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JAMMU & KASHMIRSeptember 2009

2

Jammu & Kashmir September 2009

Investment climate of a state

• Skilled and cost-effective labour

• Labour market flexibility

• Labour relations

• Availability of raw materials and natural

resources

• Tax incentives and exemptions

• Investment subsidies and other incentives

• Availability of finance at cost-effective terms

• Incentives for foreign direct investment

(FDI)

• Profitability of the industry

• Procedures for entry and exit of firms

• Industrial regulation, labour regulation,

other government regulations

• Certainty about rules and regulations

• Security, law and order situation

• Condition of physical infrastructure such as

power, water, roads, etc.

• Information infrastructure such as telecom,

IT, etc.

• Social infrastructure such as educational

and medical facilities

Resources/Inputs

Incentives to industryPhysical and social

infrastructure

Regulatory framework

Investment climate of a state is determined by a

mix of factors

3

September 2009

Jammu & Kashmir‘s performance on key socio-economic indicators

Availability of social and physical infrastructure in the state

Policy framework and investment approval mechanism

Cost of doing business in J & K

Key industries and players

The focus of this presentation is to discuss…

Jammu & Kashmir

4

Jammu & Kashmir‘s economic performance has been

impressive, driven by all three sectors of the economy

• The gross state domestic product (GSDP) grew at

a compound annual growth rate (CAGR) of 15.3

per cent between 1999–2000 and 2007–08 to

reach US$ 7.91 billion.

• In 2007–08, agriculture was the highest contributor

to the GSDP among all sub-sectors, at US$ 190

billion.

• The tertiary sector, driven by public administration,

is the largest sector in the GSDP.

• The secondary sector, driven by manufacturing,

construction, electricity, and gas and water,

witnessed the highest CAGR of 20.7 per cent

between 1999–2000 and 2007–08.

PERFORMANCE ON KEY SOCIO-ECONOMIC INDICATORS

Source: Ministry of Statistics and Programme Implementation


Jammu & Kashmir's GSDP (US$ billion)

CAGR15.33%

8.6%

20.7%

11.0%

CAGR

5

Households in the state have higher disposable incomes as

compared to the rest of the country

Percentage ownership of household goods, vehicles and electricity consumption


Source: The Market Skyline of India 2006 by Indicus Analytics

• The per capita income of Jammu & Kashmir was US$ 706.6 in 2007–08 as compared to the all-India

average of US$ 850.

• In ownership of assets such as four wheelers and consumer electronics, Jammu & Kashmir is ahead of

the all-India average.


6

Households in the state have medium to high consuming

potential

• Distribution of households by socio-economic

classification (SEC) shows that in the urban

areas the share of households with

entrepreneurs is high, and that this segment has

a medium to high consuming potential.

Percentage distribution of urban households by SEC*

Source: BW Marketing Whitebook, 2009–10

* See Annexure for SEC categories


Urban


7

Industry is mostly traditional in nature and comprises mainly

small-scale and cottage industries

Key industries in J&K

Horticulture

Floriculture

Handlooms and handicrafts

Tourism

Mineral-based

Gems and jewellery

Sericulture

Information technology

Key industrial areas in J&K

Industrial Complex, Bari Brahmana, Jammu

Industrial Estate, Gangyal, Jammu

Industrial Growth Centre, Samba, Jammu

Integrated Infrastructure Development Project,

Udhampur

Export Promotion Industrial Park, Katholi, Jammu

Industrial Area, Kathua

Electronic Complex, Rangreth, Srinagar

Industrial Complex, Lassipora, Pulwara, Kashmir

Industrial Complex, Khanmoh, Srinagar

Industrial Complex, Zainakote, Srinagar

Industrial Estate, Zakura, Srinagar

Industrial Growth Centre, Ompura, Budgam

PERFORMANCE ON KEY SOCIO-ECONOMIC INDICATORSJammu & Kashmir September 2009

8

• Food processing and agro-based industries (excluding conventional grinding/extraction units) thrive in

the state because of an excellent climate for horticulture and floriculture.

• Handicrafts, being the traditional industry of the state, has been receiving priority attention from the

state government in view of the sector‘s large employment base and export potential.

• The state is famous for small-scale and cottage industries such as carpet weaving, silks, shawls, basketry,

pottery, copper and silverware, papier-mâché and walnut wood.

Industry is mostly traditional in nature and comprises mainly

small-scale and cottage industries

PERFORMANCE ON KEY SOCIO-ECONOMIC INDICATORSJammu & Kashmir September 2009

9

Jammu & Kashmir has witnessed a strong inflow of

investments in the power and services sector

• Jammu & Kashmir had outstanding investments*

of US$ 8 billion as of the quarter ended

December 2008.

