In the early days of August 2019, Kashmiris knew that something strange was afoot: TV channels went off the air, the internet was cut off, tourists were asked to leave, and a strict curfew was imposed. Then, on Aug. 5, New Delhi announced it was revoking the semiautonomous status of Jammu and Kashmir, bringing it under the central governments direct control.

At the time, in a speech announcing the move, Indian Prime Minister Narendra Modi explained that the decision would better integrate Kashmir into the national market and improve its economy. But one year later, there are few signs of progress. According to a report published last month by a civil rights group, the region has incurred nearly $5.3 billion in economic losses since New Delhis move to downgrade its status.

While much of the country has struggled under pandemic-induced lockdowns, Kashmiris have in effect lived with those conditions for a full year. But for most Kashmiris, the stripping of their political autonomy is not a real shock. It is frustrating but not surprising. And that is because most of them were born in a land where young men commonly picked up guns to fight for independence from the Indian state, and they grew up in a region where curfews, military operations, and extrajudicial killings were the order of the day.

About 69 percent of the around 12 million people living in Jammu and Kashmir are under the age of 35. For them, the state has been in quasi-lockdown for most of their lives. A Kashmiri politician once joked to me that local children learned the word azaadi, or freedom, before they learned to call out their mothers name.

The state of Jammu and Kashmir used to include the Hindu-majority Jammu, the Muslim-majority Kashmir Valley, and the largely Buddhist Ladakh. While no region was spared the unrest, it is the Kashmir Valley that has suffered the most in economic terms.

After a rigged election in 1987, Kashmiri resentment toward India increased exponentially. And with the help of Pakistan, there was a full-blown insurgency in the Kashmir Valley in 1989, which pushed separatist leaders toward militancy. Many Kashmiri Hindus were expelled from the state. The region never recovered from that conflict.

Since 2016, when I first started reporting from Kashmir, I have met many Kashmiris who were born after 1989 and for whom the very definition of a normal life is different than that of most Indians. Truck and bus drivers overwork when they can, because they might be grounded anytime due to curfews. Doctors are used to looking at bullet wounds. Mental health professionals deal with post-traumatic stress disorder patients like doctors elsewhere treat the flu. Lawyers regularly defend young boys charged with sedition or terrorist activities.

The state is the biggest employer in Kashmir, and private sector investment is negligible due to the constant violence between security forces and militants. As a result, young Kashmiris see state government jobs as their route to stability. But a small subset of Kashmiri youth who were educated in larger Indian cities and in countries abroad harbor dreams of entrepreneurship even amid the turmoil.

Consider the story of Mir Saqib, a 34-year-old entrepreneur who is considering filing for bankruptcy. Most of Saqibs primary education in Srinagar took place at home, because schools remained shut for about eight months a year in the 1990s. Every time there was militant-related violence, educational institutions were closed.

Around the time Saqib should have been in school, his peers in other Indian cities were having a very different experience. In 1991, in the face of an economic crisis, New Delhi took the difficult medicine of opening up its economy to the world, putting in place fiscal reforms that would set it on the path to rapid growth for the next two decades. While young Indians began to dream of lives on par with those of their global peers, Kashmiri youth would often harbor hopes of joining their regions separatist movement.

Kashmiris expected the economy to bounce back in 1996 when a local party, the National Conference, was elected to the state government and New Delhi promised increased autonomy for Jammu and Kashmir.

Things turned out differently. In 1999, after the Kargil War between India and Pakistan, militant attacks on Indian paramilitary forces stationed in Kashmir sharply increased. These suicide attacks ushered in further militarization to the valley. Today, there is one armed personnel for every seven civilians in the region.

In 2007, when Saqib enrolled in an engineering college, little did he know that the valley would come to a complete standstill the following year. In 2008, the Indian National Congress-led government in New Delhi decided to transfer 99 acres of forest land to Shri Amarnathji Shrine Board, a trust that governs the famous Hindu pilgrimage to the Amarnath temple. More than 500,000 Kashmiris marched in protest, rejecting what they felt was an Indian takeover of Kashmiri land. Kashmir remained shut for most of that year.

