Recasting India

by Hindol Sengupta

  In a valley jaded by talk of violence and talk of peace in equal measure, enterprise-driven peace is a welcome new development. In these years, there have been regular summers of peace with the usual tourist flood and hype in a place where the first signpost outside the airport says “Welcome to paradise on earth,” taken from the lines written by the thirteenth-century poet Amir Khusrau: “Agar firdous baroye zameen ast; Hami asto, hami asto, hami ast” (If there is paradise on earth, it is here, it is here, it is here).

  In a state that has one of the highest government employee-to-population ratios, with around 500,000 government workers (states of similar size like Jharkhand or Himachal Pradesh have one-fifth the number of state employees), stability among the guns has always meant a government job. Among the state’s 350,000 craftsmen families, whose skills have been developed over the centuries, the trend in the last 20 years has been to abandon those skills to hunt for even the lowest-rung posts as a peon or a guard.

  That might now be changing.

  This is why after 14 months of hard work and an invitation to attend the L’Artigiano, the annual global arts fair in Milan, 29-year-old Arifa Jan still says she has to lead a dual life. A bit like Batman, she laughs.

  Jan works to revive Numdah, the eleventh-century rug-making technique said to have been popularized by the Mughal emperor Akbar. Her father is a helper in the state transport department. Both her parents are illiterate.

  “Usually Numdah was made by the lower castes, and that’s why I can’t even tell my relatives what exactly my business is. I just tell them that I am into handicrafts. I can never discuss what I am actually doing,” says Jan.

  Two years ago she was selected for an unemployed youth training program of the JKEDI, which gives seed capital between Rs 3 and 7.5 lakhs upon completion of training. Jan decided to work with Numdah, which was a dying art form in the valley, with terrible quality and inflated prices. She uses only pure merino wool for her rugs, which cost between Rs 3,200 and Rs 8,500 (the cheap rugs made with cotton come apart in weeks). Of the first lot of 300 pieces that she made, 85 percent were sold immediately. She was also invited to participate in the fests organized by Dastkar, the crafts body in Delhi.

  “I feel that there are a lot of things that the world does not know about Kashmir. That’s what my business is all about. I want to teach the world about Kashmir,” says Jan, who recently got her passport for her first trip outside India (to Milan). Even in India, she has only traveled to Delhi.

  To understand what is happening to a state economy where the average annual gross state domestic product has more than doubled—from around $6 billion to more than $13 billion—between 2004 and 2012, listen to Haseeb Drabu, the former chairman of the Jammu and Kashmir (J&K) Bank, who now works as a private consultant in Mumbai.

  “There was always a lot of money in the state,” says Drabu. “Kashmir has never had the kind of poverty that for instance Bihar or Bengal had with absolute malnutrition. Whether it’s from the central government or from vested interests in militancy (including from Pakistan), money has flowed into the state. But now there is a palpable difference. The son of an orchardist is not content to remain just another orchardist. He wants to bring in modern machinery and take it to the next level. Is this one big magical change? No. But you are definitely seeing the beginning of a change in mindset and sociological makeup. People are not leaving everything to the government. They are taking some things into their own hands.”

  Drabu says a lot of the change also happened with the penetration of the availability of finance. During his tenure from 2005 to 2010 as chairman and CEO of J&K Bank, Drabu changed the lending pattern of the bank from 10 percent to people in the valley and the rest to big companies across India to 60 percent local lending. He says it helped the bank build an almost zero non-performing asset book since “it was hundreds of small loans.” It also took the credit deposit ratio (CDR; the ratio between the amount of money a bank holds and the amount it lends) from 20 percent to 62 percent. According to the Reserve Bank of India, a low CDR is usually indicative of tepid entrepreneurial activity. While the CDR has fallen from the heights achieved by Drabu, not least because of the massive slowdown in the Indian economy in the last couple of years, it is still growing year-on-year. According to the latest figures available in March 2013, J&K Bank’s CDR rose from 36.14 percent to 39.59 percent between March 2012 and 2013. In the first two quarters of 2014, it showed a surge in CDR to 42.81 percent by March 31, 2014.3

  One of the numbers that suggest this is the rise of the state’s GDP. As Drabu explains, a compounded annual growth rate (CAGR) of 13.2 percent in recent years cannot be only government dole and illicit money.

