azad J&K ( POK in Indian parlance) should give some indications. Unfortunately, while the economic figures and numbers of J&K are freely available on public domain yet the same is not true with Azad J&K, which by itself should tell a story. Their economic numbers are a matter of conjecture , yet some rough estimates were gathered from the internet and they speak volumes of the economic disparity.

The principal argument that is being pursued is; what would be the economic health of J&K if it joins POK? Worse than it is presently. The economic entity of the new state would be worse than J&K today and thus would slip further down in the index having the least GDP in PPP terms. The protection of Article 370 will vanish. Kashmir will be overwhelmed by citizens of Pakistan claiming their share of the booty. Which brings the debate back to where we started; is an exit desired purely because a state wishes to be suicidal about its future, where a few interested parties claim religious oppression and hide realities about health and prosperity? A narrative which has similar undertones as the “Yes” advocates in Brexit.

Brexit was advocated in UK as an alternative to get better of the economic situations prevailing in Europe. The stipulations laid by EU in terms mandatory migration of labour and capital to and/or from other European nations was felt as a stifling condition for Britishers. A separation from the EU regime is expected to bring better dividends for the British economy. But Britain is finding it difficult to deal with the Brexit. This can be gauged by the fact that all principal proponents of the exit have either resigned or shunned responsibility in the aftermath of the referendum. This is primarily because getting to promise the people to vote for the exit was the easier part, but delivering the promised gains of the exit is very difficult.

There is more pain than reward as it looks now. This appears to be the singular reason why the politicians are reluctant to lead a post exit Britain. And that’s exactly the situation with J&K or far worse as the British economy is one of the better faring economy in the EU.

The separatists and other political parties who are in opposition in J&K are happy misleading the population in believing that Azadi would give them a better future. As long as there is no debate on how this could be achieved or what would be the repercussions mainly economic, the common man in Kashmir would always be led astray by inimical entities to India.

Conclusion

Its time that intelligentsia in J&K and India discuss this issue openly with the people in suitable forums. An angry hostile mob fed with anti-India rhetoric is not going to listen to any reasoning and least of all economic reasoning. But when the unrest settles down and sanity prevails, then in suitable forums and through media debates the issue can be brought to fore. Also is the question of the two other regions of the state. How does the new entity cope with them. Is their voice not significant specially Ladakh as they would be the worst affected both geographically and economically. From economic stand point Kashmir best bet stands in integration with India. All macro-economic indicators are in India’s favour.

A blogger who is a Kashmiri states: “The truth is that Indian Kashmir would have been better than even Gujarat and Maharashtra if the armed insurgency did not happen and if their politicians and some of the government heads in Delhi were sincere.”[7] Only if the intelligentsia in Kashmiri who are well aware of this fact, could voice it freely and educate ordinary Kashmiri, the wish could become a reality.

Till then no nation would gamble with an option which allows a part of its union to separate on religious grounds alone. Kashmir needs more than religious reasons to argue separation from India. Currently it is foolhardy even to think of this consideration.