ABROGATION OF ARTICLE 370 AND 35A: TRANSBORDER SECURITY PERSPECTIVE & WAY FORWARD

On 5^th August 2019, government took a historic decision of abrogating article 370 and 35A that provided special status for Jammu & Kashmir. Further a reorganisation bill was introduced in parliament that divided the state into 2 union territories comprising of Ladakh which like Lakshadweep will not have a legislature and Jammu & Kashmir which will be a union territory having its own legislature on the lines of the national capital Delhi.

The announcement was met with jubilation in some sections and tribulation in others. Many in the opposition were not convinced regarding the manner in which the entire exercise was carried out in utmost secrecy and at the time in which president’s rule was imposed on the state.

India has regarded Kashmir as a bilateral issue between itself and Pakistan. The latter despite being signatory to Shimla agreement 1972 and Lahore declaration 1999 that stresses on Kashmir being a bilateral issue has always tried to draw international attention to the issue much to the displeasure of India. The offer of American president to play mediator in Kashmir was music to the Pakistani ears. Imran khan on his return from US compared the visit to his nation’s world cup victory in 1992.

Back in India this must have expedited the government’s decision to act in the manner it did. In the event of successful deal between USA and Taliban, Pakistan in line with its policy of promoting terror will certainly divert its attention towards India and destabilise Jammu & Kashmir like it had done in the past. Indian government promptly called off the ongoing Amarnath yatra in the state, suspended mobile and internet connectivity, put opposition leaders(which included 2 former chief ministers) in Kashmir under house arrest, additional forces were mobilised and the whole state was put under curfew.

State of Jammu and Kashmir comprises of 3 areas of Ladakh, Jammu and Kashmir. Prior to the announcement the state of Jammu & Kashmir had its own constitution and no law passed in parliament applied to it without the concurrence of the state assembly. Perhaps, national security concerns figured prominently as one of the main driving factors in its decision to abrogate and reorganise the state into 2 union territories

Learning lessons from history

In 1989 the erstwhile Soviet Union withdrew from Afghanistan, in the aftermath of soviet withdrawal, Pakistani intelligence flush with weapons, money and manpower from USA diverted a significant amount of resources towards the state in line with its “bleed India through a thousand cuts policy”. The first victims of this policy were the Kashmiri pandits who were driven out of their homes and thousands were murdered in cold blood.

The valley was turned into a terror sanctuary with spawning of several terror groups. This created major disturbances in the valley and had disastrous consequences on its security and economy. It was with significant efforts and tremendous sacrifices of the Indian soldiers that a semblance of normalcy was restored in the state after years of disturbances.

The year 2019 yet again brought a sense of Déjà vu because of happenings in neighbouring Afghanistan. Serving American president Donald Trump in a bid to extricate himself out of the afghan quagmire that has costed Americans billions of dollars with no significant results, opened negotiations for peace with the Taliban, (even though the negotiations have now been suspended in the aftermath of Kabul bombing). American president realising the importance of Pakistan in concluding the deal made a statement stating that India had approached the USA for mediation, this was followed up by an offer to mediate which must have set the alarm bells ringing in the corridors of power.

Exactly 30 years ago what was responsible for the huge exodus of Kashmiri pandits? Was it the failure of state government or the union government? Who had the primary responsibility to protect civilians from danger? Why was the army not mobilised when it was clear that the state government was either unable to or did not have the intention to act with alacrity? These are some hard questions that need to be asked as the failure in checking mob violence and indecisive attitude of then state government is quite well known.

Two decisions stand out apart from the abrogation of article 370 and 35A. Firstly the state has been converted into a union territory which means the police forces in the state will be under the control of the union home ministry. It clearly indicates that union government no longer has faith in the ability of the state government to deliver on security issues. Secondly the union government is determined not to lose the hard-earned gains post 1989 turmoil. A plethora of forces acting in sync with intelligence agencies under the supervision of union government is the best bet for ensuring continued security on the ground.

Trinity of Unemployment, drug abuse and radicalisation fuels militancy

Unemployment: According to 2011 census the population of Jammu & Kashmir is 1.25 crores out of which 70% of the population in below the age of 35. The proposed union territory also has the highest average unemployment at 24.6% in the age group of 18-29 against the national average of 13.2%. Slowdown in the Indian economy has also hit the erstwhile state hard and the current situation at least for the short term will only exacerbate problems. When 1.5 lakh highly qualified youth boasting of qualifications as high as graduation and post-graduation register themselves as unemployed in 15 days in an area that roughly comprises 1% of the country’s population, the situation becomes alarming to say the least.  Unemployment is a ticking time bomb any regime can ignore only at its own peril.

