The economic situation in Kashmir remains challenging, with high inflation, a relatively high unemployment rate, and a contraction in GDP in the wake of the COVID-19 pandemic and the region’s political situation.
By Mohd. Rafi Hajam
Some of the surveys and statistics that have surfaced recently have painted an inflationary image of the valley. According to the Consumer Price Index (CPI) data released by the Government of India, the inflation rate in Jammu and Kashmir, which includes the Kashmir Valley, was 5.64% in March 2021. This represents a slight increase from the previous month’s inflation rate of 5.19%.
The food and beverages category, which has the highest weightage in the CPI, recorded an inflation rate of 5.92% in March 2021. The housing category, which has the second-highest weightage, recorded an inflation rate of 6.91%.
The unemployment rate in Jammu and Kashmir was 11.6% in 2019-20, according to data released by the National Statistical Office (NSO). This represents a slight increase from the previous year’s unemployment rate of 9.4%. The labor force participation rate in Jammu and Kashmir was 39.4% in 2019-20, which is lower than the national average of 42.2%.
According to the Economic Survey of Jammu and Kashmir for 2020-21, the erstwhile state’s Gross Domestic Product (GDP) is estimated to have contracted by 9.92% in 2020-21. The Survey also highlights the impact of the COVID-19 pandemic and the region’s political situation on the economy.
The Survey notes that the agriculture and allied sectors, which account for a significant portion of the region’s economy, were relatively less affected by the pandemic. However, the industry and services sectors, which are critical for employment and economic growth, were severely impacted.
The Survey also highlights the need for structural reforms to improve the business environment, promote investment, and create employment opportunities. The Survey notes that the region’s economy has significant potential in sectors such as tourism, horticulture, and handicrafts, but that these sectors require investment and support to reach their full potential.
Overall, the data suggests that the economic situation in Kashmir remains challenging, with high inflation, a relatively high unemployment rate, and a contraction in GDP in the wake of the COVID-19 pandemic and the region’s political situation. However, there is also potential for growth and development in key sectors, which could help to improve the economic situation in the region over time.
Global Scenario
In current times, inflation is a burning global issue. The main reasons (at global level) being geopolitical crisis, supply-chain disruptions, trade sanctions, erratic exchange rates and the aftermath effects of the COVID-19 pandemic. Inflation is dangerous because it directly affects the standard of living of the people. These days, all the economies of the world—underdeveloped, developing and developed nations—suffer from inflation.
Inflation, in simplest terms, can be defined as the increase in the prices of most goods and services (of common use) over a given period of time. It measures the average price change in a basket of goods and services over a given period of time. Due to inflation, the purchasing power of a currency unit decreases as goods and services get expensive and this decreasing purchasing power of the currency directly affects the cost of living of the people and their spending and buying habits.
For instance, you bought a list of household essentials last month at an expense of Rs. 2,000 but this month, the price of a certain food item in the same list has risen and that has led to an increase in the cost to (say) Rs. 2100. Now, you have two choices: either you may be forced to reduce an item from your buying list or buy the same list of goods by paying an extra amount of Rs 100. This extra Rs. 100, which you pay for the same list of goods is due to inflation. In every country inflation is measured by a central authority and in India, inflation is measured by The Ministry of Statistics and Programme Implementation.
There are two types of factors that can cause inflation in an economy. They are Demand Pull Inflation (DPI) and Cost Push Inflation (CPI). DPI factors include the rise in population, increase in money supply, black money, rise in income, excessive government expenditure etc., while as CPI factors include the increase in production costs, rise in Minimum Support Price (MSP), rise in international prices, hoarding and black marketing, rise in indirect taxes etc.
Rising prices are a cause of concern for the world at large, as the price rise over time reduces the purchasing power of the consumer.
Looking at the data on inflation rates released last month (12th January, 2023), the National Statistical Office (NSO) reported that the country’s retail inflation, which is measured by the Consumer Price Index (CPI), dropped to a 1-year low of 5.72% in December 2022 from 5.88% in November, 2022. This year, on 16th January, the Ministry of Commerce and Industry reported that the Wholesale Price Index (WPI), which calculates the overall prices of goods selling at wholesale prices, hit a 22-month low of 4.95% in Dec’2022, from 5.85% in Nov’2022. This is for the first time in the calendar year-2022 that the CPI inflation hit below the RBI’s upper margin of 6%.
