The Kashmir difference

Weather and violence have always made Kashmiris prepare for a rainy day; demonetisation was just another storm that passed the State without having any visible impact.

At the Jammu and Kashmir Bank branch in Srinagar on November 10.

JAMMU AND KASHMIR was perhaps the only State that did not go into panic mode after Prime Minister Narendra Modi announced on November 8 that higher denomination notes would cease to be legal tender. There were no long queues outside ATMs and banks and no protests against the financial crisis. Although Ministers in the Modi government tried to link the current political crisis and the militancy-related situation in the State with demonetisation, the fact is that the figures caught them on the wrong foot.

More than one factor is responsible for the no-panic situation in the State in general and the Kashmir Valley in particular. Experts attribute it to the uncertain economy that has been prevailing in the State for the past two decades since the conflict began. Economic stability was next to impossible although successive governments in the State as also those associated with businesses have been struggling to keep it going at a particular pace. With most of the economy dependent on the service sector, it has its own dynamic that plays out from time to time, thus evolving a model that is different from the rest of India. Real estate has been one major area where people tend to invest first. With Kashmir reeling under violence, people would hardly keep large amounts of cash at home. The tendency to turn the money earnings into gold has become the order of the day in order to ensure the security of earnings.

This perhaps helped the people withstand the financial crisis that took more than 50 lives in the rest of country. Jammu and Kashmir has just 1 per cent of the total population of the country. It accounts for 1 per cent of the country’s gross domestic product (GDP) and 2 per cent of the total deposits in banks. But that would not make the State different. Besides the people’s remarkable resilience, which has seen them through violent incidents since the 1990s, it is also their distinct behaviour that is playing out in their different approach to the financial problem facing the country. The economic journalist Masood Hussain put it succinctly when he said: “We do not live for just 24 hours.”

He explained that the people of Kashmir have a tendency to stockpile supplies; essential commodities are bought in bulk from the market and stashed away for months. “This helps them to live life easily.” This stockpiling mentality is essentially linked to the economic uncertainty that the State has been facing for decades. The economic situation in Kashmir post demonetisation is to be understood in a particular context as well. That is, the cash-to-GDP ratio for India is 12 to 13 per cent; whereas in the case of Jammu and Kashmir it is 20 to 25 per cent.

The past five months of uncertainty with business shutdowns has also contributed to this “smooth sailing”. People spent the cash they had and so there were hardly any big cash transactions post November 8. “Even if big business houses, which are a few, had stored cash, they could use it easily,” said one expert. Only politicians and bureaucrats who may have hoarded cash might have faced a problem in turning the unaccounted money into white.

Community banking

At the ground level, the role of the Jammu and Kashmir Bank in making this happen cannot be ruled out. It switched over to the new mode faster than the rest of India. The bank has the distinction of having a monopoly of over 70 per cent of the deposits and 90 per cent of overall banking. Its close relation with the local people has placed it on a different plane compared with other financial institutions. The noted economist and Finance Minister Haseeb Drabu said that in the rest of India it was commercial banking but “here we have community banking, and obviously Jammu and Kashmir Bank is leading in that”.

He said: “Its level of trust and confidence with its customers is beyond one’s imagination, so even if there were problems they were resolved on a personal basis.” Drabu headed the bank from 2004 to 2009. He described the bank’s customer relations as emotional equity and not financial equity.

Parvez Ahmad, Chairman of Jammu and Kashmir Bank, said: “It was because of the cooperation of all that we managed it. I think people’s financial literacy has a lot to do with it.”

While the situation does seem better in the State than elsewhere in the country, it remains to be seen how it will unfold when government and private sector employees get their first salary after demonetisation. Some experts believe that it is not going to be smooth; problems are bound to be there. But one factor that is helping Kashmir is that the harvest season is just over and it is the onset of winter, the time of the year which is usually dull in every respect.

Another important issue is that the government claimed there was a decrease in militancy-related incidents in Kashmir following the demonetisation decision. Union Minister of State Kiren Rijiju claimed that 11 per cent of the deposits had come from Jammu and Kashmir after November 8, suggesting that they were “hawala” money. But a closer look reveals a different reality. “It is completely wrong. It is not possible and cannot be justified with figures,” a senior government officer said. He said it was political rhetoric. Similarly, Defence Minister Manohar Parrikar was caught on the wrong foot when he credited demonetisation with a decline in stone-throwing incidents in the Valley. The statement was just as absurd and just as divorced from reality, especially given the government’s own statistics.

As the Modi government was grappling with the fallout of demonetisation, Parrikar boasted of a result that never was. “In the last few days after the Prime Minister’s daring move, there has been no stone throwing on security forces. Earlier, there were rates: Rs.500 for stone throwing [on security forces] and Rs.1,000 for doing something else. The Prime Minister has brought terror funding to zero. I congratulate the Prime Minister on it.”

The truth is that the number of such incidents was higher after demonetisation. Stone-throwing incidents, according to the State government’s own figures, fell drastically in October. The State Home Department said that there were 820 incidents in July, 747 in August, 535 in September and as low as 157 in October. Before demonetisation on November 8, the number of such incidents was 48 and between November 9 and 14, there were 15 incidents. Even if one were to believe the Defence Minister, there is definitely no “zero” incident in sight.

So the fact that Kashmir is different from the rest of the country cannot be ignored. Conflict has its own trajectory but it makes people resilient and makes them swim against the tide. However, the dent inthe economy owing to intermittent violence is something that cannot be compensated easily.