DRUGS & DISTRESS: Jammu & Kashmir despite being in the transit route to golden crescent remained devoid of the problem for a long time. However, in the previous two decades it has witnessed a steep rise in substance abuse. The issue has reached epidemic proportions and increasing usage of substances among females and decreasing age at first use and increasing drug related deaths has been an alarming development in a state plagued by terrorism. According to a study by United Nations International Drug Control Program survey, there were more than 70,000 drug addicts in Kashmir which includes 4000 female addicts. Around 70 percent of the addicts falls in the age-group of 18-35. Among the addicted population. Most of the people surveyed cite conflict and unemployment as the major causes for taking to drugs. An entire generation has grown up during the times of conflict and a survey by Médecins Sans Frontieres (Doctors Without Borders) reported 1.8 million adults in Kashmir showing symptoms of significant mental distress. In addition, such symptoms to a varying degree was reported by as much as 45% of the population in the valley.

Unemployment, drug addiction and mental distress lets the youth of the population fall prey easily to terror groups who radicalise  and leverage them increasingly in an enhanced effort to destabilise the security situation in the valley and the country, attack on Pulwama was nothing but an outcome of this approach where suicide attack was carried out by a radicalised youth. There has been a remarkable increase in youth taking up arms, 131 youth took to arms in the state in the year 2017 and the number increased to over 200 in 2018. All these factors paint a very grim picture of the situation in the valley.

Jammu & Kashmir received an amount of 1.14 lakh crores over a period from 2000-2016 which comprised of 10% of total central grants given to states during this period. Taking into account its population according to 2011 census, the per capita central grant amounted to a sum of 91300 per person. Poor governance combined with massive corruption in the previous state governments have created an explosive situation. If steps are not taken to defuse the situation, it could set the whole area alight with grave consequences of unimaginable proportions.

Creating a counter-narrative

While the previous governments took the route of appeasement in the form of appointing interlocutors to talk to various factions and combined talks with generous doles from the central exchequer. The present government has taken a hard-line stance of not indulging in talks. In the midst of heated debates regarding appropriateness of stands taken by current and previous governments, the biggest failure of the state is something that has been conveniently hidden from the general population.

While Pakistan has increasingly used cyber space, social media and other subversive techniques to create a narrative around army deployments and atrocities on the population in Kashmir and used it to brainwash and radicalise the youth, inducing them to take up arms. Indian state has only been in a reactionary mode. There is a clear absence of a counter-narrative emanating out of Indian state. While India has recently been successful in exposing false narrative of Pakistan on many international forums, such successes would be meaningless if the opportunities are not used to build a counter narrative to counter the forces of terror and radicalisation. It is high time that the establishment realises that the war cannot be won without creating a counter narrative to the enemy’s propaganda in a state that has 70% of the population below 35 who in the conditions that prevail might find it easier to resort to taking up arms against the state.

An effective counter narrative will not only lead to integration of heart and minds of the people with the Indian state, it will also lead to savings of many civilian and non- civilian lives and billions of rupees for the exchequer. The potential of a narrative in ensuring and improving the security of the state has for decades been the most ignored aspect of our security policy.

Solutions to the problem 

The factors mentioned above clearly highlights the grim situation in the region. Successes of the military operations has given the state some breathing space in which to initiate a counter narrative and correct the wrongs of previous decades. With Jammu & Kashmir being declared as a union territory. The state stands on the cusp of a historic moment that will determine its future course. The biggest service to Jammu & Kashmir would be elimination of rampant corruption in the state as the first state.

The people of Jammu & Kashmir have paid a huge price in the ongoing conflict, they have lived for almost 3 decades in an atmosphere of fear and insecurity. Children have grown up in an atmosphere of tension, military checkpoints and curfews. While the rest of the country prospered, fruits of economic developments have not reached the people of the state in the same measure as it has to the rest of the country. It is a right of every child on the planet to live in an atmosphere of security and without fear. Work hard for securing his future and endeavour to reach the skies in his quest for excellence. A former prime minister once quoted that “no one can stop an idea whose time has come” and now perhaps it is the right time to integrate the people of Jammu & Kashmir fully with the economic powerhouse that is India and enable its youth to harness his/her capabilities to the fullest to enjoy the fruits of prosperity and security.

A collaboration of some of the best minds in the country in the fields of governance and administration and NGO’s operating in the relevant fields should be encouraged to give Jammu and Kashmir a robust model of governance that is agile and responsive to the needs and aspirations of the state would be the biggest service the present government could do the newly formed union territory. It is also worth noting that around 106 central laws like prevention of corruption act, laws on whistle-blowers protection which was not applicable earlier would now apply to the union territory.