  Fayaz Bhat, 47, took advantage of this growth when he started iQuasar (earlier Musky Software) in 2004. The company now has a turnover of $2 million and 47 employees. His office is at the software development park at Rangreth on the outskirts of Srinagar. He says he fights every day to change the mindset of the people around him, including that of his own father, who was a gauge reader with the state water board. “Even today my father is not happy that I am doing something on my own. If I tell him that my private sector job pays Rs 50,000 and a government job pays Rs 10,000 a month, he will say take the government job,” says Bhat who is now COO at iQuasar.

  But that’s not the only impediment to entrepreneurship. Speaking on Skype from Manhattan, Bhat’s partner Tahir Qazi, who is CEO, says their company is a great example of how “India grows at night when the government sleeps.” “As Kashmiri entrepreneurs we began with a feeling that we need to make things happen in spite of the problems. For instance, we have never paid one paisa in bribes. Everyone here pays bribes but we just don’t. That means we are obstructed at every level by bureaucrats all the time.”

  A case in point is this Kafkaesque incident: in late 2012 iQuasar received their latest factory license, good for two years, from the Department of Labour and the office of the Chief Inspector of Factories. The license, a copy of which was shown to me, clearly says that it’s valid until December 31, 2011.

  Only it was signed on September 19, 2012, and sent to the company.

  “Now what do I do with this? You tell me,” says Bhat with a smile. He says he will keep the license and assume it is for the next two years and only apply again for 2015.

  Nearby, at the Essar-owned Aegis BPO (business process outsourcing company), Omar Wani, the manager in charge for Kashmir, says he once had a raid by factory inspectors who accused him of not having a manufacturing license.

  “I told them hold on, what am I manufacturing? They said, no, this is a factory. I was like—but you tell me what is being manufactured here? Nothing. They just didn’t understand what a BPO does but wanted bribes. So I was determined, you fine me, shut me down and I will go to court and fight for as long as it takes.” Faced with aggression, the inspectors backed off and after a few days cleared the BPO.

  Wani says he is able to face this kind of harassment because of the enthusiasm his employees show. Of approximately 200 people between the ages of 19 and 27 years who work at the BPO, most leave in about two to three years, almost always to start their own enterprise.

  “There have been people who have started a shop, become a trader, all sorts of things. You see, what they lack is a purpose, a sense of confidence. Here’s what I think we do. We don’t run a BPO at all. We run a service where young people come to be told that they too can make it in life, that they too have it in them. Once they have that, they can fend for themselves. The demand for government service has come from the fact that people had very low expectations of themselves and that was the ultimate comfort zone.”

  I asked the question about bribing for licenses when I met the chief minister of Jammu and Kashmir, Omar Abdullah. At 42, Abdullah is one of the youngest chief ministers in India and is seen as a potential reformer in a state where more than 60 percent of the population is under 30 years of age.

  The BlackBerry-carrying chief mi
nister, wearing a navy blue track suit (rather than the kurta pajama that politicians prefer, especially when meeting the press) since he had just returned from a walk, grimaced. “A license? Which company did you say?” It seemed that he was making a mental note. “This is exactly why we pushed through a Public Service Guarantee Act last year,” said Abdullah. “It takes a bit of time to spread to every department, but this is now monitored directly by my office.”

  The Public Service Guarantee Act, now implemented by eight Indian states, makes the delivery of a set of essential services, from the connection of electricity to—as in the case of Kashmir—industrial license renewal, a public service, the denial of which is a criminal offence.

  “The idea is that, for instance, we train young entrepreneurs and they come out and cannot get licenses and clearances without paying bribes. These cases come straight to the entrepreneurship development body and then straight to the chief minister’s office. We take action and I am personally reviewing these things.”

  This seems to be true, at least in the case of Arifa Jan. When she applied for an industrial unit license, she was told it could not be given unless she had the right kind of machines. “One of those machines cost Rs 25 lakh,” said Jan. “I was getting that part of the work outsourced. My total start-out budget was Rs 3 lakh. How could I buy a machine for Rs 25 lakh?”