• The maximum amount of investments,

amounting to US$ 3.9 billion, have taken place in

power-related projects, followed by the services

sector at US$ 3.3 billion.

Source: CMIE

*Outstanding investments include new projects and those under implementation, but not projects shelved


Breakup of investments by sector


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Social infrastructure in the form of educational institutions is

adequate

Educational infrastructure

• Education is a top priority for the state government.

• Jammu & Kashmir is the only state where education is free up to the university level.

• Seasonal schools have been opened for people in remote hilly areas and for under-privileged

students.

• Jammu & Kashmir has over 15,000 schools, five universities, 37 industrial training institutes, four

polytechnics and 41 colleges, including two engineering and five medical colleges.

AVAILABILITY OF SOCIAL AND PHYSICAL INFRASTRUCTURE IN THE STATEJammu & Kashmir September 2009

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Social infrastructure in the form of medical institutions is

relatively good

Health indicators Jammu & Kashmir All-India

Birth rate* 19.0 23.1

Death rate* 5.8 7.4

Infant mortality rate** 51.0 55.0

Life expectancy at birth — Male 59.7 63.7

Life expectancy at birth — Female 59.0 66.9

Source: Ministry of Health and Family Welfare;

*Per thousand persons;

**Per thousand live births

• In 2007–08, the state had 117 hospitals, 265 ayurvedic dispensaries, 235 unani dispensaries, 1,888 sub-

centres, 374 primary health centres and 80 community health centres.

• In terms of parameters such as birth rate, death rate and infant mortality rate, the state has shown

better performance as compared to the all-India average.


13

Transport infrastructure is being ramped up

• The total road length in the state, which is maintained by its public works department (PWD), is 15,012

km.

• Jammu & Kashmir, where road density is among the lowest in the country (35.7 km of road length per

100 sq km), has got over top priority from the Central government for the upgradation of its road

network.

• The road projects being executed by the National Highways Authority of India (NHAI) are as under:

• Four-laning of the national highway from Jammu to Srinagar on build-own-transfer (BOT)-annuity

basis. The estimated cost of the six packages involved in the project is US$ 2.4 billion.

• National highway works amounting to US$ 25 million are being executed by the Border Roads

Organisation.

• The Government of India is expected to clear two state-road projects worth around US$ 191

million by the end of 2009.

AVAILABILITY OF SOCIAL AND PHYSICAL INFRASTRUCTURE IN THE STATE

Roads


14

Transport infrastructure is being ramped up

• The state‘s international airport is in Srinagar,

while Jammu and Leh have domestic airports.

• Srinagar airport had passenger traffic of 733,089

during 2008–09, while Jammu and Leh received

401,954 and 198,790 passengers, respectively.

• The state is linked with the country's rail

network up to the Udhampur district.

• Work on connecting Srinagar and

Baramullah is going on. The Udhampur-

Katra, Katra-Qazigund and Qazigund-

Baramullah rail link project has been

taken up as a national project. About 8

kms of the 11-km-long tunnel that runs

from Qazigund to Banihal have been

completed, and it is set to be opened to

traffic by December 2010.


Civil aviation Railways


15

The situation in power and telecommunications is

encouraging … (1/2)

• The total installed capacity in the state as of March 31, 2009, was 2,158.95 MW, most of it produced by

hydro power projects and gas turbines. Gross electricity generation during August 2009 was 770

million units.

• Jammu & Kashmir has immense potential for hydro power. As of March 31, 2009, the Jammu & Kashmir

State Power Department Corporation (JKSPDC) owned and operated 19 hydro power stations with a

total installed capacity of 308 MW.

• In September 2009, solar energy-powered electrical lighting systems were operationalised in about

3,900 households in 27 remote villages of Gurez tehsil in Jammu & Kashmir, as part of the government‘s

Remote Village Electrification (RVE) Programme.

• Projects have been sanctioned for extending basic lighting facilities to 145 of the 284 un-electrified

villages and 28 hamlets in the state.


Power


16

The situation in power and telecommunications is

encouraging … (2/2)

• Bharat Sanchar Nigam Ltd (BSNL) is the main service provider of basic telephony and value-added

services in the state.

• There are five secondary switching areas (SSAs), namely Jammu, Srinagar, Udhampur, Rajouri and Leh.

• According to estimates by the Telecom Regulatory Authority of India (TRAI), as of August 2009, the

state had 4.42 million wireless subscribers and 231,507 wireline subscribers.


Telecommunications


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Industrial infrastructure is being built up

• There are two special economic zones (SEZs), one each in the Jammu and Kashmir provinces.

