Political Economy of Terrorism in Jammu and Kashmir

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Date(s) - 03/06/2019 - 04/06/2019
10:00 am - 5:30 pm

Seminar Hall


The political economy of Jammu and Kashmir state that has been caught in the situation of armed militancy and separatism for last three decades now, reflects a very complex and paradoxical nature. It is a backward economy characterised by  ‘predominance of agriculture sector’, ‘low degree of urbanisation’, ‘inadequately developed infrastructure’, ‘widespread illiteracy’ and ‘low levels of investment’. (Planning Commission, 2003, Jammu and Kashmir Development Report) Due to its remoteness, poor connectivity and the context of security situation, it has been struck up with the ‘backwardness trap’ that keeps it in a condition of ‘low employment and low income generation’ (Report of the Task force, 2006). However, compared to other states, this state reflects much better situation in terms of the level of poverty and standard of living. As per the Statistical Digest of Jammu and Kashmir, the poverty figures for this state in 2011-12 was 10.4% which was much lower than the all-India poverty figure of 21.9%. Assessed from the perspective of the income level, the state presents a relatively better picture, compared to many other states. On the whole, despite the disruptions due to the situation of militancy, one can see a flow of money in the state in general, and Kashmir Valley in particular. Paradoxically it seems that the adverse economic conditions during the period of militancy did not adversely impact all kinds of people in Kashmir and while a large number of people were negatively impacted, militancy also created a sort of affluence for certain classes. This paradox raises important questions about the political economy of Kashmir in general and about the political economy of conflict situation in particular.

One factor that has contributed to the lower levels of poverty in the state is the land reforms that took place in the 1948-1950 period, More particularly, this is a reflection of the the ceiling laws and the successful acquisition of surplus land by the state and the land redistribution to the tillers. As per the SECC data, 78% of the rural households in this state have their own land. This percentage is quite higher when seen in the context to the national percentage of 44%. Also related factor is the large state employment sector. The state ranks much higher as compared to many other states  in salaried jobs. As per the SECC data, compared to all-India level where only 9.68% of rural households have someone with salaried jobs, in case of J&K, the percentage is as high as 22.37%. Of these the largest number, that is 19.95% are employed in the government sector. Again this is much higher than the national average. At the all-India level, only  5.02 % rural households have someone with government jobs.

However, notwithstanding the benefits of radical land reforms and other pro-people policies in the early post-1947 period, the condition of large number of people has remained at the subsistence level and economy of the state in general, has remained crisis ridden. Before the period of liberalisation, it was clearly characterised as a ‘dependent economy’ surviving on the basis of subsidies and concessions on the one hand and grants and loans from the centre on the other. It could not also take the advantage of liberalisation as this period coincided with the period of militancy and hence the benefits of the growing economy which brought about radical changes in rest of India, bypassed this state completely.

With the onset of armed militancy and massive separatist upsurge in 1989-90 period, the economy of the state in general and Kashmir valley in particular, was faced with adverse implications. There was ‘collapse of administrative machinery’ and ‘destabilisation of the political structure’. In a scenario, where there was huge destruction of the public structures; large scale violence; and targeting of central government establishments, industries and offices – there was slow down of economic processes. (Bloeria, S.S., 2016,The Men Who Served Jammu and Kashmir)  There was loss of working days due the continuous shutdowns. The emerging security situation directly affected the business. There was almost no flow of investment in the state as there were negative perceptions about the security situation. The tourism was worst affected. Apart from those dependent on tourism, those involved in handicrafts and agrarian sector were also seriously affected.

By the end of the decade of 1990s, there was huge destruction of vital assets of the states as the roads, bridges, schools and health centres were targeted by the militants and damaged in large numbers. Hundred of schools and health centres were burnt, numerous bridges were exploded and a large network of roads was destroyed. As per a report, between 1988 and 1997 a total of 758 schools, 9 hospitals, 243 bridges, 1264 other government buildings, 9309 homes and 1659 shops were destroyed. (Ganju, Akshay, ‘The post-Militancy Political Economy of J&K’) Many institutions became dysfunctional. Situation was so bad in the initial period that it led to the great fiscal crisis. This fiscal crisis as elaborated by the Planning Commission comprised of the ‘erosion of tax base, increase in expenditure and destruction of the infrastructure’. With the collapse of the state authority in the initial period there was ‘continued tax and non-tax revenue shortfalls’. Situation was so difficult at that time that ‘it became difficult to collect user charges and sales tax revenues’. (Planning Commission, 2003) On the whole, the economy of the state became quite fragile and state accumulated a large amount of debt.