While Saqibs national peers were dreaming of packing their bags for coveted jobs in Silicon Valley, Kashmiri students were struggling to get to class.

In 2010, Saqibs studies were disrupted once again when Kashmiris took to the streets to protest extrajudicial killings of Kashmiri youth. The protests left around 120 people dead.

Finally, in 2011, Saqib graduated as an engineer from Kashmir University. He decided to set up a bottled water plant and called his product Kolahai, which is the name of the glacier where the Jhelum, Kashmirs major river, originates. His business began to pick up when he started receiving contracts to supply water at weddings across the valley. Saqib expanded his business by introducing bottled juices and teas.

A new twist emerged in 2014. A pro-Hindu government led by the Bharatiya Janata Partys Narendra Modi was elected in New Delhi. The party joined hands with a Kashmiri group called the Peoples Democratic Party and formed a government in the state. Since their visions for the state were different, the government was unstable and insecure.

The arrival of smartphones and high-speed internet further shook the regions tenuous social contract. Messages from separatist leaders reached the phones of Kashmiris directly, without censorship. People hungrily consumed video messages from young militants such as BurhanMuzaffarWani, a charismatic commander of the militant organization Hizbul Mujahideen, making the case for Kashmiri independence.

In 2016, when Wani was killed by Indian forces, tens of thousands of Kashmiris attended his funeral. The state essentially ground to a halt for almost five months. And the authorities, realizing the revolutionary power of social media and the internet, began to respond for the first time by shutting down certain apps and restricting internet speeds in the region.

Unlike the previous generation, which had access to arms, the Kashmiris who came of age in the 2000s had to resort to stones as their weapons of choice. Every Friday, after the afternoon prayers at Srinagars main mosque, young men flooded the streets to throw stones at the security forces. Over a period of time this type of protest became merely symbolic.

Saqib shuttered his factory for long periods in 2016. There arent many weddings in a society that grieves the loss of its freedom, so demand for his product dried up.

Saqib had borrowed money from banks, which he somehow managed to repay by the end of 2018. Hoping the economy would look up in 2019, Saqib began to once again dream of restoring his business to its former glory.

But then, exactly one year ago, the Bharatiya Janata Party fulfilled its campaign promise and downgraded the status of Kashmir to a union territory, bringing it under New Delhis control. And it did so while once again imposing strict curfews and shutting down the internet for the longest period in history for a democracy. This time, Saqib would finally give up dreaming: Now, I know nothing will ever go back to how it was again, he said.

In the past 12 months, New Delhi has passed successive laws that Kashmiris fear will open up their lands and ecology for exploitation, while stripping them of their unique identity. For instance, New Delhi can now decide who gets to live in Kashmir, a legal change that could end up transforming the regions demographics.

Every time I talk to a young Kashmiri, I sense fatigue and a sense of hopelessness about their future. However, most conversations end with them suggesting that they will fight to reclaim their freedom. The Indian government seems to understand this sentiment well, which perhaps explains why it continues to curtail the speed of the internet there. When the internet comes back, the possibility of large protests is ever-present. But without the internet, real investment and growth in the region is impossible to imagine.

Jammu and Kashmir had a monthly average unemployment rate of 15 percent between January 2016 and July 2019, according to the Centre for Monitoring Indian Economy. This is more than double the national average of 6.4 percent during the same period.

But Saqib says his generation doesnt see unemployment as its greatest burden. We have lost our youth, our dreams, and our future, he said. That is what wed want back.

Original post:

Kashmiris Lament the Loss of Their Youth - Foreign Policy

Disrupt the economy creatively or perish should be the slogan to be followed by the new Government Pic by Shehan Gunasekara

For good results, disrupt the existing systems

It was a cakewalk for Sri Lanka Podujana Peramuna or SLPP, headed by President Gotabaya Rajapaksa, to seize power in Parliament. Within a matter of a few months of its formation as a political force, it has kept a record by rising to the pinnacle of the countrys power cathedral. In the process, it has disrupted the two oldest political powers in Sri Lanka, namely, the United National Party or UNP and the Sri Lanka Freedom Party or SLFP. The emergence of a disruptor, though the name sounds something frightening, is a welcome development in any society. This is because it is disruptors, and not conventionalists, who have created a new world for the betterment of humankind.

