Service sector drives J&K economy: CARE ratings report

Last Updated: Wed, Sep 11, 2019 10:58 hrs
Shutdown paralyses life in Kashmir Valley

New Delhi: The service sector drives the economy of the erstwhile state of Jammu and Kashmir, contributing 56 per cent to the economic activity of the region, a report by CARE ratings said.

The report, prepared in view of the bifuraction of the state into Union Territories of Jammu and Kashmir and Ladakh last month by the Narendra Modi government, said: "The recent constitutional changes in Jammu and Kashmir have led to discussions about the economic and business opportunities the region holds. While opportunities have always existed in the state, the possibility of easier access for investment does present several scenarios."

It highlighted that the "service sector" drives the region's economy, contributing 56 per cent. "The industrial and agriculture sector accounts for 28 per cent and 16 per cent respectively of the economic output," it said.

The report also noted that manufacturing has a low share in economic output of the region, contributing around 10 per cent to the local economy, less than the national average of 18 per cent.

It also pointed out that the region has had an indifferent track record in terms of industrial entrepreneur memorandum (IEMs) intentions being filed and implemented.

Over the years, the IEMs filed have declined considerably from 23 in financial year 2010 to 5 - in sectors such as chemicals, hotel and textiles - in financial year 2019 and the investment implemented has been "nil" in most years.

"The foreign investments into the region by way of FDI have been negligible. It was less than $1 million during Financial Year 19 ($0.06 million) when the inflows into the country was around $ 44.3 billion," the report said.

The report also pointed out that the factories in Jammu and Kashmir accounts for only 0.4 per cent of the total factories in the country, as per the Annual Survey of Industries.

"The numbers of factories have grown at a CAGR of 4 per cent during Financial Year 2008-17. As of 2016-17, Jammu and Kashmir had a total of 1,016 factories of which only 938 were operational," it said.

It also said that these factories were mainly involved in the manufacture of food products (15 per cent), chemical (12 per cent), rubber and plastics products (12 per cent), basic metals (10 per cent) and electrical equipment (8 per cent).

Industrial activity is mainly concentrated in small scale units, it added.

According to the report, the region was mainly dependent on the Central government for its revenues with nearly 74 per cent of the state's revenues coming from the centre by way of grants and share in central taxes. "As such, the region has low self-reliance," it said.

However, the banking infrastructure and coverage in the region is better than the national average. As of 2017-18, there were 142 banking offices per million of population in Jammu and Kashmir, which is more than the national average of 109.3 bank offices per million population.

In financial year 2018, the credit to deposit ratio was at 43.6 per cent much lower than the ratio of 76.7 per cent at national level, the report said.

About apple cultivation in Jammu and Kashmir, the report said that it was the major contributor. In 2017-18, apple production in India stood at 23.2 lakh tonnes, out of which Jammu and Kashmir contributed the majority share of 77.7 per cent, followed by Himachal Pradesh and Uttarakhand with a share of 19.2 per cent and 2.5 per cent, respectively.

It said that apple production has a special prominence in J&K with the industry acting as a source of livelihood for many people in the region on account of its backward and forward linkages.

The report said as per Ministry of Food Processing Industries' annual report 2018-19, the number of registered and unincorporated food processing units in J&K stand at 176 and 28,089, respectively.

Apart from these units, a mega food park project is under implementation, four cold chain projects stand completed and two cold chain projects are under implementation and two abattoirs are under setting up mode as on March 31, 2019. In addition to this, a food testing laboratory and 12 food processing units were completed till March 31, 2019.

The opening up of J&K region for investments in food processing industry is expected to "augur well" for FMCG products like apple jam, apple juice, apple cider etc, it said.

The report also highlighted that the hospitality and hotel sector, retail and education sector can grow in the state.