Demystifying Kashmir's Economic Growth - II

J&K’s GDP puzzle: picking the right threads

By: Arjimand Hussain

Consumption is a critical variable in the measurement of Gross Domestic Product (GDP) or GSDP. In J&K’s case consumption automatically does not mean production, given our high reliance on imports. The relation between our imports and consumption has some finer details which need attention.

It is for sure that our overall consumption is growing, which will naturally show in our GDP. However, a lot of our consumption, both imported and locally produced, is not registered. This consumption flows from all the three segments of our economy - agriculture, industry and services. This component of GDP is massive, and simply out of the statistical systems.

Then is the government expenditure, which during the PDP-Congress rule, was largely fuelled by the PM’s Reconstruction Package and the Kashmir Railway Project. It was sort of a public expenditure bubble, which is not sustainable. Sooner or later, the end of this bubble will reflect on our State’s GDP.

Another problem with our GDP measurement is that it does not take into account the black market, where the money spent is not registered. Most of J&K’s unorganised, and even some organised, economic activities are never registered. Take, for instance, our labour market. It is out of the radar.

Then there is the non-monetary economy, or the barter system, where no money comes into play at all. We don’t have any system of their measurement as well.

Another intrinsic problem with our GSDP accounting is that its growth does not over time take into account the purchasing power of money, which like in every context, varies in different proportion for different goods in J&K as well.

Although the Purchasing Power Parity (PPP) system is often used in comparisons between nation-states, it would require some degee of consideration in J&K’s context as well. There is clearly a degree of difference in purchasing parity – even in the minimum wage – between J&K and rest of India. PPP would take into account the cost of living factor and make suitable adjustments.

Mr. Rather in his Assembly speech said that J&K’s per capita income rose by 3.95 per cent from 2001-02 to 2007-08 (During PDP-Congress rule) against 16.25 per cent per annum between 1996-97 to 2001-02 (during the NC rule).

Any objective analysis would say that this is highly improbable. Between 1996 and 2001 there were hardly any economic activities to warrant such a growth in per capita income. On the contrary, incidentally, there was a major public expenditure boom during 2001-2008.


However, the Finance Minister made an important point when he spoke of J&K’s Balance from Current Revenues (BCR), meaning the difference between revenue receipts and the sum total of all plan grants and non-plan revenue expenditure. That is what shows J&K’s dependence on central grants in very explicit terms.

According to official figures, our BCR in 2001-02 was minus Rs 586 crore, which has gone up to minus Rs 4476 crore in 2007-08. This is preposterous.

Let us don’t forget Simon Kuznets, the inventor of the GDP, who in his very first report to the US Congress in 1934 had cautioned, ‘the welfare of a nation can scarcely be inferred from a measure of national income [or GDP]’.

To be concluded