Relating to economics, this was first presented by the 19th century French economist and statesman, Frdric Bastiat when he said that breaking of windows even in acts of vandalism was to be welcome. That was because it enabled the world to go for new generation windows sustaining the window industry, on one side, and creating a new output for society, on the other.

In the early part of the 20th century, Bastiats views were more formally and cogently presented in a positive way by two economists. One was the Russian economist Nikolai Kondratieff. The other was the Austrian-American economist, Joseph Schumpeter. I have covered their views in a previous article in this series that can be accessed at http://www.ft.lk/columns/Long-waves-in-global-business-cycles-versus-Sri-Lanka-s-disastrous-short-waves/4-701288.

Kondratieff: Inventions should be commercially produced

Kondratieff had discovered through empirical research that capitalist societies had repeatedly undergone ups and downs in their economies known as business cycles but had managed to recover to a new position every time they had suffered from an economic downturn. Such business cycles had typically been experienced by Western economies for long periods of about 50 to 60 years which he designated long-waves of business cycles.

The reason for the recovery of a dying economy was the commercial adoption of scientific and engineering inventions by businessmen thereby taking an economy to a higher wave. Schumpeter, quite independently of Kondratieff, said that any new technology that was to replace the old ones, though feared by people, was a creative destruction.

Joseph Schumpeter: Generate creative destructions

Countering the Marxian view of the self-destruction of capitalist societies from internal conflicts, Schumpeter presented the contrarian view that capitalist societies continued to sustain and prosper through the introduction of a series of new technologies to replace the worn-out old ones. Expanding his conception of creative destruction, he identified four basic developments that should take place in an economic system enabling it to rise to a new height in development. His concept agrees with the Kondratieff long-wave formation in an economic system through scientific and engineering inventions that are commercially adopted by businessmen. But this commercial adoption was called innovation by Schumpeter. Taking it forward, he identified two further developments that should be followed for an economy to sustain its prosperity. One was the diffusion of knowledge among as many businessmen as possible. The other was the imitation of new technologies by prospective entrepreneurs.

Inheriting a sick economy by SLPP

Why should SLPP be a creative disruptor of Sri Lankas economy? That is because it has inherited an economy sick with a multitude of ailments. Sri Lankas economy had infected itself with some of these ailments right from the independence of the country. Some are later infections by governments that had introduced disastrous viruses to its body from time to time. However, with no proper medication administered at the appropriate time, these ailments have grown within the body of the economy like a silent cancer that grows without demonstrating any symptoms.

As I have indicated in a previous article (available at: http://www.ft.lk/columns/C-19-economic-recovery-Most-probably-it-will-be-a-flattened-U-shaped-one/4-703372), political leaders have been playing a blame game accusing each other for the maladies from which the economy has been suffering. That was an exhibition of complacence on the part of politicians coupled with the desire to evade responsibility.

The behaviour so demonstrated by them was similar to the man falling from the 20th floor of a building shouting at a man at the window of the 10th floor that he was alright so far and there was nothing to be worried. It was simply acting on self-delusion quite oblivious of the empty space below him through which he was falling to a fatal end. In Sri Lanka, this has been repeated ad infinitum at every general election. The one that was concluded last week is not an exception.

Sri Lankas manifesting sickness from all sides

Sri Lankas economy began to demonstrate signs of serious sickness from around 2013 when the growth rate began to decelerate. Immediately after the end of the war in 2009, the economy showed all signs of recovery to a high growth path recording growth rates of above 8% in the three succeeding years. These growth rates were attained basically by investing in capital infrastructure which could sustain the growth rate only for a limited number of years. That was because in the absence of the needed reforms in the capital markets, labour markets and the public sector, the rigidity of the economy could not be softened. Such growth has been designated by Nobel Laureate Paul Krugman as ones that are attained through perspiration and not inspiration. Hence, as expected, growth rate began to fizzle out as from 2013. Along with the falling growth rates, the symptoms of other ailments from which the economy was suffering also became manifest.