Decline in the rate of inflation in December, 2022 is primarily contributed to the fall in prices of food articles, mineral oils, crude petroleum and natural gas, food products, textiles and chemicals & chemical products. However, major economies of the world—like the USA, the UK and other European countries—observed hikes in the inflation rates due to the Russia-Ukraine war. CPI inflation reached historically high levels in the US at 8.6%, at 9.1% in the UK and at 7.9% in Germany in May 2022. In Japan, where CPI inflation often remains negative, it increased to 2.4%. In comparison to these nations, India’s inflation rate was the lowest because of the timely steps taken by the Reserve Bank of India.
At the global level, Zimbabwe (269.0%), Lebanon (162.0%), Venezuela (156.0%) and Syria (139.0%) have the highest rates of inflation in the world, as per the records/ data of October 2022. Overall, the data further indicated that more than 100 countries have inflation higher than India. Among the major economies in Asia, inflation in Sri Lanka stood at 64.30%. Iran, Pakistan, Kazakhstan and Myanmar had inflation of 52.20%, 26.6%, 18.8 %, and 16.1%, respectively, in October 2022.
The heat of increasing inflation is not only felt by the economy at large, but also by the individuals; i.e., by the consumers who resort to savings from their earnings. Inflation, however, silently enters our pockets and eats up the hard-earned monetary wealth saved with different motives.
Inflation is not always a bad thing; instead, inflation at a moderate level is desired in the economies, especially in developing countries like India. Uncontrolled and unchecked inflation can ruin the whole economy. Therefore, the responsibility for the government, policy makers, politicians and economists is to protect and safeguard the common man from the rising prices. Both the central government and the central bank (Reserve Bank) should try to tackle inflation with their policies which are known as Fiscal and Monetary Policies respectively.
Inflation is increasing day by day. It is obvious that the rate of inflation in the next 10 to 15 years will be much higher than today. Therefore, the best way to beat inflation is to invest money in such avenues in which there is a possibility of getting returns equal to or more than the inflation rate. Additionally, keeping an eye over monthly released inflation figures apprises us of the current state of our currency. It is always a prudent decision to plan spending and investment as per inflation rates. Since inflation is a macroeconomic phenomenon with an impact at the micro level, therefore taking decisions judiciously at the micro level can help to restrict the inflation at the macro level.
Local Concerns
The main drivers of inflation in Kashmir are the rising cost of food, fuel, and housing. The region is heavily dependent on imports for many goods, and the price of these imports has been rising steadily, leading to higher prices for consumers. The limited availability of locally produced goods also contributes to higher prices, as consumers must pay for the additional transportation and distribution costs associated with imported goods.
The government of India plays a significant role in regulating prices in Kashmir. The region is subject to the same monetary policies and regulations as the rest of India, which includes controlling inflation through various measures. The Reserve Bank of India (RBI) uses a variety of tools to control inflation, including setting interest rates, managing the money supply, and regulating the flow of credit to the economy.
One of the challenges in controlling inflation in Kashmir is the limited availability of data on price levels and trends. The lack of accurate data makes it difficult for policymakers to make informed decisions about how to manage inflation in the region.
Another challenge is the impact of political instability and conflict on the economy. The ongoing conflict in Kashmir has led to disruptions in the region’s economy, including the closure of businesses, restrictions on movement and trade, and a decrease in investment. These factors have contributed to rising prices, as the supply of goods has been limited.
To address inflation in Kashmir, the government of India has implemented various policies and programs. The government has focused on improving the supply chain for essential goods, investing in infrastructure, and increasing agricultural production. The government has also implemented subsidies and price controls on certain goods to help mitigate the impact of rising prices on consumers.
Non-governmental organizations (NGOs) are also playing a role in addressing inflation in Kashmir. These organizations focus on promoting sustainable economic development, improving access to education and job training, and supporting small businesses and entrepreneurs.
Despite these efforts, inflation remains a significant concern in Kashmir. To effectively manage inflation in the region, it is essential to improve the availability of data on price levels and trends, address the underlying causes of rising prices, and implement policies and programs that promote sustainable economic growth and development.
- The author is Assistant Professor, Economics, at Govt. Degree College Sogam (Lolab), Kupwara.
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