Speakers: Teresita Schaffer and Howard Schaffer
Chair: Gopi Arora

Teresita C. Schaffer is director of the CSIS South Asia Programme. Earlier, during a 30-year career with the US Foreign Service, she was one of the State Department's principal experts on South Asia and served in Islamabad, New Delhi, Dhaka, and Sri Lanka.

Teresita Schaffer

The CSIS study on Kashmir: The Economics of Peace-building is an attempt to analyze the economic dimensions of the Kashmir problem without making any assumptions on the nature of a future political solution. Beginning with an assessment of the current economic scenario--in the region on either sides of the LoC, it makes an effort to define how economic cooperation could help build peace. The study examines measures that could be taken in the short term, in the absence of major political change, to build peace constituencies and lay the groundwork for resolution of the conflict. It suggests measures that could buttress a settlement in the long-term and bring prosperity to Kashmir, which has enormous economic potential. It looks at economic integration of the region. Not much work has been done on the economic dimension in the bilateral peace process.

The report has made an effort to compile reasonably consistent figures while making an economic assessment, in spite of inconsistencies in the available data on both sides. The National Council of Applied Economic Research has undertaken extensive field work on the economic aspects. Economically, both Pakistan-administered Kashmir and Indian-administered Kashmir have lagged behind when compared to the rest of India and Pakistan. Jammu & Kashmir is heavily dependent on the government. The state and national governments are chief employers. One keen observer of Indian Kashmir stated that the only real jobs are government jobs in the minds of the people. There is a huge rise in the number of teachers that is disproportionate to the number of students. Another common problem is very low investment. On the Pakistani side, literacy in Azad Jammu and Kashmir (AJK) is substantially higher. Local officials explained that land holding patterns are far more egalitarian in AJK and there are no feudal landholdings and the consequent resistance to education which comes with it. In AJK, the local population feel that they are with Pakistan but are not part of Pakistan, and they need to do better than Pakistan. The interesting thing that is not replicated on the Pakistani side is the higher export of handicraft/horticulture despite the security situation. The report delves into the descriptive rubric of who wins and who looses from increased economic development of this region.

On the Indian side, businesses as well as ordinary people whose lives have been disrupted would gain from a boost in tourism. As of now, military procurement from Kashmir is limited to low level labour and food. Politicians and most importantly ex-militants who have received subsidies for their activities would stand to loose. On the Pakistani side, ordinary people would be the winners and the political establishment would be the losers. They would lose their status along with the subsidies that they get from the federal government.

The report was nearly concluded when the earthquake struck Kashmir and the information was constantly shifting to be included. The measures for increased cooperation after the earthquake were not adequate. The Indian and Pakistani sides did what was needed by opening the five border crossings along the LoC. However, they came a few weeks late and were timid moves.

The report has categorized its recommendations into unilateral, bilateral and long-term ambitious recommendations. Unilateral recommendations could be carried out by respective the governments or through the respective local administrations without crossing the LoC. Addressing refugee issues would be a significant measure. There are problems in addressing them as the refugee figures provided by organisations in Delhi are inconsistent with the census figures. In AJK, refugees - a major chunk of who are from Kupwara - have been unemployed for the last 13-15 years and there are no employment opportunities for them. They would lose their benefits as refugees if they de-register and hence retain the status.

As of now, there is no economic assistance from outside, even though the Asian Development Bank (ADB) in recent times is increasingly involved, it is not sufficient. Divided families, by and large the most powerful peace constituency require increased interaction along the LoC. After the earthquake, a dramatic political shift towards resolution of the dispute from both sides was expected but did not happen. The most important confidence building measure would be cooperation in this regard.

Cooperation in furthering trade and tourism between the two sides is a key peace-builder. There are several joint bodies for intra-Kashmir trade which could be involved in this process. Tourism that involves both sides could be a major boost for joint growth of the two economies. Linking electricity grids could go a long way in meeting the power crisis and also provide a way around the current border issue. This would have to follow demilitarisation which has been talked about for a long time.

The final and most ambitious recommendation is creation of free trade areas or special economic zones which need not necessarily include the entire state, but important chunks from both sides. Tax breaks given by India and Pakistan to their export businesses need to be extended to the other side as well. This could be a path breaking peace-builder in Kashmir.

Questions & Answers

Question: Water distribution is not mentioned in your recommendations. What are your ideas on the Indus Waters Treaty? If we think in terms of an IWT-II by linking rivers on both sides and jointly developing the whole space, it could emerge as a significant CBM.
Answer: When it comes to water issues, Pakistan's interests are different form Kashmir's; as Kashmir is the upper riparian and Pakistan is the lower riparian. With all its current problems the IWT has been an important and successful conflict resolution tool between the two. The idea of IWT-II and joint power grids is very good as it would benefit both. Pakistan's main concerns over Baglihar are water being cut-off and flooding. How these are resolved depends on the political process.

Question: Relief operations in AJK are unofficially being conducted by jihadi outfits, particularly by the LeT. So it might gain political legitimacy in AJK which could increase militant activity in India and thereby hinder the peace process.
Answer: There are several reports that the LeT is reaching inaccessible areas to provide relief. There can be two interpretations of this. One is that the LeT is giving itself a facelift to gain the support of the people and then enter mainstream politics.