In the short-term investments has to come from the government. The fact that Jammu and Kashmir is now a union territory will help it with increased access to funds and greater union control to ensure appropriate utilisation of the above mentioned funds. In the face of uncertainty regarding the security situation prevailing in the state, private investments would be hard to come by. However, it is imperative to act with urgency with regard to improving security and redefining the policies of the state to make it more business friendly.

Corporates and NGO’s should be encouraged to set up de-addiction centres, mental health and wellness centres in the union territory to tackle the growing problems of mental distress and drug-addiction. A tweak allowing corporates to collaborate with governments and NGO’s to fund such centres as part of CSR activity could help in this regard. Such collaborations can go a long way in creating a counter narrative and extending a soft arm of the state for the welfare of the people.

Parallelly the coercive arm of the state specially the police forces could be infused with experts specialising in fields like anti-narcotics operations, intelligence gathering, counselling with a view to deradicalize the youth. A merciless clampdown on cross border funded drug operations combined with efforts at deradicalization combined with efficient use of social media could deprive the agents of terror with considerable financial and human muscle to carry out their subversive activities.

It will provide the Indian state with the much-needed breathing space to efficiently implement its agenda. The coming months are crucial, proper handling of security situation and implementing of a visionary economic plan might herald a new era of peace and prosperity. Any failure on part of the government might result in the youth proving to be a double-edged sword. An opportunity missed at this crucial juncture might push the newly formed union territory again into an endless cycle of killing and destruction and such an opportunity might not present itself for a considerable period of time gain.

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Written by 

Ujjwal Sinha

Email- h19178@astra.xlri.ac.in

CPPR, XLRI

REFERENCES:

• ·       https://www.indiatoday.in/india/story/trump-kashmir-row-simla-agreement-lahore-declaration-india-pakistan-1572622-2019-07-23
• ·       https://www.rediff.com/news/column/is-it-time-to-divide-jk-into-three-/20160910.htm
• ·       http://drugabuse.imedpub.com/drug-addiction-in-kashmir-issues-and-challenges.php?aid=20596
• ·       https://www.deccanherald.com/national/north-and-central/jk-15-lakh-postgraduates-and-above-jobless-750661.html
• ·       https://www.downtoearth.org.in/news/health/almost-half-of-the-population-of-kashmir-valley-mentally-ill-claims-survey-54011
• ·       https://www.hindustantimes.com/analysis/how-to-counter-radicalisation-in-jammu-kashmir/story-azWDdkR3o5zQa94wSWl2aL.html
• ·       https://www.indiatoday.in/india/story/central-laws-apply-jk-now-1578193-2019-08-07
• ·       https://www.business-standard.com/article/news-ani/meeting-the-challenge-of-drug-terrorism-in-jammu-and-kashmir-115112600416_1.html
• ·       Ahmad, Bilal & Bhat, & Rahi, Shayesta & Mir, Mudasir & Sidiq, Tahira. (2015). AWARENESS OF DRUG ADDICTION AMONG COLLEGE STUDENTS OF KASHMIR VALLEY. International Journal of Medical Sciences & Pharmaceutical Research, Volume1, Issue1, Jul-Dec-2015, pp 01-14, ISSN (Online):2455-NKMN
• ·       https://www.thehindu.com/news/national/other-states/JampK-gets-10-of-Central-funds-with-only-1-of-population/article14506264.ece
• ·       http://www.academicjournals.org/app/webroot/article/article1381919251_Naqshbandi.pdf
• ·       https://www.thehindu.com/news/national/other-states/JampK-gets-10-of-Central-funds-with-only-1-of-population/article14506264.ece
• ·       http://jkhealth.org/new2017/pdf/GO%2041.pdf

Economic slowdown & departure from the myth of the cave

"In Plato's Republic, there is an allegory of cave. Where prisoners are chained inside with their face towards the wall and are unable to turnaround their heads. There is fire behind their backs and all they can see is the shadows cast by objects passing in front of fire. Slowly they get accustomed to perceive the wall (shadows) as real and are ignorant about the objects which cause these shadows."



As per the latest data on GDP growth, the economy grew by 5% in the 1^st quarter of FY 2019-20. The dip in growth is alarming given the growth trend of last two decades and stands next only to what country witnessed in 2013.