• The integrated infrastructure development project at Udhampur is an industrial area at Kathua.

• There is an electronic complex at Rangreth in Srinagar, three industrial complexes at Bari Brahmana,

Pulwama and Khanmoh, three industrial estates at Gangyal, Jammu, and Zainakote and Zakura in

Srinagar, and two agri-processing zones — one for walnuts and another for apples.

• An export promotion industrial park (EPIP) has been established at Kartholi, Jammu, at a cost of US$

4.7 million.

• A software technology park (STP) has been commissioned at Rangreth in Srinagar.

• Locations have been identified for two food parks, two EPIPs and one industrial estate.

• Two industrial growth centres at Samba and Badgam, and one EPIP at Kartholi, Jammu, are also being

developed.

• There are proposals for setting up a textile city at Kathua, and an integrated leather complex, food

processing park and gems park at Srinagar or Jammu.


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Key nodal agencies in Jammu & Kashmir

Jammu and Kashmir

Industrial and Technical

Consultancy Organization

Ltd (J&KITCO)

• J&KITCO was set up in April 1997 as a subsidiary of the Industrial Development Bank

of India

• Its prime objective is to provide a package of consultancy services to existing and

potential tiny, small- and medium-scale industrial units.

Jammu and Kashmir State

Financial Corporation

(JKSFC)

• JKSFC has been established to act as a regional development bank with the aim of

promoting industries and boosting economic development in the state

• In the case of existing units, JKSFC offers term finance for their expansion and

diversification, or renovation, modernisation and procurement of quality-control

equipment and energy-saving devices.

Small Industries Services

Institute (SISI)

• SISI provides techno-managerial, economic and marketing services to prospective and

existing entrepreneurs in the state.

Jammu & Kashmir State

Industrial Development

Corporation (J&K SIDCO)

• J&K SIDCO is the nodal agency for the promotion and development of medium- and

large-scale industries in the state.

• Established to act as a catalyst to accelerate industrial development in the state.

Directorate of Industries

and Commerce

• The directorate provides sanctions and clearances for setting up small-scale industrial

(SSI) units.

• The general manager acts as the key nodal officer for sanctions.

POLICY FRAMEWORK AND INVESTMENT APPROVAL MECHANISMJammu & Kashmir September 2009

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Attractive investment climate through investment friendly

and sector specific policies ... (1/2)

Industrial Policy, 2004

An action plan to promote industrial growth in the state, the policy is effective from February 2004 to March 2015.

Key goals under this policy include the following:

• To achieve sustainable industrial development in all regions for increasing the growth rate, value addition and

employment generation, and achieving the overall economic development of the state.

• To strive towards balanced economic and social development in all regions of the state by promoting industrialisation,

particularly in backwards areas.

• To encourage and sustain the cottage and tiny industrial sectors, which provide employment to a large number of

people in the state.

• To create a supportive environment with transparency and easy access to information, technology and financial

resources.

• To revive potentially viable, sick industrial units so as to put to optimum use, the capital and other resources already

employed in such enterprises.

• To promote the growth of specially identified and export-oriented industries and encourage high-tech and knowledge-

based industry, including IT.

• To take necessary steps in the field of human resource development and make available skilled or technical manpower

as per the needs of industry.


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Attractive investment climate through investment friendly

and sector specific policies ... (2/2)

Infrastructure Policy, 2004

The policy‘s main focus is on improving the general infrastructure in the state.

Key goals under this policy include:

• Development of modern industrial areas and estates, growth centres, integrated infrastructure development centres

(IIDC), etc.

• Operational management of major industrial estates to be rationalised by involving local industrialists through a

suitable local self-managed model both for development works and management of estates, including regulation of

power and water supply.

• Treating private sector participation in infrastructure development as an industry for the purpose of availing

incentives.

• Facilitation of acquisition of land by the state government for such private sector initiatives.

• To ensure that the power supply within industrial areas, estates, IIDCs, etc., is regular, reliable and of good quality.

• Private sector investment in generation and distribution of regular power supply in industrial areas, estates and IIDCs

is actively encouraged.


22

Single-window clearance mechanism for speedy

implementation of industrial projects

Examination of proposal

Proposal sent to various boards such as Pollution Control Board,

J&K Power Development Corp., etc.

Receipt of response from these boards

Proposal sent for review to the Apex Project Clearance Committee chaired by the Chief Secretary

of the state with the relevant secretaries as members

Decision whether project is feasible or not

Land allotment and provisional registration

The following is the procedure for obtaining single-window clearance in the state

The entire procedure is completed within a maximum time-frame of two months


23

Agencies concerned for starting business in Jammu &

Kashmir

Jammu & Kashmir

Industrial

Development

Corporation

(J&K SIDCO)

• J&K SIDCO is the nodal agency for the promotion and development of medium- and large-

scale industries in the state.

