Business thrives amid Kashmir war

But now that the violence is ebbing, Kashmir's fortunes may shift, says Daniel Markey, South Asia fellow at the Council on Foreign Relations in Washington.

"Now we may be seeing the beginnings of a 'postconflict' economy" in Kashmir, he says. "Reducing violence means that the cash of the conflict economy can now be more safely invested in the state to build lasting businesses."

Setting an ambitious target of 8 percent 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."

To lure investors, the central Indian government will, until 2012, offer new industries a total excise-tax exemption for their first 10 years of operation.

Buoyed by the tax exemptions, BQE Software Inc. set up office in Kashmir six years ago. Since then, the number of its employees has risen from six to 40. A software company based in Torrance, California, and owned by Shafat Qazi, a Kashmiri-American, BQE sources a major part of its software development to its Kashmir office.

"One, the work force here comes considerably cheaper, nearly at half the rate compared to other Indian IT destinations," explains office manager, Ikhlaq Bhat. "Two, setting up business infrastructure is cheap and relatively free of red tape."

Navigating the challenges that remain

SIDCO's Industrial Electronics Complex, a mammoth industrial estate in Rangreth, outside Srinagar, was in shambles until a few months ago. Now it houses some 189 industries that employ more than 3,000 Kashmiris. The estate is promoting itself to potential investors as a major business hub. Nearby, the Software Technology Park of India (STPI) has been established to provide logistical support for IT businesses.

"We are trying to kick-start IT businesses in Kashmir," says Sanjay Puri, the head of Kashmir's Confederation of Indian Industry (CII). With help from Pricewaterhouse Coopers, the world's largest professional-services firm, Mr. Puri is working to encourage outsourcing companies to overcome their hesitation about moving to the valley.

Software and IT businesses are new to a state where, for several decades, nearly 90 percent of the population was eking out a living from traditional occupations such as handicrafts, agriculture, and the region's colonial-era tourism business.

Nonetheless, challenges remain. A residual insurgency has made attracting investors difficult. Militants declared hartals, or strikes, for 1,356 days between 1990 and 2003, according to government statistics, forcing many private businesses to remain shut on most of those days.

Government assistance has allowed several local businesses to sidestep the difficulties of doing business in Kashmir. Nissar Ahmad Baba was forced to close his electrical spare-parts business in 1991, when perpetual hartals were keeping him closed for more than a hundred days out of the year. But with a government loan in 1997, Mr. Baba started Alba Power, a small-scale industrial company that manufactures transformers in Rangreth. Alba power is emerging as a leading manufacturer of transformers in northern India.

Manufacturers like Alba Power, though, are forced to keep the scale of their operations small to minimize risk. Despite the potential, a dearth of investment money has kept away heavy and large-scale industries.

"We need more private investors in Kashmir," says Abid Shah, a senior manager at Alba Power. "This is a state with talented human capital. It still needs to unlock its full potential."

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