Such ailments had taken the form of rising budget deficits, unmanageable public debt, rising inflation, deficits in the trade, services and the current accounts of the balance of payments or BOP. Since adequate capital flows could not be harnessed to meet the deficit in the current account, there were deficits in the overall balance of BOP too. It led to the peculiar situation in which foreign reserves had to be built only by making further borrowings. It led to two other basic ailments. One was the pressure for the exchange rate to depreciate in the market in the absence of adequate foreign exchange flows to the country. The other, arising from the inadequate foreign reserves, was the accumulation of debt by the government beyond manageable levels. As a result, repaying the maturing public debt has become a serious challenge for the new government.

No rosy picture about the economy in the next few years

Certainly, the new government has to worry about the frightening economic conditions in 2020 and in the next few years. It is facing an economy that has been virtually incapacitated by the disastrous economic fallout of COVID-19 pandemic towards the end of the first quarter of 2020. As a result, the first quarter of 2020, the size of the real economy, pulled down by a negative growth in agriculture and industry and a slow growth in services, became smaller by 1.6% in rupee terms. Its contraction was sharper in dollar terms at 5% because of the fall in the value of the rupee against the dollar from Rs. 176 to Rs. 190 per dollar in the period.

In the next three quarters, the decline in the economy would be sharper due to a completely underperforming services sector. Unless an effective vaccine against the coronavirus is found soon, this negative economic performance is to linger into the next few years too. Such an adverse development would make Sri Lankans poorer and poorer year after year. This is what the new government should avoid and for that purpose, it has to creatively disrupt the economy too.

Dont fear disruptions

A disruption is simply a forced change of how people think, act, produce, distribute and consume. Taken together, they can be called the behavioural pattern of human beings. These behavioural patterns are represented by culture and culture is subject to a natural evolution over the time. Such cultural evolutions take their own pace to complete a full cycle but when they are shocked by an external agent an opinion maker, new technology or new product the evolutionary process is quickened.

A good example is the smart mobile phone. Five years ago, except those in young age categories, no one knew how to use the data processing power of a smart mobile phone. But today, hit by the social and economic restrictions of COVID-19 pandemic, everyone has trained himself to using smart phones and their versatile applications. As a result, practically everyone today is conversant with using popular Apps like WhatsApp or Zoom to communicate with others or disseminate information. This they do on a real time basis building networks of people and assembling them together. Thus, the smart mobile phone was a shock-agent and that agent has disrupted the traditional communicating agents like newspapers, radios, TVs or even land-based telephones. This was evident when people used smart mobile phones to learn of results, quick and fast, of the general election held last week.

An aggravated fiscal crisis by a generous tax offer

Sri Lankas present economic crisis has been aggravated by a fiscal crisis, debt crisis and a foreign exchange crisis. In the case of the fiscal sector, the crisis took the form of an unwieldy budget. The government revenue in relation to GDP was falling, consumption expenditure rising, savings of the government becoming negative, having to borrow to finance both the consumption and capital expenditures on one side and pay interest and repay the maturing debt on the other. This resulted in an unwarranted rise in the public debt stock and by the time the new government came to power at end-2019, it was as high as 87% of GDP, up from 72% five years ago.

This frightening fiscal scenario was worsened by a generous tax cut offered by the new government to income tax and VAT payers. It resulted an estimated revenue loss of some Rs. 600 billion per annum. This was an unaffordable and unwarranted comfort which the new government had given to some section of the people in the country. The consequential rise in the gap in the government budget had to be financed by the government by borrowing from both the central bank and commercial banks. During the first six months of 2020, the government had borrowed, on a net basis, a staggering Rs. 1.22 trillion from this source.

This is money printing which people in the street often talk about. Its inflationary pressure will have to be borne especially the low-income people. Hence, it is an iniquitous public policy since it favours the middle class and the high-income people, while passing the burden called incidence of tax-financing versus inflation-financing on to low-income groups. Hence, it is of utmost importance that the government revert to the tax system that prevailed prior to 2020 and save its budget. But it will be a shock-agent disrupting the comfortable life which the countrys taxpayers have been enjoying ever since the new President was voted to power. But that disruption is a sine qua non today.