• Since its inception, J&K SIDCO has acted as a prime mover for the promotion of industrial

ventures, thus, playing the role of the ―Institutional Entrepreneur‖.

• Activities of the corporation include modernisation, brand promotion, rehabilitation of sick

units and export promotion.

• Within each estate, developed land is available at subsidised rates.

• Industrial growth centres and EPIPs are being set up separately in both the Jammu region and

the Kashmir valley. Facilitation for development of such centres includes land acquisition,

construction of internal roads, provision for effluent disposal, and ensuring water and power

supply in industrial estates.

• The corporation offers a variety of financial assistance for setting up new units and for

expansion/diversification/modernisation of existing projects.


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Cost of land in Jammu & Kashmir

Government land Charges Source

First 0.5 acre US$ 3,980 per acre or actual development cost, whichever

is lesser

Jammu and Kashmir government

website

0.5 acre–1 acre US$ 5,970.4 per acre or actual cost of development

,whichever is lesser


website

1 acre–2.5 acres US$ 7,960.2 per acre or actual development cost, whichever

is lesser


website

Above 2.5 acres Land to be leased out on full cost of land plus development

charges


website


COST OF DOING BUSINESS IN J & K

26

Cost of doing business in Jammu & Kashmir

Cost parameter Cost estimate Source

Hotel costs per room (per night) US$ 25 to US$ 240 Leading hotels

Cost of office space (per sq ft) 20 cents to 40 cents Property developers

Cost of residential space (2,000 sq ft

house)

US$ 200 to US$ 670 per month Property developers

Cost of water 7 cents per 1,000 litres J&K SIDCO

Power cost (per kWh) US$ 0.05 to US$ 14.9

Jammu & Kashmir State

Electricity Regulatory

Commission (JKSERC)

COST OF DOING BUSINESS IN J & KJammu & Kashmir September 2009

27




Cost of doing business




28

Key industries that have developed in the state because of

policy thrust and several factor advantages

Horticulture

Handlooms

and

handicrafts

Sericulture

*Factor advantages include benefits due to geographical location and availability of factors such as talent pool, natural resources and capital

KEY INDUSTRIES AND PLAYERS

High

High

Medium

MediumLow

Factor advantage

Polic

y th

rust

Tourism

Gems and

jewelleryIT and

electronics

Mineral-based

industry


29

Horticulture and floriculture

Overview

• Horticulture is the mainstay of Jammu & Kashmir‘s rural economy, generating revenues of over US$ 11

million annually, and providing job facilities to thousands of people, directly and indirectly. The state has

suitable agro-climatic conditions for a variety of flowers.

• The floriculture industry of the state caters to both the domestic and international markets.

• The state is a leader in the production of apples, walnuts, pears, almonds and apricots, and has a huge

potential for the exports of processed food and allied services.

KEY INDUSTRIES AND PLAYERSJammu & Kashmir September 2009

30

Handicrafts

• Handicrafts are another traditional industry of the state — Kashmiri silk carpets are famous the world

over and earn substantial foreign exchange for the country.

• Wood from Kashmir, popularly known as Kashmir willow, is used to make high-quality cricket bats.

• Handicrafts is a predominant cottage industry and provides direct and gainful employment to 0.3

million people in the state.

• The state has established the Jammu & Kashmir Handicrafts Sales and Export Promotion Corporation

and the J&K State Handloom Development Corporation to promote the development and growth of

the handicrafts sector.


Overview


31

Tourism

• Tourist arrivals crossed the one million mark in 2008–09. Around 1,050,000 tourists visited the state

during 2008, a significant increase over the 2007 figure of 656,000.

• Jammu is famous for its temples while the Kashmir valley, popularly described as ‗paradise on earth‘, is

a well-known tourism destination.

• Major tourist attractions include the Chashma Shahi springs, Shalimar Bagh and Dal Lake in Srinagar;

Gulmarg, Pahalgam and Sonamarg in the valley; Ladakh; and the Vaishno Devi temple and Patnitop near

Jammu.

• The state government has established 19 tourism development authorities at places with good tourist

flow and tourism potential.


Overview


32

Sericulture and wool

• Kashmir is well-known for its quality silk and its traditional silk weaving industry. The state houses two

large silk factories in Srinagar and Jammu.

• The factory at Srinagar manufactures around 300,000 metres of various types of silk for fabrics such as

georgette, parachute material and suitings.

