Who dares wins business in Kashmir

PUBLISHED : Sunday, 11 November, 2007, 12:00am
UPDATED : Sunday, 11 November, 2007, 12:00am

Four years ago, when Jehangir Raina, an Indian businessman based in Britain, decided to start an IT company in Kashmir instead of hot spots like Bangalore and Gurgaon, business analysts blanched at the risky proposal. But Mr Raina saw in this conflict zone what few others did: business potential.

'Initially, our clients were reluctant to do business with a company not based in a metro, but in a conflict zone in the Himalayas,' he says with a smile, lounging on a revolving chair. 'Once they saw potential in us, their reluctance disappeared.'

Over the years, I-Locus, Mr Raina's market-research IT company, has managed to woo more than 200 global clients, including Microsoft and Wipro.

Mr Raina has come to believe that more than the threat itself, the perception of threat dissuades the outside world from looking at Kashmir as an investment option. His business success story seems remarkable in a region that has been a crucible of terror and fear for 18 years. Nearly 40,000 people have died since the insurgency began in the early 1990s.

However, Kashmir's economy, growing at nearly 5 per cent - which appears sluggish only when compared to India's national rate of 9.2 per cent - defies the assumption that conflict stymies economic progress.

Surprisingly, the region belies most perceptions of a war zone - unlike most conflict zones, there are no bombed-out houses here, no empty shops and people living in abject poverty. What is conspicuous, in fact, is booming real estate and a populace that has a formidable spending power.

That was enough reason for HDFC, a private bank, to open a branch in Srinagar, the state's summer capital, two years ago. Like I-Locus, many prudent financial analysts in the country blanched at HDFC's ambitious move. Back then no private financial institution was willing to risk investing in a conflict zone often roiled by bomb attacks.

'Many businessmen are scared of coming to this dangerous place,' Adil Nisar, a senior manager at HDFC, says in his plush office in central Srinagar. 'We dared.'

That daring is today earning the bank rich dividends. In a short span, it has more than 8,000 accounts and business worth nearly 2.5 billion rupees (HK$494 million).

This year, the bank plans to start five more branches in the state, two of which will be in Baramullah and Pulwama, both militant infested districts. The move, although potentially dangerous, demonstrates instinctive business acumen. HDFC hopes to cash in on a rich orchard-owning clientele that has long felt the void of a full-service bank.

Extreme poverty is rare in Kashmir. According to government statistics, in the rural and urban areas, only 3.97 per cent and 1.98 per cent of Kashmiris respectively live below the poverty line. In the rest of India, that's 27.09 per cent and 23.02 per cent.

Thanks to land reforms in the early 1950s by Sheikh Abdullah, Kashmir's first prime minister, most Kashmiris are land owners, something that has contributed to personal wealth of a large population.

Ironically, the conflict, too, has enriched Kashmir in some ways. Over the last 17 years, the state has built a large conflict-economy with the central government granting it special treatment. Since 1990, when the insurgency exacerbated security problems, 100 per cent of Kashmir's budget has been financed by New Delhi, of which only 20 per cent is repayable. Generally, the central government funds only 20 per cent of the cost of federal state development, requiring the states to raise the rest.

Also, even though tourism, Kashmir 's main revenue earner, has declined during years of militancy, the huge expansion of Indian armed forces in the region since the insurgency began made up for the loss, say local businessmen. More than 600,000 Indian military personnel, all potential buyers of local products, are based in Kashmir.

But now that the violence is ebbing, Kashmir 's fortunes may shift, says Daniel Markey, senior South Asia fellow at the Council on Foreign Relations in Washington. 'Now, we may be seeing the beginnings of a post-conflict economy in Kashmir,' he says. 'Reducing violence means that the cash of the conflict economy can now be safely invested in the state to build lasting businesses.'

Kashmir's political class seems eager to wash away its image of a conflict-zone. Setting an ambitious target of 8 per cent growth in the next few years, Tariq Hameed Karra, Kashmir 's Minister for Finance and Planning, says the region's economy is at a 'takeoff stage'.

The government, in an attempt to lure investors, has for the last few years been offering industries setting up operations in Kashmir a 100 per cent excise tax exemption for 10 years from the date of commencement of commercial production. In its annual budget this year, India's finance minister extended this tax holiday for five more years, until 2012.

Initiatives in IT are new in a state where almost 90 per cent of the population has long eked out a living from agriculture, handicrafts and tourism.

Buoyed by the tax incentives offered by the government, BQE Software Inc set up office in Kashmir six years ago. And since then, its manpower has gone up from six to 40. BQE, a software company based in Torrance, California, and owned by Shafat Qazi, a Kashmiri-American, sources a major part of its software development to its Kashmir office.

Kashmir offered Mr Qazi some head-start advantages. One, the workforce came considerably cheaper, nearly at half the rate compared to other Indian cities. Two, setting up business infrastructure was cheap and relatively free of red tape.

In a region that virtually shuts down after the sun sets due to security concerns, office manager Ikhlaq Bhat observes, his staff's work transcended the work culture generally prevalent in this troubled region.

'Now the staff works late hours,' Mr Bhat says. 'Work continues even if there's a hartal [strike] in the city, or even if a bomb goes off.'

A drive down a smooth macadamised road 10km away from Srinagar leads to Rangreth, a mammoth, high-security industrial estate that houses some 189 small and big business and industrial units, including fruit processing, electronics, power generation and IT. Set up in the mid-1990s by the Kashmir government, this was intended to woo businesses.

Amid the whirring of generators in the estate, it is hard not to notice a few units that remain desolate. A few industries, because of security concerns, packed up and left Kashmir for good in the 1990s.

In the past couple of years, some as enterprising as I-Locus and BQE are exploring opportunities here again. Even if there is a terror attack close by, work continues unabated in this cocooned estate.

The government is doing its best to spruce up infrastructure to lure businesses. In the vicinity of the estate, the Software Technology Park of India has provides broadband connectivity.

However, over the years, the scale of businesses has remained very small compared to the rest of India. In a country bursting with the excitement of an economic boom, as India Inc has taken a strident leap, Kashmir Inc is still far behind, local businessmen lament. At 17,174 rupees, the per capita income of the region is only two-thirds of the national average of 25,907.

Unemployment in Kashmir - regarded to be a reason that lures the youth towards militancy - stands at 4.21 per cent, according to the National Sample Survey Organisation, as against a national rate of 3.09 per cent.

Kashmir, government statistics say, today has 183,000 unemployed youths who are highly educated.