The ongoing and mindless war in West Asia—once again imposed upon already vulnerable societies—has, within a matter of weeks, triggered a far-reaching economic disruption. What initially appeared as a regional conflict has rapidly evolved into a global economic shock, unsettling energy markets, trade flows, and financial stability. With crude oil prices rising sharply and uncertainty gripping international markets, economists such as Gita Gopinath and Mohamed El-Erian have cautioned against a prolonged phase of inflationary pressures combined with slowing growth. For an interconnected world economy, this is a classic stagflationary impulse—one that inevitably transmits unevenly, hitting fragile and peripheral economies the hardest.

India, with its heavy dependence on imported energy, is already feeling the strain. Rising oil prices are feeding into inflation, increasing transport costs, and placing pressure on public finances. The macroeconomic challenge at the national level is significant, but for Jammu & Kashmir, the implications are far more severe. The region’s economic structure—largely consumption-driven, import-dependent, and reliant on tourism and remittances—makes it particularly vulnerable to external shocks of this nature.

It is pertinent to recall that within just four days of the outbreak of this war, a meeting convened by Omar Abdullah at the Sher-i-Kashmir International Conference Centre brought together members of civil society to deliberate on the emerging situation. At that meeting, a clear and reasoned warning was articulated: that this conflict would have deep global and national economic repercussions, and that Jammu & Kashmir, given its fragile economic base, would face an especially harsh impact. A month into the conflict, with no immediate signs of de-escalation, that warning stands validated. The economic stress is no longer prospective—it is already unfolding.

Beyond the broader macroeconomic strain, specific sectors of J&K’s economy are already beginning to feel the pressure in tangible ways. The export of handicrafts—particularly carpets, shawls, and artisan products—faces weakening demand from international markets, including West Asia, alongside rising transaction and shipping costs. The horticulture sector, a backbone of the rural economy, is confronting sharply higher logistics costs as fuel prices escalate, making the transportation of apples and other produce to national markets significantly more expensive and less competitive. At the same time, thousands of workers from J&K employed in Gulf countries face growing uncertainty, with any disruption in employment or remittance flows directly impacting household incomes back home. These sectoral stresses, when combined, have the potential to amplify the overall economic slowdown in the region.

Under these circumstances, the Government of Jammu & Kashmir must treat the situation as an economic emergency requiring immediate and calibrated intervention. The conventional approach to development—marked by procedural delays, external contracting, and leakages of public expenditure—can no longer suffice. What is needed is not incremental adjustment but a decisive strategic shift towards strengthening the internal economy, with a clear focus on retaining and circulating financial resources within the region.

At the heart of this response lies a simple but powerful principle: every rupee spent by the government must, to the greatest extent possible, remain within Jammu & Kashmir and continue to circulate through local economic channels. This is particularly relevant in the context of capital expenditure (Capex), which, if properly directed, can act as a stabilizing force during times of economic distress. However, the current pattern of spending often results in significant outflows, as contracts are awarded to outside firms, materials are procured from external markets, and profits are effectively exported out of the region. In a situation of global volatility, such leakages only compound local economic weakness.

The government must therefore consciously reorient its spending strategy to prioritize local enterprises and contractors, and institutionalize this approach rather than leaving it to discretion. Public works should be structured in a manner that enables meaningful participation of local businesses, including breaking down large projects into smaller, manageable components accessible to local contractors. At the same time, a clear policy directive must mandate local value retention in public expenditure, ensuring that a significant share of project value—whether through labour, materials, or services—originates within the region. This is not merely a procurement adjustment; it is an economic stabilization tool rooted in the multiplier principle articulated by John Maynard Keynes, whereby locally spent income continues to generate further rounds of economic activity.

Equally critical is the need to align procurement and construction practices with local realities. Standardized specifications, often replicated from other regions without contextual adaptation, tend to privilege materials that are not locally available, thereby necessitating costly imports and increasing project outlays. This approach must be urgently revisited. Engineering norms and construction codes should be rationalized to align with locally available materials—be it stone, timber, or other region-specific resources—and with indigenous construction practices suited to the geography and climate of J&K. Such alignment would not only reduce costs but also deepen local participation, generate employment, and prevent unnecessary outflow of financial resources.

Alongside spending reforms, the government must also act swiftly to inject liquidity into the local economy without necessarily increasing fiscal burden. One of the most effective ways to achieve this is by ensuring time-bound clearance of all pending payments to contractors, suppliers, and service providers. Delayed payments choke economic activity, particularly for small and medium enterprises that operate with limited working capital. A fast-tracked payment mechanism, supported by transparent monitoring, can immediately revive cash flows and sustain business operations across sectors.

At the same time, local enterprises—especially MSMEs including export oriented units—require targeted relief to withstand the ongoing stress. Rising input costs, weakening demand, delayed remittances and credit constraints are placing them under severe pressure. The government must respond with a calibrated package that may include temporary interest subvention recoverable later, deferment of statutory dues, rationalization of utility charges, and facilitation of working capital access. Such measures are not concessions; they are essential interventions to preserve productive capacity and prevent a deeper economic contraction.

The emphasis on internal circulation of funds must be complemented by strengthening sectors that naturally anchor the local economy, particularly agriculture and allied activities. These sectors, being relatively insulated from global volatility, can provide a stable foundation for income generation and demand sustenance. However, the focus must go beyond subsistence and towards productivity enhancement, diversification, and value addition. Investments in storage, processing, and market linkages can transform these sectors into reliable engines of economic stability over time.

In parallel, the government can take a forward-looking step by launching a focused “local procurement and production mission,” identifying goods and services currently sourced from outside but capable of being produced within J&K. With appropriate incentives and assured demand, this can gradually reduce import dependence and strengthen the local industrial base. As economists like Dani Rodrik have argued, even modest, region-specific industrial strategies can significantly enhance resilience in times of global disruption.

What is required, however, is not a collection of isolated measures but a coherent and time-bound economic stabilization framework. Clear articulation of priorities, continuous monitoring of outcomes, and transparent communication with stakeholders will be critical in building confidence. As former RBI Governor Raghuram Rajan has emphasized in crisis contexts, credibility and clarity of policy direction are as important as the measures themselves.

The situation today calls for urgency and clarity of purpose. The signals were evident at the very onset of the conflict, and the passage of time has only reinforced the scale of the challenge. If the present trajectory continues unchecked, the economic consequences for Jammu & Kashmir could become increasingly difficult to manage. However, with timely and decisive intervention—centered on localized spending, support for local enterprises, rationalization of specifications, and strengthening of internal production systems—the impact can still be contained.

The Government led by Omar Abdullah now stands at a defining moment. This is not a routine policy phase—it is a test of economic stewardship under stress. If immediate course correction is not undertaken, the continued outflow of public funds through external contracting, combined with weakening local demand, could push the regional economy into a deeper and more prolonged slowdown. The warning signs are already visible.

What is required now is decisiveness: to stop the economic drain, to prioritize local enterprise over external dependence, and to consciously build an internal economic circuit that sustains livelihoods. Delay will only narrow the policy space. Timely action, on the other hand, can not only stabilize the present but also reshape the economic future of Jammu & Kashmir.

The moment demands urgency, clarity, and the courage to change course—before circumstances force far harsher corrections.

Shakeel Qalander, prominent business leader and a civil society animator.

© Greater Kashmir