The industry seems to be in doldrums  with “factory output growth, measured by the Index of Industrial Production (IIP), slowed to 2 per cent in June 2019, as compared to 7 per cent in June 2018”. (Slowdown Blues: India's industrial output growth declines to 2% in June, 2019)

The auto sector has been the worst hit with reports on sales plummeting by as much as 70% vis-à-vis last year’s quarterly sales. While there is still a debate going on whether this slowdown is cyclical or structural, many political economists attribute this slowdown to the jobless growth that the country has witnessed especially over the last 5 years..

Deconstructing the slowdown

If we analyze the quarterly GDP growth & inflation rates over the last 2 years, we can see that economy is passing through Low-inflation-Low-growth phase. So current slowdown is basically a demand driven slowdown (Unlike a supply driven slowdown which leads to low growth high inflation situation)[*] (Kishore, 2019)

*To understand this phenomenon in more detail, read this

Low-inflation-low-growth: People don’t have the willingness or capacity to buy goods which leads to a demand depression fueling the vicious cycle of:

low-demand->low investment-> job loss -> low savings ->low demand

One of the reasons for this can be reduced capacity to buy, indicating the impact of jobless growth & low YoY wage growth rate. Second reason for this can be deliberate postponement of demand. In present scenario, both seem to be working in tandem.

While unemployment rate is possibly the highest in decades as indicated by NSSO data [*], YoY wage growth rate has also come down to single digit. 

*A curious mind may want to research on how scientifically unemployment rate is calculated in India

The underlying reasons

The first culprit (Lack of investment)

On the macro level, if we take Gross Fixed capital formation (GFCF) as a proxy for investment; GFCF as a percentage of GDP has declined from 34.3% in 2011 to 28.8% in 2018. Similarly, gross domestic savings (GDS) as a percentage of GDP have declined from 32.7% in 2011 to 29.3% in 2018. But at the same time inflation has been very benign for last many years, it has come down from 10.03% in FY 2013 to 3.41% in FY 2019. (Matthew, 2019)

Takeaway

While the decline in GFCF is noteworthy, it’s not so steep or at such alarming levels to cause a slowdown. Further, the low inflation situation which is benign for consumers, reduces the incentive for producer to invest & produce; which may partly explain low GFCF.

The second culprit (Demonetization)

The bizarre policy of cancelling the tender of high denomination notes (Rs. 500/1000) allegedly in a bid to contain corruption. 

As per estimates, it resulted in invalidating nearly 84% of total currency in circulation (out of total ~15.6 lakh crore) for settling transactions. The process of re-monetizing economy was long and painful.

Many sociologists cum economists give a folklorish reasoning as to how this resulted in behavioral change. The story goes like this, in the absence of cash people managed to survive for 3 months, they realized most of their expenditure was in fact extravagance. This realization resulted in sustained slowdown in expenditure, leading to low demand and current low demand driven slowdown is just one ripple of that Tsunami.

Takeaway

While no one really has data to prove or disprove this, the reasoning seems to be dumbed down to such a level (possibly to gain votes) that it stops making sense. So how much impact demonetization (which at worst was a short-term Pain) has on current situation; Cannot really say.

Third culprit (Goods & Service Tax)

Also termed as “Gabbar Singh Tax”, according to many noted intellectuals GST while good in concept was badly implemented. They blame the multi-tiered, complex, paper-work centric GST as the root-cause of many economic ills of today.

But like all intellectuals with ideological lenses, they fail to mention the complexity of what GST replaced. GST amalgamated nearly 16 indirect taxes which included intra-state taxes as well as inter-state taxes, levied and collected at different-different levels. (Mukhopadhyay, 2019)

The previous tax regime was a supremely complicated structure from the point of view of producers as well as marketeers (the whole supply chain basically).

So even if GST seems less than perfect right now, it’s a huge improvement on what existed before and could not possibly have resulted in choking the economy. So, what needs to be analyzed is comparative complexity of GST vis-à-vis Socialist Indirect Tax regime existing since time immemorial.

Takeaway

The only way GST has negatively impacted the commerce, is by pushing tax-compliance down the throat of celebrated job-creating MSME sector[*]. So, if anyone cries that GST screwed up MSMEs, he is basically asking to restore the PRACTICAL indirect tax-amnesty for MSMEs.

On the other hand, even for the MSME sector, compliance is a short-term pain with huge upside in the form of input tax credit in future. Unless these MSMEs are established Dwarfs (terminology explained in detail in Economic Survey 2018-19 which basically means MSMEs that refuse to grow), they also stand to gain from GST just like the formal sector. 

