Incentives for investment in Jammu & Kashmir (like in any other economy) have a legitimate role in attracting capital by addressing market imperfections and lowering entry barriers. However, besides strong underlying economic fundamentals and good governance, their effectiveness depends heavily on the design of these incentives which must be tailored specifically to the unique structure and constraints of the J&K economy.

The Industrial Policy 2021 lists fifteen “focus sectors”, covering almost every conceivable economic activity — from broad categories (agriculture, manufacturing) to very specific ones (Film Tourism) and loosely grouped activities (Milk, Poultry and Wool production). When everything is declared a priority, nothing remains a priority. Moreover, the current list largely mirrors administrative departments.

To make the industrial policy operationally more effective in addressing market imperfections in Kashmir, it must be cast in terms of markets, not sectors. The factor markets – land, labour and the credit – and product markets should be the focus for policy interventions.

The Kashmir economy is fundamentally a “high-risk, high-apparent-return” trading economy. It generates quick, visible returns because of relatively low capital requirements and leverage opportunities. The underlying reality is that investors face a double risk layer in Kashmir: political instability and fragile security situation which have resulted in creating a high-risk environment leading to uncertainty, potential asset losses, and operational disruptions.

Second, the lesser visible intrinsic economic risk: the nature of existing business models and market size and structure, high logistics costs, and the absence of agglomeration economies. Together, the two factors strongly deter serious, market-driven investors – domestic and foreign — who prefer locations with predictable and stable risk-return profiles. Private capital avoids Kashmir primarily not because of low returns, but due to extraordinarily high perceived risks.

This leads to the first principle for an effective Industrial policy for Kashmir: Prioritize risk mitigation over return supplementation. Indeed, the central flaw of all industrial policies of J&K has been that the incentives are designed only to increase returns through financial subsidy or support rather than reduce risks.

The........

© Greater Kashmir