When the political processes were restored in 1996, the government had to spend much of its energy and resources in rebuilding the infrastructure. However, some resources were damaged irreversibly.  Forests, for instance, were plundered and lakes were encroached. It was during the decade of 1990s that there was huge deforestation. There were thousands of encroachments in Dal Lake during the very early period of militancy. These encroachments, however, continued in the later period. In the process, massive farming tracts; residential places and hotels were constructed; and even shopping areas came up in and around the lake.

The situation as it evolved in the post-1989 period led to the fragility of governance leading to the fiscal crisis. Fiscal mismanagement and corruption have been the two major fallouts of the situation at that time. The CAG has often raised the issue of fiscal mismanagement. It reported that the State’s overall fiscal liabilities were ‘increased from Rs 9224 crore in 2000-01 to Rs 16,801 crore in 2005- 06. It also reported that the fiscal deficit had risen from Rs. 1311 crore in 2002-03 to Rs. 2,643 crore in 2005-2006. The State, according to the CAG also had a serious primary deficit, which increased from Rs. 216 crore in 2002-03 to Rs. 1,528 crore in 2005-06.’  (Talib, Arjimand Hussain, 2007, ‘Fiscal Challenges in J&K : A Pre-Budget Review’) Planning Commission described the situation to that of a ‘debt trap on account of central loans, market borrowings and other loans besides the bank overdrafts’. (Planning Commission, 2003) There were also huge losses on power purchase. The financial mismanagement has been reflected in other areas as well.

The state does not provide a good example of fiscal efficiency even now and one continues to get to know about contradictory and paradoxical situations. The story of Jammu and Kashmir Bank, for instance, represents similar paradox. Despite being projected as one of the success stories of banking in Jammu and Kashmir state, the bank had one of the highest NPAs. As reported by Economic Times, at the time of taking over by the new Chairman and CEO in 2018, the Bank had a NPA of 4,300 crores and it faced big fall from profitability. The loss has been said to be a result of the lax management by the Bank officials as well as by the government.

How did the situation defined by armed militancy and separatism  impact the people in Kashmir? Paradoxically, the adverse economic conditions, notwithstanding, all sections of society were not affected in the similar manner. That there was sufficient affluence in Kashmir was reflected by the unending construction process throughout the period of militancy. The city of Srinagar got expanded on all sides and new housing colonies, multi-storey houses, shopping malls and shopping areas came up. The property prices meanwhile increased tremendously. That there has been a flow of money gets clearly reflected when one visits Kashmir. It is a different matter that this flow of money has not benefited Kashmiris in an even manner. Besides the top class of wealthy Kashmiris, many of whom are dealing with handicrafts business, hoteliers, exporters, orchard owners etc, there is certainly the emergence of an affluent middle class and also a class of ‘new rich’. The sudden emergence of this class of ‘new rich’ is often the point of conversation in Kashmir as it appears to have upset the traditional class relationship.

The sources of money are multiple and have established a parallel economy – the economy linked with the conflict situation. Right from the onset of militancy, Pakistan has been pumping huge amount of money – much of it has been coming through hawala channels. Over the years these channels have taken almost institutionalised form. Apart from funding the militancy, this money has been circulated among the various sections of society. While the beneficiaries include the separatist  leadership at various levels, this money has been passing on to others as well. Meanwhile, money has been pumped by India as well. Being a border state facing security challenges, there has been a huge flow of money. Besides, money is also pumped for development purposes. The state has been a special category state (receiving 90% funds in grants and only 10% in loan) A substantial part of this money goes in the coffers of the government officials at all levels. Due to the continued conflict situation and absence of accountability at major levels, corruption has been quite institutionalised in the state. Money also flows through the vast network of NGOs. There has also been a huge media expansion (a total of 1013 registered newspapers and periodical) with the support of subsidy from the Centre government.