* Economic Survey 2018-19 contains an in-depth analysis, busting the perception of MSMEs as major job-creators

Fourth culprit (Regulatory changes & uncertainty)

This is true especially for automobile sector which has almost 50% weightage in IIP. In July 2018, the S.C. ordered compulsory third-party insurance cover for three years and five years for new cars and two-wheelers respectively. Along with this imposition of safety regulations, rising fuel prices and increased vehicle registration costs have resulted in increased total ownership costs (TCO) for the automobiles.

Further, from the consumers end there is also a deliberate postponement of demand due to BS-VI implementation, diesel vehicle uncertainty, EV push and expectations of GST policy rate cut for the sector.

 Takeaway

Transition to BS-VI implementation was a long-established policy of the government. However, there is a newfound vigour for environment and safety regulations among both government & judiciary. While all these regulatory moves are praiseworthy, these could & should have come at a more opportune time.

The culprit (IL&FS & NPAs)

When IL&FS defaulted on its interest payments on September 2018, it had an outstanding debt to the tune of ~1 lakh crore. It sent the whole NBFC sector in a tailspin (see their stock prices). These NBFCs had huge exposure to infrastructure & housing sector and due to its contagion effects, IL&FS seemed like the Lehman moment for Indian economy.

IL&FS crisis which then triggered the NBFC crisis, has caused an acute liquidity crunch in the economy.  

For our present analysis we will use “No Liquidity = Economic Slowdown” as a maxim* (Explained: What does liquidity crisis mean?, 2019)

*To understand how lack of liquidity results in economic slowdown, read this

How it affected the MSMEs

For small scale firms and MSMEs, credit from NBFCs forms an integral part of working capital financing. As per Finance Industry Development Council (FIDC) NBFC lending to MSMEs has reduced substantially in 1^st quarter of FY 2019. 

Coupled with NPA issue, credit offtake becomes the most relevant issue haunting the current economy. As per NITI Aayog VC, Rajiv Kumar “There is no trust in the market among private players.”

How it affected Automobile sector

As per SIAM (Society of Indian Automobile manufacturers), 70% of two-wheeler sales, 30-35% of personal vehicle/cars sales and 60% of commercial vehicle sales used to be financed by NBFCs. So, when major NBFCs are looking down the barrel of NPAs and practicing extreme prudence in sanctioning credit, demand slowdown seems like a definite outcome.

Takeaway

The least discussed IL&FS crisis is actually the main reason for current economic slowdown. Now who is to blame for IL&FS and NPA crisis of the country, is the discussion which we will leave for another day (Further reading: here)

Conclusion

Even ordinary Americans cannot grasp what went wrong leading up to Global Financial Crisis (GFC) so it is a pipe-dream to hope that our Indian brethren will take the time and pain to read & understand how IL&FS caused economic slowdown. 

When Finance Minister Nirmala Sitharaman in her press conference yesterday (06-09-2019) pointed out that liquidity crunch due to slashed NBFC lending, is the single largest reason for current slowdown, it all seemed like a technical jargon.

So, if I were a political/ideological opponent; I would blame Modi, demonetization, GST, jobless growth, fascism & what not for current slowdown even when deep down I know, it was mostly IL&FS. Which brings us to the final question, are we content with watching the shadows or do we want to actually see the objects which cast those shadows?

Written By:

Shekhar Agarwal

(b18108@astra.xlri.ac.in)

CPPR, XLRI

References

(2019). Economic Survey of India. Ministry of Finance.

Explained: What does liquidity crisis mean? (2019, August 23). Retrieved from Indiatoday: https://www.indiatoday.in/business/story/india-liquidity-crisis-nbfc-ilfs-sectoral-slowdown-economic-growth-1590770-2019-08-23

Kishore, R. (2019, September 04). Why the 2019 economic slowdown is different from 2012-13 | Analysis. Retrieved from Hindustan Times: https://www.hindustantimes.com/india-news/why-the-2019-slowdown-is-different-from-2012-13/story-XuRgL94L1g82EaLGqasmAJ.html

Matthew, D. (2019, August 24). View: Is the current slowdown cyclical or structural? . Retrieved from Economictimes: https://economictimes.indiatimes.com/news/economy/policy/view-is-the-current-slowdown-cyclical-or-structural/articleshow/70814310.cms?from=mdr

Mukhopadhyay, S. (2019, March 26). Distorted criticisms on GST. Retrieved from Business Standard: https://www.business-standard.com/article/beyond-business/distorted-criticisms-on-gst-119032601448_1.html

Slowdown Blues: India's industrial output growth declines to 2% in June. (2019, August 9). Retrieved from Businesstoday: https://www.businesstoday.in/current/slowdown-blues/slowdown-blues-india-index-industrial-production-declines-to-2-percent-in-june/story/371537.html