  She spotted the chief minister at a fair and approached him. “I told him that your people are not letting me start. He looked angry and then told his secretary, this license needs to be sent now! He told me, ‘Don’t worry this will not stop your work.’ In two days, the license was delivered to me.”

  Abdullah says that the bureaucracy issue will not go away in a hurry. “It is a legacy I have inherited and I cannot suddenly fire thousands of people. But if it were left to me, I would immediately halve the number of state employees. Since I cannot do that, I have to bring many issues right into my office to hasten the process.”

  As he sat with Ratan Tata, Rahul Bajaj and Kumaramangalam Birla, Abdullah said his thoughts were about what he could do rather than about the investment of corporate bigwigs. “I do not believe that our problems will be solved by external money pouring in. Big companies come in because they see some loophole with which to make even more money and as soon as that goes, they exit. In the 1980s, HUL [Hindustan Lever] used to have a big factory in Jammu because the monopolies and restrictive trade practices law was not applicable in the state. The moment it was introduced, they packed up and left.

  “So my focus is clear—entrepreneurs within the state. People who will definitely stay here,” says the chief minister, who has been quoted as saying that enterprise cannot wait until “all the guns fall silent.”

  He needs to hasten the process of the state government’s push into the support of indigenous industries, especially since the central government’s thrust programs (such as Udaan and Himayat, which were launched in March 2012 to train 8,000 professionals for industries such as information technology and placement at companies like HCL, Wipro and TCS) are stuttering with only 139 students trained so far.

  Haseeb Drabu says that instead of such programs, the state government needs to focus on a “quick double formula.” “Look at it this way, in indigenous craftsmanship, for years, through all the troubles hundreds of thousands of people have continued in business. We calculated when I was at the J&K Bank that with a sustained push to provide finance to them, each crafts family which now employs two members can easily employ four—that’s three or four hundred thousand jobs right away! And then spend money on marketing the goods—why has the price of a Kashmiri shawl remained stagnant more or less for more than 30 years now? There you have it—simple solutions that can immediately bring prosperity.”

  For the first time, says Gazzala Amin, sometimes called Kashmir’s Queen of Lavender, there is a sense of urgency among many entrepreneurs and young people.

  The 48-year-old started Fasiam, an aromatic plants and oil extraction business, with Rs 8 lakhs seven years ago. Today her cultivation is spread over 2,000 canals of land (20 canals = 1 hectare or 2.47 acres), and she exports quality lavender oil everywhere from Turkey to France and China. Amin points to the global flavors and fragrances market set to hit $26.5 billion by 2016 and says Kashmir can develop as an essential oils hotspot.

  Lavender is prized for its linalool molecule, the perfume molecule that is used in cosmetics. The molecule contains esters that give it strength and purity, and Kashmiri lavender esters are often comparable to French lavender esters.

  In her three hilltop farms at Sonawari, Pulwama and Tangmarg, Amin produces five crops a year, one ton each of lavender, Rosa damascena (damask rose), rose-scented geranium, clary sage and rosemary.

  This is where she dreams of creating “an Indian Body Shop.” “We have everything. Kashmir can grow some of the best quality aromatic plants in the world. We also have a lot of barren land where maize cannot be grown but aromatic plants can be grown there. This land can be used to get up to Rs 3 lakh per hectare,” says Amin.

  “There is so much opportunity that is being wasted.”

  Mudasir Mir says that’s what he tells Omar Abdullah, who is also the power minister of the state, each time he meets him. In a power-deficit state, Mir’s Magpie Hydel has three small hydropower plants at Bandipur (10 MW), Tangmarg (10 MW) and Poonch (20 MW).

  He says that, at the moment, Kashmir has “enormous pent-up entrepreneurial demand.” “There can be 40–50 power plants in Kashmir in hydel power which is so much cleaner than coal but very little moves without the personal intervention of the chief minister. How many files can he personally move?”

  The Fordham University MBA says entrepreneurs in Kashmir have decided to see that “the glass is less than half full.” “Half full is where we realize that there is so much infrastructure missing in the state, and less than half full is where the bureaucracy and politics stifle things, but I think there is an overall sense that we must get things done in spite of all the problems.

