Kashmir, cows and JP Morgan: foreign investors hit a conundrum in India

The Indian stock markets are at a life high, foreign direct investment (FDI) into India is at its peak, too. The International Monetary Fund (IMF) has anointed the country as the brightest spot among the world's economies.

If that is not enough, India is the fastest-growing economy in the world, ahead of China. All this looks like a fairy tale for investors of the world.

But then, why are foreign investment firms like JPMorgan, Franklin Templeton International Trust, Global X Funds and iShares Trust worried about their investments in India?

Is there something that a strong central government, headed by Prime Minister Narendra Modi, has failed to address over the past three years?

The cause of concern for these funds that manage trillions of dollars of assets is the rising political turmoil in Kashmir and increasing incidents of religious fundamentalism in other parts of India that are leading to social unrest. Something that is the result of the Modi government's hardline approach.

Kashmir conundrum

“Political and economic structures in India are undergoing significant evolution and rapid development, and may lack the social, political and economic stability characteristic of the US," JPMorgan Trust wrote in a regulatory filing on 18 May, PTI reported.

“Religious and border disputes persist in India. Moreover, India has from time to time experienced civil unrest and hostilities with neighbouring countries such as Pakistan. The Indian government has confronted separatist movements in several Indian states.

“The longstanding dispute with Pakistan over the bordering Indian state of Jammu and Kashmir, a majority of whose population is Muslim, remains unresolved. If the Indian government is unable to control the violence and disruption associated with these tensions, the results could destabilise the economy and consequently, adversely affect the Fund's investments,” the fund added.

According to a report by Coalition of Civil Society (JKCCS), a human rights group, 383 people were killed in the state of Jammu and Kashmir in 2016 including 145 civilians, 138 militants and 100 state and Central forces.

An estimated over 15,000 civilians were injured during clashes, with the police and armed forces during the same year. This indicates a ticking bomb of a political situation that can burst anytime.

In a country of 1.25 billion, a few hundred deaths may look like a small number, but the increasing death toll of army-men as well as of civilians in the Northern-most state of India is indicative of rising political turmoil in the state, which has over 3,000 km of international border with Pakistan and China.

Even though Kashmir has been a politically unstable state since the 1990s, the unrest that has unfolded in the Valley over the past one year seems to be the worst in the past 20 years.

Cow mother

In other parts of the country, the cow vigilantes have been running amok, killing people in the name of cow conservation, adding fuel to the communally-tense relationship between the two dominant communities in the country.

Economies grow in a stable environment. India attained independence with a number of other Asian and African countries between the 50s and 60s. But most other countries have failed to stabilise politically which has translated into their economic failure.

Our neighbour Pakistan is a prime example of this parameter.

India's highest economic growth came in the 2000s, which was a time when the country witnessed a stable environment in Kashmir and relatively harmonious (except for Gujarat) relationship between various communities in the rest of the country.

According to the World Bank’s Global Monitoring Report for 2014-15 on the Millennium Development Goals, India was the biggest contributor to poverty reduction between 2008 and 2011, with around 140 million lifted out of absolute poverty.

For an optimist, the current political turmoil in Kashmir and the communally-tense situation in other parts of the country may just be another phase in the turbulent history of the Indian democracy, which too shall pass. But, India's successful past is no guarantee of its stable future.

The use of armed forces can control unrest in one, two or may be three states. However, it would be impossible to control the whole country with the use of a whip once the people lose faith in the government's ability to get them justice.

The NDA government must understand this – something that the foreign investors have begun to feel.

Edited by Jhinuk Sen