• Jammu & Kashmir is well known for its wool industry, particularly for products such as shawls and

carpets. The state produces 6.4 million kg of wool annually, valued at around US$ 5.4 million.

• The government woollen mill at Srinagar is another established manufacturing unit, which has a capacity

of 2,018 woollen and 1,576 worsted spindles.

• The state has also a special package of US$ 3 million for the development of sericulture, procurement

of cocoons, cultivation of mulberry plantations on private lands, etc.


Overview


33

Key players in Jammu & Kashmir

Indian Telephone Industries Ltd (ITI) • Founded in 1948, ITI manufactures the entire range of

telecom equipment

• Has a manufacturing unit at Srinagar

NHPC Ltd • Formerly known as National Hydroelectric Power

Corporation Limited, NHPC was incorporated in 1975 as a

Government of India enterprise

• Of the 5,175 MW hydel power capacity installed by NHPC,

about 1,560 MW is installed in Jammu & Kashmir

• Has power stations located at Salal, Uri and Dulhasti in the

state

Singer India Ltd • Leader in sewing machines

• Has a factory 16 km from Jammu since 1986


34

Key players in Jammu & Kashmir

Zamindara Rice Mills • Established at village Rangpur Sandhrey in 1998

• The unit won a recognition of the highest order for the best quality of rice at

the state level from the Federation of Retailers Association, Jammu

Sutlej Textiles and Industries Ltd • Part of the K K Birla Group of companies

• Gained entry into the state through a merger with Chenab Textile Mills of

Jammu & Kashmir in 1997

• Sutlej is an integrated company in the textiles industry with a range that varies

from yarn to fabrics to home furnishings and garments

• Chenab Textile Mills manufactures spun yarn

Jai Beverages Private Ltd • Incorporated in 1999 as a franchise for Pepsi India at an initial investment of

US$ 6.4 million

• Providing direct and indirect employment to around 700 people


35

Annexure

Socio-economic classification (SEC) of urban households

Urban SEC grid

Education/Occupation

Illit

era

te

School up t

o four

year

s/ litera

te, b

ut

no form

al

schoolin

g

School up t

o fiv

e t

o

nin

e ye

ars

SSC

/HSC

Cert

ific

ate c

ours

e,

but

not

grad

uat

e

Gra

duat

e/p

ost

gr

aduat

e

genera

l

Gra

duat

e/p

ost

gr

aduat

epro

fess

ional

Unskilled workers E2 E2 E1 D D D D

Skilled workers E2 E1 D C C B2 B2

Petty traders E2 D D C C B2 B2

Shop owners D D C B2 B1 A2 A2

Entrepreneurs: employee none D C B2 B1 A2 A2 A1

Entrepreneurs: employee < 10 C B2 B2 B1 A2 A1 A1

Entrepreneurs: employee > 10 B1 B1 A2 A2 A1 A1 A1

Self-employed professionals D D D B2 B1 A2 A1

Clerical/salesman D D D C B2 B1 B1

Supervisory level D D C C B2 B1 A2

Officers/executives: junior C C C B2 B1 A2 A2

Officer/executive: middle/senior B1 B1 B1 B1 A2 A1 A1

Source: Market Research Society of India


36

Annexure

Exchange rate

Year INR equivalent of one US$

2000 46.6

2001 48.3

2002 48.0

2003 45.6

2004 43.7

2005 45.2

2006 45.0

2007 42.0

2008 40.2

2009 46.0


37

DISCLAIMER

India Brand Equity Foundation (―IBEF‖) engaged ICRA

Management Consulting Services Limited (IMaCS) to

prepare this presentation and the same has been prepared

by IMaCS in consultation with IBEF.

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related works is solely and exclusively owned by IBEF. The

same may not be reproduced, wholly or in part in any

material form (including photocopying or storing it in any

medium by electronic means and whether or not

transiently or incidentally to some other use of this

presentation), modified or in any manner communicated

to any third party except with the written approval of

IBEF.

This presentation is for information purposes only. While

due care has been taken during the compilation of this

presentation to ensure that the information is accurate

to the best of IMaCS‘s and IBEF‘s knowledge and belief, the

content is not to be construed in any manner whatsoever

as a substitute for professional advice.

IMaCS and IBEF neither recommend nor endorse any

specific products or services that may have been

mentioned in this presentation and nor do they assume

any liability or responsibility for the outcome of decisions

taken as a result of any reliance placed on this

presentation.

Neither IMaCS nor IBEF shall be liable for any direct or

indirect damages that may arise due to any act or

omission on the part of the user due to any reliance

placed or guidance taken from any portion of this

presentation.‖


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