Question: Has the report compared the economic situation pre-militancy and post-militancy? Militancy destroyed infrastructure which was reflected in the economic situation.
Answer: It is clear that destruction of infrastructure has been a problem. People are reluctant to invest because of this factor. Economic effects of militancy are perverse. AJK is a very depressed area economically. Construction seems to be the leading indicator in a militant economy.

Question: Sikkim had many similar problems that Kashmir is facing, such as a small back bending labour force, transport problem and others. If we look at the NIP report on Sikkim, we have the solution for most of the problems except the political solution.
Answer: Anything unilateral is easier to implement and measures requiring cooperation are always difficult. It is hoped that the border would become a non-border one day and this would essentially change the political equation. Just because ambitious measures are not possible today, it does not mean that they are not possible ever. The needs of the urban educated people are different from those of the rural people. The labour force of 4.4 million does not reflect those who are willing to work.

Comments

1. Economic cooperation is not high on the agenda at the moment. It is still not clear which should come first in taking the peace process forward - economic cooperation or political resolutions. Muzaffarabad in AJK stands out in terms of its economic development but the rest of the region is very poor. On the other hand, in Indian J&K, the spread of prosperity is much greater because of horticulture and tourism. The tourist operators entered into an agreement with the militants that they would not harm tourists or tourist business. There has been tremendous prosperity because of elimination of middlemen in trade between Kashmir and rest of India and because of the phenomenal burst of construction activity.
   The South Asian Free Media Association (SAFMA) led a team to AJK where they were approached by a group of journalists who expressed their wish to return to India. This shows that the perception on the other side is that they are better off in India. The large numbers applying to get on to the bus from Muzaffarabad to Srinagar while there are not many takers for the Srinagar-Muzaffarabad bus service is an interesting indication of the perceived prosperity of the Indian side from AJK.
   As for the discrepancy in population figures in J&K, the possible reason for this could be the fact that the Pundit community is registered as Kashmiri voters irrespective of whether they are living in Kashmir or not. The idea of a free trade zone in both Kashmirs would be on the cards with reduction in militancy. However, there is no sign of any downturn in externally sponsored insurgency in J&K.
   For building joint-disaster relief mechanisms an element of trust is needed. India sent large quantities of aid to the quake-hit areas in Pakistan. The first British aircraft carrying relief brought ten tonnes of relief in contrast to the first Indian aircraft that carried twenty five tonnes of relief material. On the whole India sent 1,300 tonnes of aid which was unfortunately not covered by the international media. Helicopters offered by India were turned down by Pakistan and thus reflecting the trust deficit. Earthquake relief was one occasion where trust barriers, which are still in place, could have been overcome.

2. Even in J&K, like in the rest of India, government employment is taken seriously and the government is considered the primary provider of jobs. In J&K, jobs in the informal sector are aplenty but people are not willing to take up these. Migrants from Bihar take up brick lying, road works and construction jobs that are available in plenty. In J&K and Ladhak in particular, there is enormous economic activity possible in the tourism sector. Industrial development has severe limitation in J&K and experiences of the Union Carbide and Hindustan Machine Tools were failures. However, Jammu, which is an extension of the Punjab plains, industrial activity is thriving. There is heavy inflow of money into J&K despite militant activity and high level of government corruption. The central government allocation to the state has also not diminished and financial flow into J&K is not a problem. As the economic potential of J&K opens up and there are links from J&K to Muzaffarabad to Rawalpindi, the concept of trade would undergo a change. There are structural and psychological constraints acting as hindrances and therefore, such measures have to wait till certain political developments take place.

3. There is a difference between the Gross National Product and Gross State Product. Many Kashmiris live outside J&K prosperously; therefore there is a discrepancy in the figures. The issue of water is of topmost priority. This discussion has to be seen in the backdrop of the quantity of water and how it is to be distributed.

4. Kashmir is being sidelined in the rivalry between India and Pakistan. The resolution of the Kashmir issue is seen through the prism of Indo-Pak relations and the interests of the Kashmiris have been sacrificed. India and Pakistan entered the IWT without consulting Kashmiris and this is responsible for Kashmir's problems. India gifted Kashmir's rivers to Pakistan and now expects the latter to compromise on it. Kashmiri's views are not represented in mainstream Indian media.

5. There is a movement against the IWT reflected in the Pakistani media. Unless the water issue is resolved the power crisis would continue. Hydro-electric projects are costly and militants were used to destroy the Tulbul project and engineers working on the Dulhasti project were kidnapped. Unless the power crisis is resolved other problems such as employment would persist.
   It is not mentioned that from 1996 to 2004 more than 1, 60,000 people were employed and these jobs were sold at a price. Teachers who were employed had lands and horticulture businesses. The idea was that they could earn their monthly pay by just working an hour a day. There is a need to change the work culture and the way government jobs are perceived.

6. There are inter-state water disputes in India as well, for instance the Cauvery water dispute between Karnataka and Tamil Nadu. The first resolution of the Cauvery dispute happened in 1924 between two British engineers from Madras and Mysore. Today, engineers from India and Pakistan could resolve the dispute, but political factors intervene.