To resolve the debt crisis, resolve the fiscal crisis first

Sri Lankas debt crisis is an off-shoot of its fiscal crisis. Hence, the way to resolve that crisis is to resolve the fiscal crisis first. Sri Lankas government has to borrow and raise the debt levels because its revenue is inadequate relative to expenditure programs. One reform it can do in this context is to generate savings in the budget by placing the governments consumption expenditure those expenses involving the day to day running of the government below its revenue levels. To attain this target, another shock-agent of disruption has to be employed by the new government. While going back to the old tax regime, the government should economise its expenses from top to the bottom.

The curtailment of the benefits which many are enjoying today is a real disruption. This applies at the top to the Cabinet ministers who enjoy an array of benefits not counted in the budget as direct payments to them. Like in Singapore, the number of ministerial posts should be restricted, while paying them a decent salary and getting them to meet all their requirements out of those emoluments. In todays context, the direct salary of a Cabinet Minister is less than Rs. 100,000, a salary lower than the total pay package of a minor employee of a state bank. But cost to the taxpayers by way of providing houses and their maintenance, vehicles and all associated costs, security officers, etc. which are recorded in different heads in the budget is enormous.

Taking into account the current economic crisis in the country, they should go for a voluntary disruption. All other unnecessary expenses of the government should be cut, savings in the revenue account generated and those savings used for vital capital programs. In selecting those programs, those that would help the government to get more taxes in the future should receive priority. In this way, borrowings are directly linked to extension of welfare to people and gaining capacity to repay them on time.

External sector crisis needs reforms in all sectors

The crisis in Sri Lankas external sector has been manifested by a need for borrowing for repaying the external debt and meeting the stubbornly high deficit in the current account of the balance of payments. The cause of the current account deficit has been the inadequate foreign exchange earnings by way of export of goods and services and remittances by Sri Lankans working abroad relative to the high import bill of goods and services and interest payments.

The government has recently clamped import controls on what it has termed inessential imports but the savings it could make through this measure is insignificant since the total such expenses are also a small fraction of the total bill. Sri Lanka spends massive amounts import crude oil, raw materials for industries, medicines and capital equipment. Any growing economy cannot curtail these items without compromising growth rates.

Hence, the way forward for the new government is to earn more foreign exchange in the medium to long run by increasing exports and attracting non-debt sources of foreign exchange such as foreign direct investments. To boost both these sources of earning, an essential requirement will be to introduce reforms to enable exporters to export more and attract more foreign direct investments into priority areas. Already, some of the reforms have been introduced to the goods market. But the labour, capital and land markets still remain untouched. It is necessary to shock these three markets through disruptive changes. Sri Lankas archaic labour laws dating back to the colonial times need be revised protecting both the workers and producers.

Singapores experience in reforming the labour sector

This was what Singapore did as a priority in 1960s because the growing trade union militancy supported by Chinese communists kept the foreign investors away from the country. As S R Nathan, an Ex-President of Singapore, has narrated in his autobiography, An Unexpected Journey, a special Labour Research Unit or LRU was set up at the instance of Singapores first Finance Minister, Goh Keng Swee, with the responsibility for ensuring a fair deal for workers through training, empowerment and recognition of workers rights.

Nathan who joined LRU as a researcher initially became its head later. His reading of the behaviour of trade union leaders in 1960s perfectly matches those in Sri Lanka today. Nathan has observed that those trade union leaders were full of hate, delusion and bias and poor of facts and understanding. LRU therefore initiated programs to help them overcome those deficiencies. Sri Lankas trade union leaders who shout at the microphones posed to them by media display that they still live in the world in which Singapores trade unionists lived in 1960s. The new government should as a priority engage trade union leaders in productive negotiations and for that purpose, as a herald, should serve them with a shock-agent of disruption first.

Hence, disrupt the economy creatively or perish should be the slogan to be followed by the new government.

(The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at waw1949@gmail.com.)

Read more from the original source:

SLPP has creatively disrupted politics; now it has to do the same to the economy - ft.lk