However, the affluence – as the outcome of the parallel economy of conflict – is not evenly distributed. Though the level of poverty is not very low, a large part of the rural population of the state, and particularly in the valley, lives at the subsistence level. It is this class of people that has suffered the negative economic implications of militancy. Among those who suffered the most  in the initial period, included not only those dependent on tourism – mostly, the ’taxi-transport operators, shikarawallas, retail sellers, footpath vendors, handicraft and other shopkeepers, and other seasonal – occupational personnel’, but also the artisans and workers including the handicraft workers and the peasants. The prolonged economic shutdowns (for instance during the early period of militancy and lately during the 2008-2010 period and in 2016) also affected the aspirational middle class since the educational sector suffered from discontinuities. The marginalised classes suffered most in this case also. R L Bhat has clearly noted as to how the education of poorer sections, especially in rural areas ‘became a casualty, as the better-off households sent their children outside the State for (better) education and those belonging to poor households got deprived of even basic literacy and elementary education and became illiterates for lifetime.’ (Bhat, R. L., 2012, ‘Impact of Economy’ in V. R. Raghvan, (ed) Conflict in Jammu and Kashmir: Impact on Polity, Society and Economy)

On the whole, one can say that the political economy of Kashmir during the last three decades presents a picture of complexity and paradox. While adversely impacting a substantial part of society, it has also benefitted some sections of people. It is for this reason that Kashmir presents a picture of contrasts – with affluence and subsistence-pattern of life remaining visible side by side; the notable display of wealth taking place in the overall context of backward economy; Srinagar city bulging with big luxury vehicles and shopping areas while there are large number of villages without even the basic facilities including electric connections and road connectivity.

It is in this context of the complexity and paradox that this seminar is being organised. It seeks to raise pertinent questions related to political economy of conflict situation in Jammu and Kashmir in general and political economy linked with militancy and separatism, in particular. While understanding the nature of political economy of the state in the pre-militancy period, it will aim at analysing in details the impact of militancy on the economy of the state from various perspectives. Among the pertinent questions that would be raised would include those related to the liberalisation process and its implications for the state. Since liberalisation process coincided with the period of militancy, an attempt will be made to develop a nuanced understanding of the economic development in the period after 1990 and the state’s isolation vis-a-vis the growth story of India. One important focus of the seminar would be the parallel economy that has evolved in the conflict situation of the state, particularly in the period of militancy. What has been the response of the government in dealing with Hawala channels and how far these have been successful?  Particularly, what has been the impact of demonetisation process on dealing with militancy and separatism. Discussion would revolve around the flow of money and the consequent unevenness in the society. The seminar will also focus on the Cross-LoC Trade and analyse its efficacy as a political CBM and its implications for the underground economy that it might be generating and its security implications. The seminar would tackle the questions of transparency, accountability and corruption in the situation of conflict.  One major goal of the seminar would be to address the question related to improvement of the efficacy of the anticorruption institutions in the state. Lastly, the seminar would seek to analyse the economy of the state from the perspective of weak infrastructure. It will specifically focus on the nature of economic development since the announcement of Prime Minister’s development package amounting to 80,000 crores in 2015.

The seminar is action and policy-oriented and while seeking a critical analysis of the situation, looks forward to the policy-related suggestions and recommendations.

The suggested broad Sub-themes for the Seminar


  1. Political Economy of J&K
  2. Political Economy of Conflict Situation in J&K – Pre-Militancy Period
  3. Political Economy of Conflict Situation in J&K – Militancy period
  4. The era of Liberalisation and its implications for militancy-ridden state
  5. Implications of Recent policy interventions by the Centre (like demonitisation and Prime-Minister’s Package)
  6. The Parallel Economy of militancy, the flow of money and the unevenness in society
  7. Conflict situation, Corruption, Accountability and Institutional Response


A limited number of participants will be invited for the Seminar. Those interested in participating should send (by email) an abstract (500 words) of the proposed paper along with their brief bio of around 200 words to:

  1. Professor Rekha Chowdhary (Rtd)
Fellow, Indian Institute of Advanced Study, (IIAS) Shimla 
Phone: 9419145923
Email: rekchowdhary@gmail.com
2. Ms. Ritika Sharma
Academic Resource Officer,
Indian Institute of Advanced Study,
Rashtrapati Nivas, Shimla- 171005
Tel: 0177-2831385; +91-9044827297 (Mobile)
Email: aro@iias.ac.in

The last date for submission of abstract (500 words) is 21st April, 2019 till 12:00 midnight. The Institute intends to send invitation letters to selected participants by the end of April, 2019. It is the policy of the Institute to publish the papers not proceedings of the seminars it organizes. Hence, all invited participants will be expected to submit complete papers (English or Hindi), hitherto unpublished and original, with citations in place, along with a reference section, to the Academic Resource Officer, Indian Institute of Advanced Study, Shimla– 171005 by 5th May, 2019. IIAS, Shimla, will be glad to extend its hospitality during the seminar period and is willing to reimburse, if required, rail or air travel expenses from the place of current residence in India, or the port of arrival in India, and back.