7. Apple orchard owners in Sopore were earlier against any efforts for resolution of the dispute. Today they are enthusiastic about more economic interaction. Instead of journalists leading delegations to the other side, the Kashmir Chamber of Commerce and Industry (KCCI) should lead the delegation and they would come up with concrete steps to increase economic interaction.
   The development money being spent in Kashmir is indirectly used to break the militant groups. The Katra-Baramulla railway link that is under construction has drawn huge allocation of resources from the government. There are several contractors employing engineers who also employ local militants to protect their contracts and local workers. The development money reaches militants through contracts and eventually leads to breaking of the militant groups.
   There is a great deal of religious tourism in Kashmir where travellers make a stopover at Srinagar and then proceed. Having an airport and cleaning the Dal Lake are very essential to augment tourism. As for the power problem in Kashmir one has to look into whether the existing potential in Kashmir is fully utilised.

8. We need to keep in mind what could be the possible political outcome in the future? A political solution seems unlikely in the near future and only unilateral measures can be implemented and the emphasis should be on this. A patronage economy like Kashmir which is so heavily dependent on government funding needs practical recommendations. The villagers have a completely different economic functioning there compared to the people from Srinagar. The average Kashmiri and the structure of the Kashmiri village have to be looked at. The standard and quality of life is better than many rural areas in India. The J&K regions are different and should be studied separately. The remote villages in Jammu are far poorer than the villages near the LoC in Kashmir.

9. Does this study have a number for available work force in the valley? If the number is around 6,00,000 then even if 30 per cent of them are employed the problem is greatly diminished. If the government made an income transfer of Rs 2,000 to individuals in the work force it would be a small amount for the central government compared to the transfers being made now. A distinction has to be made between employment and work? Back bending labour supply needs to be taken into account.

10. J&K has been the first state in India where education was made free and most of them who go to schools and colleges do not return to their traditional livelihood. These people look for white collar jobs. Power projects are not allowed to come up and the available power is not allowed to be distributed. The present Chief Minister invited investors who did not come to invest. Unless stability is provided, investment will not flow in.

11. The division of rivers under the IWT was a brilliant devise to minimise day to day cooperation between two governments. They had picked the best solution possible, given the political entanglements at that time. Water shortage is an issue becoming increasingly important and needs to be addressed seriously through some kind of sharing solution. No statistics are available to suggest that education in J&K is universal in a truly meaningful sense.

12. What is common between Indian Kashmir and Pakistani Kashmir? India only wants an all weather route to transport goods through AJK to other regions.

13. The question is which should come first; economic cooperation or political breakthrough? Even during the earthquake, terrorist activities did not cede. Politically, it was not possible to allow access from the other side and it remained a hurdle. There are several economic aberrations in J&K. No body pays for electricity and tax collection is negligible. How electricity can then be provided economically to all concerned is beyond imagination. The question of governance is paramount in J&K under the new administration and it is hoped that it will improve in the near future.

14. It is not prudent to talk about which part of Kashmir is benefiting more, AJK or Indian J&K. When the road between Muzaffarbad and Srinagar closed, the natural economy in AJK died. With the opening of the road there is a huge new opportunity for production of perishable goods. The Srinagar dry port idea is very important. There could be resistance from people in Islamabad. The real problem is that Pakistan will not allow the issue to be settled. The main roadblock today is that with more interaction and amicability between the two Kashmirs, status quo becomes more acceptable to Kashmiris. Normalisation in Kashmir without an overall settlement is unacceptable to Pakistan. Unless measures are taken to tackle the militant activities in Kashmir (designed to disrupt the peace process) the pressure of the international environment on the two sides to resolve problems, particularly after 9/11 would change for the worse.

15. There is no unanimity in J&K about development. The Kashmiris have differences among themselves as far as allocation of resources for development is concerned. Why should we look for commonalities for economic cooperation? We can move ahead with the differences. Kashmiri opinion is not reflected in the Kashmiri media. Stories of human rights violations by security forces cannot be reflected in the mainstream Indian newspapers. Journalists are threatened by media people in India not to report such stories.

Concluding Remarks

Security is no doubt important. But we need to look at how to separate them from other factors that influence economic development. There was early implementation of land reforms in Kashmir. But the way in which resources were missed in Kashmir is an abject matter. The Dal Lake has been vandalised. The entire area has been used by builders to create illegal structures. The economic development within Kashmir could have been magnetic. The notion of territory minus people needs to be relooked into from both sides. Kashmiri entrepreneurs and businessmen should be given opportunities to realise their potential. Population, literacy data, education and skills to cater to a modern economy are not present. Kashmir has to find its fulfilment within a larger economic space. That is beginning to happen now due to several reasons. The Kashmiri people need to be treated with dignity like all other people and the recent elections are positive indicators. We need to look at water issues and the idea of developing the Indus basin as one entity would largely benefit the Kashmiri people. If the economy improves, people's lives will improve and some degree of economic security needs to be brought in. The report has come up with recommendations that would benefit Kashmiris on both sides.