Bad Economics. Flawed Policy

Bad Economics. Flawed Policy
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One defining aspect of the “third wave” of globalization, whose momentum can be roughly traced to the late 1980’s, was free(r) movement of capital. Disaggregated, this meant capital flows of two sorts and forms: portfolio flows and investment flows which came to be categorized under the general rubric of Foreign Direct Investment (FDI). FDI was sought more than portfolio capital flows which were associated with volatility and capital flight. And, FDI also had spill over effects and generated employment. While reams can be written on the nature of FDI, flows thereof, impact and consequences, but the issue in contention is the putative FDI flow (staggered) of 5000 crores to J & K by Dubai Ports Limited. The administration has already signed an MoU in this regard. The reasons trotted out in favour of the FDI flow are the high cost structure that business in Jammu and Kashmir have to deal with and the “missing multiplier”. The 5000 crores FDI flow is held by powers that be as a corrective to this. This is as flawed an argument as can be. But, first it may be prudent to dwell on the politics of the FDI manoeuvre. The move comes in the wake of India’s rejigg of its foreign policy premises and orientation. In this schema, India is trying to reset relations with Middle Eastern countries to a new level. (Broadly speaking, this is a manifestation of the fluidity and churn in International Relations and politics, among other things). Powers that be in Jammu and Kashmir are trying to piggy back on this new approach by India and drawing in some capital to the region. As is well known, Jammu and Kashmir- especially the Kashmir region- is a capital deficit region which, among other things, leads to myriad economic issues here. And, over a period of time, the economic problems of Kashmir have taken a turn for the worse. Can, the question is, the putative 5000 crores FDI flow into region, alter this? The answer is a resounding NO. The reasons are manifold. The salient of these are that for the multiplier to operate effectively and efficiently, there have to be agglomeration economies. The so called “logistical hub” into which the putative FDI will go, albeit on a staggered basis, will neither have the scale nor the scope, to lead to agglomeration effects or economies. It is just one sector into which the money will go. Moreover, there is also the potential of rent seeking in the whole saga. The sophistication and capability that operating a logistical hub requires might or might not be available locally. In lieu of this, it might be monopolized by outsiders who may have or may actually purport to have this expertise. If this comes to pass, the principal will be someone else and the agents will be locals, to employ the jargon of economics. Speaking from the perspective of competitive and comparative advantage, these kinds of hubs yield differential returns to places or locales, which have a locational or historical advantage. Entrepot city states like Dubai and Singapore spring to mind here. But, Jammu and Kashmir, being landlocked and riven by conflict does not have these advantage(s). Then, besides being premised on flawed economic premises, the idea suffers on other accounts too. However, all said and done, the idea- both of the FDI and the logistical hub aspect could have redeemed itself if “market access” would have been expanded. The obvious reference here is to the trade routes that actually stand blocked on account of the conflict in and over Kashmir and the larger conflict between India and Pakistan. These routes could even be deemed as the natural trade routes in terms of Jammu and Kashmir and its trading potential. In the final analysis, Jammu and Kashmir can neither be a manufacturing hub, nor a consumption nirvana, for obvious reasons, but it can thrive off regional trade. The sine qua non for a thriving regional trade is reopening of historic trading routes. The proposed FDI flow and the so called “logistical hub” is then flawed- conceptually and practically, in its current and proposed avatar. If it cannot ensconce Kashmir into regional economies and regional trade, its utility becomes moot. Moreover, neat economic theorizing and modelling invariably falls flat against reality which, in the context of Jammu and Kashmir is shaped by the conflict. Can energies be redirected towards its resolution? Perhaps. But, this would call for and warrant neat and clean politics.

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