The ‘11-inch paradox’: Why J&K’s small businesses struggle

By: Abrar Khan

The economy of Jammu & Kashmir is entering a period shaped by converging global disruptions, domestic inflationary pressures, and regional structural vulnerabilities. While headline economic indicators at the national level may suggest stability, the underlying pressures facing businesses, transport operators, artisans, growers, and households across the region reveal a far more complex reality.

India’s retail inflation, measured through the Consumer Price Index (CPI), has remained relatively moderate at around 3.48%. However, the Wholesale Price Index (WPI), which reflects the cost of industrial inputs and raw materials, has climbed sharply to multi-year highs. This widening gap between retail prices and wholesale costs is forcing businesses to absorb mounting financial stress rather than passing costs directly to consumers.

For Jammu & Kashmir, whose economy depends heavily on imported goods, tourism, remittance inflows, and small-scale trade networks, these macroeconomic shocks are felt more intensely than in many other regions. Rising fuel prices, expensive logistics, and prolonged geopolitical instability in West Asia are creating ripple effects that extend from urban marketplaces to rural households.

Trade and commerce remain the backbone of the regional economy, but merchants are increasingly struggling with shrinking liquidity. Rising wholesale costs mean that traders now require significantly more working capital simply to maintain existing inventory levels. The result is an emerging operational gap that is straining local markets and slowing business cycles.

The business community has argued that conventional banking mechanisms are ill-equipped to respond to extraordinary inflationary conditions. Calls are growing for temporary credit cushions linked directly to existing commercial credit lines, allowing traders to stabilize operations without entering cumbersome fresh loan processes. Business groups have also advocated reforms such as relaxed credit score requirements, flexible One-Time Settlement schemes, and greater lending authority for local branch managers to reduce delays in accessing capital.

Beyond trade, Jammu & Kashmir’s micro and small-scale industries are confronting a deeper structural challenge. Local manufacturing units, food processors, and small enterprises face rising electricity costs, transport expenses, and raw material inflation without the financial reserves available to larger corporations.

Economic researchers have increasingly pointed to what has been described as the “11-Inch Paradox” — a phenomenon in which local start-ups and enterprises manage to survive initial incubation stages but fail to scale into sustainable high-growth businesses. The challenge is not necessarily entrepreneurship itself, but the absence of institutional support during the transition from survival to expansion.

This has intensified calls for transforming traditional incubators into more practical “Professional Transition Hubs” focused on market integration, formalization of operations, access to low-collateral financing, and targeted interest subsidies. Without such interventions, many regional enterprises risk remaining trapped in low-growth cycles vulnerable to every external economic shock.

Transport and logistics continue to shape nearly every aspect of the region’s economy. As a net-importing territory, Jammu & Kashmir depends heavily on uninterrupted movement along the Jammu-Srinagar National Highway (NH44). Inflation in transport costs acts as an invisible surcharge on every commodity entering local markets.

Frequent highway disruptions, rising fuel prices, toll burdens, and unpredictable closures have increased freight rates and operational uncertainty for transporters. Perishable goods face spoilage risks, vehicle maintenance costs have surged, and traders ultimately bear the burden through inflated supply-chain expenses.

Yet despite these pressures, the transport sector has continued to function as the economic lifeline of the region. There is growing recognition that stabilizing retail prices and supporting local markets will require more efficient highway management, rationalized toll structures during economic downturns, and policy measures aimed at cushioning commercial transport operators from fuel volatility.

Traditional sectors that define Jammu & Kashmir’s economic identity are also facing structural strain. Global demand for luxury and discretionary goods has cooled considerably amid inflationary pressures in Western economies. This trend has directly affected exports of hand-knotted carpets, pashmina, saffron, and other heritage crafts.

The region’s artisan economy, built over centuries, now faces stagnant wages, shrinking margins, and continued dependence on intermediaries. Analysts and trade bodies have increasingly called for policy interventions such as district-level raw material banks, minimum support frameworks for artisans, and removal of GST burdens on handmade heritage products to preserve both livelihoods and cultural industries.

Horticulture, another pillar of the regional economy, is confronting similar pressures. Rising fuel costs and expensive cold-storage logistics are reducing profitability for fruit growers. Expanding digital agricultural marketplaces and improving direct buyer access are being viewed as essential to protecting growers from volatile freight and intermediary costs.

Amid these economic headwinds, tourism remains one of the few consistently resilient sectors. Infrastructure upgrades, particularly the expansion of rail connectivity through the Vande Bharat corridor, are reshaping the region’s economic geography. Faster and more reliable connectivity has reduced dependence on weather-sensitive road transport and expensive air travel, making the region more accessible to domestic visitors.

At the same time, the growth of homestays, rural tourism, and experiential travel is broadening the distribution of tourism revenue beyond traditional hospitality clusters. Instead of concentrating economic benefits within large hotels alone, tourism spending is increasingly reaching villages, small towns, transport providers, and household enterprises.

Another emerging concern lies in declining remittance inflows from the Gulf region. Jammu & Kashmir has historically depended significantly on earnings sent home by professionals and workers employed across the Middle East. However, economic uncertainty and geopolitical tensions in West Asia are beginning to affect employment stability in sectors such as construction, aviation, retail, and hospitality.

Any sustained decline in remittances carries serious implications for local consumption patterns. Reduced household income directly impacts retail spending, private construction activity, real estate transactions, and family-funded entrepreneurial ventures. In many cases, remittances have long served as informal economic stabilizers for local communities.

The broader challenge for Jammu & Kashmir now lies in converting infrastructure expansion and institutional reforms into long-term economic resilience. The region’s economic future will depend not only on external macroeconomic recovery, but also on how effectively policymakers, financial institutions, business bodies, and development forums respond to structural weaknesses within local markets.

The current moment presents both vulnerability and opportunity. Global shocks may be unavoidable, but the capacity to absorb them will depend on strengthening credit systems, modernizing logistics, protecting traditional industries, supporting entrepreneurship, and leveraging new infrastructure corridors to build a more diversified and shock-resistant regional economy.

The writer is Chairman, Kashmir Traders and Manufacturers Federation and Chairman, Jammu Kashmir Economic Research and Development Forum (JKERDF)