A new tax haven? KASHMIR

Aatif Ahmed Mehjoor comments on the need to develop Economy of Kashmir and ways to do it

Nature has blessed Kashmir with some of the most beautiful and breathtaking natural beauty in the
world, as well as endowing it with many natural resources such as water power and forests. Kashmir's
people are known throughout South Asia for their entrepreneurial skills, their exquisite
craftsmanship and their brilliant salesmanship. The region has tremendous potential to develop into
a major industrialised economy with living standards comparable to many middle-income countries.

During the time of the Maharajas, Kashmir's economy suffered immensely due to excessive taxation at
the hands of these rulers, who even tried to scupper attempts by local businessmen to develop the
textile trade. After 1947, the government followed the communist and socialist models of
development, that gave more importance to the state sector and discouraged individual initiative. A
massive system of subsidies was put in place for food, essential commodities and for businesses,
making Kashmiris inordinately dependent on state support and suppressing the individualistic trait
in the Kashmiri, thus ensuring that Kashmir would never become economically self-sufficient. This
socialist model also resulted in rampant corruption, as the funds meant for distribution to the
public were consumed by corrupt officials, and when the licence Raj imposed by the government
resulted in only a few cronies and toadies being awarded licences. The socialist model has failed
throughout the world. Experience has shown that the best way to generate wealth, provide employment,
and improve standards of living is to allow people to go into business without let or hindrance,
with the government's role being confined to regulating essential infrastructure such as
transportation and energy and exercising general supervision over the economy. Many of the trappings
of the old socialist system continue to languish in the current economic structure of Kashmir.
Unless these shibboleths are discarded once and for all, there is little hope of Kashmir's economy
experiencing the upturn it direly needs.

Privatisation
Many of the state-owned enterprises in Kashmir are loss-making entities that rely on heavy subsidies
from the government. These businesses are also grossly inefficient, relying on outdated production
techniques and management policies, and often awash with corruption. Although it is true that they
provide employment to many people, such employment would equally be provided by efficient private
enterprises. We should, therefore, privatise state-owned enterprises like the JK Road Transport
Corporation, JK Cements, the Government Silk Factory, and many other industrial units that were
begun under the Soviet communist model. These businesses should be auctioned off as soon as possible
with adequate measures being taken to rehabilitate any laid-off workers. There are also many
co-operatives that are operated in Kashmir under government patronage and support. Subsidies to
these units should be withdrawn.

Bureaucratic Inefficiency
One of the major problems facing Kashmir today is the existence of an excessively oversized army of
bureaucrats. Most of these officials are an unnecessary burden on society. The bureaucratic system
of administration in Kashmir has changed little since the days of the Maharajas. The Deputy
Commissioner and his hangers-on have the same powers and duties that they had during the colonial
era. New bureaucratic posts have been created that serve no purpose. These surplus civil servants
should be laid off and expected to find jobs in the private sector. We should also privatise the
provision of many services that are currently being provided by government employees. For example,
engineering services are currently supplied by engineers in the state's employ. Many of these are
notoriously corrupt and widely known to practise all sorts of scams. We'll be better off buying
engineering services direct from private engineering firms, including foreign firms. The local
state-employed engineers will be forced to join up and start their own firms, offering their
services for a market price just like any modern consultancy business, with all the efficiency and
modernisation it brings. The Zaenakoot' incident in which two children were electrocuted by falling
overhead cables shows how low our engineering standards have fallen due to lack of competition.

Banking and Finance
The Indian banking scene is changing fast with the permission of direct investment by foreign banks.
HSBC and other Western banks are investing in India and offering excellent products at fair prices,
thereby impelling India's native banks to follow suit. In Kashmir, the Jammu and Kashmir Bank has a
kind of monopoly on banking services, although its dynamic leadership has allowed it to invest a lot
of money into improving its services and image. Foreign banks should be encouraged to invest in
Kashmir in both commercial and retail banking services. Apart from banks, other financial
institutions can also be encouraged to invest, such as insurance and investment firms. These will
not only generate employment for Kashmir's youth, but also improve the quality of banking and
insurance services for the general public. With greater fiscal autonomy, we'll be able to offer tax
incentives for wealthy foreigners who wish to deposit large sums of money in offshore accounts. An
offshore financial industry flourishes in countries like Barbados, Aruba, Cayman Islands and other
Caribbean islands, where the government has enacted special tax laws designed to attract foreign
private funds, and also special trust laws that make these regions centres for offshore trust
companies. The funds that will flow into our state will be more than sufficient to supply the credit
that Kashmir's entrepreneurs will need.

Diplomatic Centre and Conference Tourism
There was a time when Srinagar was counted among the most beautiful cities in Asia - the Venice of
the East. The imposing grandeur of the Zabarwan mountains reflected in the vast and still expanse of
the Dal Lake and the fresh air of the Mughal gardens make Srinagar an attractive resort for holding
international political, diplomatic and commercial conferences, and an ideal seat for the
headquarters of international organisations. In Switzerland, Geneva, with its beautiful lake, has
become the centre of many international organisations. Some people are already talking of housing
the SAARC Secretariat in Srinagar. We should offer special incentives in order to make Srinagar
attractive for international organisations, such as offering land at discounted prices or rents.
These organisations will generate employment for our skilled graduates and create demand for
ancillary services. However, Srinagar will only remain attractive as long as it boasts the Dal Lake.
We must do everything we can to save the Lake and reclaim the areas lost to encroachment. Otherwise,
no one will be interested in setting up office next to a stinking swamp.

Medicinal Plants and Oils
Despite holding enormous promise, Kashmir's medicinal plants industry remains a neglected and
underdeveloped sector. This branch of industry requires an intimate knowledge of production methods
and marketing opportunities. Those of us who want to see the medicinal plants potential tapped
should get together and set up an organisation dedicated to promoting awareness about this sector,
disseminating knowledge about individual plants and oils, and about production methods, and helping
members find markets for their products. If it is fully developed and exploited, the medicinal
plants industry will boost Kashmir's exports and reduce the chronic deficits in our balance of
payments. Apart from medicinal plants, there are various other export-oriented sectors that have to
be developed such as automotive leather (i.e. for cars), jewellery, handicrafts, perfumes,
floriculture, fruit processing, dairy processing, culinary preparations, furniture manufacture, and
luxury watches. Our endeavour must be to boost Kashmir's exports so that we don't have to keep
relying on subsidies from outside to pay for our excessive imports.

Entrepreneurship
We will be unable to achieve economic growth unless we change the age-old attitudes about business
and enterprise that have become an ugly feature of our collective consciousness. We should value
enterprise and entrepreneurial risk-taking especially among the youth. Individual initiative should
be encouraged, and dependence on jobs in the state sector or on state subsidies should be
eliminated. Many people in Kashmir still look down upon business and enterprise as vocations, and
some feel inversely snobbish about the wealthy (the "khwajas"). This has to change. We should put
the idea out of our minds that it is better to be a daily-wager for the government than an
independent businessman. Innovation and development can only be possible in an environment in which
everyone works hard and on his or her own initiative, and where the possession of wealth is not
considered a sin. So everyone who desires the prosperity of Kashmir should work to change our
anti-business and anti-enterprise attitudes.

(Author can be mailed at aatifahmad@hotmail.com)

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