Foreign direct investment in Jammu and Kashmir

In the early 1990s India began to attract foreign direct investment (FDI) through economic liberalisation. A large and growing domestic market, favourable demographics, consistent growth, liberalised policies and improved ease of doing business combined to make India a popular investment destination.

While other parts of the country saw steady growth in FDI, the state of Jammu and Kashmir (J&K) however, despite having much to offer, did not inspire investor confidence. J&K’s special status under article 370 of the Constitution of India posed a significant obstacle by giving the state a separate constitution, flag, and internal rules and regulations. It prohibited non-domiciled J&K residents from purchasing or renting land and prevented businesses from investing in the region’s real estate and infrastructure. Autonomy inadvertently created barriers to FDI. Security concerns and unrest in the disturbed region further dissuaded investors. The full economic potential of the Jammu, Kashmir and Ladakh regions was unrealised.

In 2019, the government revoked the special status of J&K by abrogating certain provisions of article 370 of the constitution. While article 370 still exists, its restrictions have been lifted. J&K became a union territory (UT) with a legislature of limited powers and directly under the control of the government. Ladakh was separated from the state of J&K and became a UT without a legislature.

Not only did these developments redefine the state’s political status but they also significantly impacted its economy. Economic prospects were revitalised because of significant investment, especially FDI. Amendments to land laws allowed non-residents to buy and rent land particularly non-agricultural land. Investors could acquire land for development. New domicile regulations allowed non-Kashmiris to move to the state, helping domestic industries and multinational companies to establish profitable ventures. Major roadblocks to establishing businesses and industries were removed, creating an environment of people-friendly governance that welcomed new businesses and industries.

Government initiatives have introduced policies, such as the New Jammu and Kashmir Industrial Policy 2021-30 and the New Central Sector Scheme for Industrial Development of Jammu and Kashmir (NCSS 2021). Such initiatives, focusing on the ease of doing business, have significantly increased investor interest in industrial units in the region.

A stable investment environment and liberalised policies following the dilution of article 370, have attracted growing interest from domestic and foreign investors in vital sectors such as agriculture, tourism, and manufacturing. The government gained effective control over the growth of Jammu and Kashmir, shaping investment policies to attract FDI, including tax breaks and infrastructure insurance.

Diluting article 370 gave the government of India effective economic control over J&K, allowing it to shape the state’s investment policy by attracting FDI. Following the constitutional change, J&K has developed a forward-looking investment policy.

A notable investment in J&K has come from Dubai’s Emaar Group, known for building the Burj Khalifa. It plans to build a USD60 million shopping mall and office complex, significantly contributing to the region’s economic stabilisation. The project is expected to create some 16,000 jobs for local young people. Although the economy of Jammu and Kashmir has improved, challenges are still to be overcome. Substantial investment is urgently needed in infrastructure, including roads, power and connectivity, to develop the state’s economic potential. FDI must create jobs. The reduction of high levels of unemployment in J&K is urgent. The benefits of FDI must reach all sections of society by focusing on sustainable development.

The lifting of restrictions was a milestone for J&K, opening up its economy. Improved security conditions and liberalised land policies have led to a significant surge in FDI, unlocking J&K’s potential in agriculture, manufacturing and tourism. With the government’s initiatives and policy reforms, J&K is being transformed into an investment-friendly destination. Properly regulated, FDI will boost the state’s business environment, creating jobs and encouraging further investment. As the region strives for economic growth and development, FDI will play a critical role. The sky’s the limit if future opportunities for growth are seized effectively and efficiently.

Rohit Jain is the managing partner and Aslam Ahmed is a partner at Singhania & Co.