  “At least the guns are silent now.”

  BUT EVEN WHEN THE GUNS WERE BLAZING, ONE KASHMIRI BANK KEPT the spirit of enterprise alive. In a sense the story of J&K Bank and its success is the story of how enterprise has been at the forefront of keeping hopes of peace alive in the valley.

  Hear the tale of Ahjaz Ahmad, for instance. With the nonstop rattle of AK-47 gunfire and grenades going off right outside the door of his office at the Tourist Reception Centre in downtown Srinagar, Ahmad got a call from his boss, who told him to get out. The 45-year-old branch manager of J&K Bank refused. In the moment when he knew he might die, Ahjaz Ahmad couldn’t help for a moment thinking of the files.

  It was April 6, 2005, one day before the start of a major peace initiative between nuclear-armed rivals and neighbors India and Pakistan. For the first time the two countries had agreed to start a bus service across the Line of Control, which divides the Kashmir Valley from Pakistan-occupied Kashmir and splits the northern borders of India and Pakistan. The neighbors have fought three wars over Kashmir.

  A bus service would be a great step forward.

  But around 4:00 p.m. the day before, when Ahmad heard the first gunshots, he knew that militants opposed to the peace initiative had struck. But he wouldn’t leave. “The office was full of financial records. We couldn’t have let it burn. These were records of us, people like me, the ordinary Kashmiri, our neighbors and friends.”

  So Ahmad and four other staff members remained inside the office as gunfire and bombing continued outside for one and a half hours, even after everyone from ten other offices in the building fled, even after the building was set on fire.

  By the time they escaped their ground floor office with black plastic bags full of files and a drive full of data, after the firing stopped and the terrorists had been killed, most of the building was charred, and all ten other offices were either destroyed or nearly so. More than ten people were injured in the fire.

  Eight year
s later, Ahmad says, “I was very scared, but at that time we were not so (technologically) centralized like today; if branch records were destroyed, rebuilding them would take a lot of time. My clients were not unknown people. They were my neighbors, people I knew, my father knew, his father knew—how could I let them down?”

  Companies like to tell stories of being integrated in their communities. It makes them feel good about earning profits, and it doesn’t look too bad in the annual report either. But few companies are actually part of the rubric of the societies they serve.

  Ask anyone in Kashmir—from the elderly houseboat manager to the award-winning walnut-wood carver to the dynamic hydroelectric plant manager—and everyone will tell you that Kashmiris feel that they have a personal stake in the bank. And not just because the state of Jammu and Kashmir is a majority (53 percent) shareholder in the bank, making it the only bank owned by a state in India. All the other public banks are owned by the central government.

  At a time when India’s banking industry is in deep crisis and the gross non-performing assets (NPAs) of 40 listed banks went up by 43 percent in one year, J&K Bank had one of the lowest NPAs in Indian banking. Gross NPA for the end of March 2013 was 1.62 percent. Net NPA was only 0.14 percent, far lower than most of its industry peers that are roughly the same size, such as Allahabad Bank (3.19 percent), UCO Bank (3.17 percent), Punjab National Bank (2.35 percent), Indian Bank (2.26 percent) and Canara Bank (2.18 percent). India’s largest banks, ICICI, Axis and State Bank India, also have higher net impaired loans of 0.77 percent, 0.32 percent and 2.10 percent. One of the reasons for the low NPA is captured in the data of the bank’s advances, or lending. Until June 2013, 56 percent of advances were in agriculture if one looks at an all-India level. Outside the state this is a mammoth 83 percent. In the state, agriculture trails personal loans (32 percent) by 12 percent. Basically, J&K Bank does not lend to the kind of high-risk infrastructure and real estate projects that cause big holes in the balance sheets of most banks. It is one of the few banks that even managed to recover most of its money lent to the defunct airline Kingfisher. “We sold pledged shares as soon as the United Breweries and Diageo deal was announced and managed to recover back more than 90 percent of the 100 crores lent back,” says Shafat Ahmad Banday, president (advances and asset planning) at the bank.