Jammu and Kashmir’s economy was widely seen as conflict-ridden, fiscally dependent, and geographically isolated for decades. Economic assessments often relied on narrow indicators such as budgetary support, public-sector employment, or tourism cycles, overlooking the region’s deeper structural strengths and resilience. However, since 2020, especially in recent years, 2024–25 and FY 2025–26 have marked a decisive shift and visible improvement. Kashmir’s economy is no longer defined merely by recovery; it is entering a phase of structural consolidation and diversified growth, performing well beyond conventional measures of output and income.

Kashmir moves from fragility to economic stabilisation

The most significant change in recent years has been the transition from fragility to stability. Improved security conditions and administrative normalisation have created an enabling environment for economic activity. Stability has reduced uncertainty, revived consumer confidence, and encouraged both public and private investment; tourism revival, market expansion, and business confidence are all outcomes of this stabilised environment.

This stabilisation was evident in April 2025, when a terrorist attack in the Pahalgam region disrupted tourism and temporarily halted economic momentum. The collapse in tourist arrivals and livelihoods exposed the Valley’s historical vulnerability to security shocks. Yet the response under Operation Sindoor marked a qualitative break from the past. Swift security deployment, confidence-building measures, and visible governance, including a cabinet meeting in Pahalgam, helped restore trust and revive activity. The episode demonstrated that Kashmir’s economy is no longer structurally fragile; it is increasingly resilient, able to absorb shocks and to resume growth.

This transition has enabled policymakers to move beyond short-term relief to a long-term economic architecture, particularly in infrastructure, energy, tourism, and human capital development.

GSDP growth and national contribution

During 2025–26, Jammu & Kashmir’s Gross State Domestic Product (GSDP) continued its upward trajectory, growing faster than its pre-2019 long-term average. At current prices, GSDP was estimated at around ₹2.65 lakh crore in FY 2024–25. The Union Territory now contributes roughly 0.7–0.8 per cent to India’s GDP, a meaningful share given its population size, terrain challenges, and climatic constraints.

More importantly, the quality of growth has improved significantly. Rather than being driven solely by government consumption, growth is increasingly supported by capital expenditure, service-sector expansion, tourism-linked enterprises, and sectoral diversification. Rising per capita income, growing at over 10 per cent annually, signals that economic gains are spreading to households dependent on tourism, trade, transport, and allied services. This structural shift explains why Kashmir’s economy appears to “perform beyond measures” when judged only by headline fiscal dependence indicators.

The services sector is the new economic backbone

The services sector, accounting for over 60 per cent of GSDP, has emerged as the principal driver of economic momentum. Tourism, trade, transport, communications, and public administration form the core of this expansion. The surge in tourist arrivals in 2024–25 generated strong multiplier effects, boosting hospitality, local transport, handicrafts, retail trade, and formal and informal employment.

The post-Pahalgam contraction highlighted tourism’s centrality but also its evolving resilience. Reopening of key tourist destinations, gradual improvement in hotel occupancy, and targeted campaigns such as “Return to Kashmir 2025” restored footfall. Educational excursions, domestic tourism promotion, and visible security arrangements helped revive confidence. Unlike earlier cycles, tourism growth is now more broad-based and institutionally supported.

Jammu and Kashmir recorded a historic high in tourist arrivals, with over 2.36 crore visitors in 2024, followed by a steady 1.62 crore in the 2025 season. The region has seen a massive surge since 2019, with over 7.85 crore tourists visiting between 2023 and 2025.

Investments in eco-tourism, heritage conservation, winter tourism, and urban amenities are reducing seasonality and environmental stress. Tourism today contributes not only to revenue generation but also to employment stability, cultural preservation, and regional branding.

State-of-the-art infrastructure unlocking economic geography

Infrastructure investment has been the most transformative factor reshaping Kashmir’s economic geography. All-weather road connectivity, tunnels, rail links, and airport expansion have reduced physical isolation that historically constrained growth. Improved logistics have lowered transportation costs, stabilised supply chains, and expanded market access for local producers.

During periods of disruption, this infrastructure proved critical to enabling the faster reopening of markets and tourist circuits. Beyond GDP accounting, infrastructure improves access to healthcare and education, reduces regional disparities, and integrates Kashmir more firmly with national markets. Connectivity has evolved into a growth multiplier, turning geographic disadvantage into a strategic opportunity.

Hydropower and the energy dividend

Energy development, particularly hydropower, is one of Kashmir’s most underappreciated growth drivers. Accelerated work on large hydroelectric projects positions the region to transition from a power deficit to a power surplus. Reliable electricity lowers costs for industry, tourism, and services, while surplus power sales provide a stable revenue stream, strengthening fiscal sustainability. Hydropower also aligns Jammu & Kashmir with India’s clean energy and climate commitments. When assessed beyond immediate financial returns, the energy dividend significantly enhances economic resilience and autonomy

Agriculture and horticulture support high-value rural growth

Agriculture remains central to livelihoods, contributing around 18–20 per cent of GSDP, but its composition is changing rapidly. Traditional subsistence farming is giving way to high-value horticulture, medicinal plants, and agri-processing. Apples, saffron, walnuts, and floriculture are driving this transformation. Policy support for orchard rejuvenation, cold-chain infrastructure, and digital advisory platforms has raised productivity and reduced post-harvest losses. Integration with national and export markets has improved farm incomes and reduced disguised unemployment. These gains have been particularly important during periods of tourism disruption, reinforcing rural stability and income diversification.

Strong rebound of the industry and MSMEs

Though smaller in share, the industrial sector has shown steady improvement. Food processing, handicrafts, handlooms, pharmaceuticals, and construction-linked manufacturing have benefited from improved connectivity and policy incentives. MSMEs play a critical role in absorbing local labour and linking rural and urban economies. Investment proposals exceeding ₹1.6 lakh crore, with nearly 2,000 units operational, reflect growing investor confidence. While large-scale industrialisation remains constrained by terrain and ecology, niche, value-added industries are emerging as sustainable avenues for growth.

Urban transformation and smart cities

Urban development has become another pillar of economic performance. Investments in smart city initiatives, municipal reforms, housing, sanitation, and urban transport are enhancing productivity in cities such as Srinagar and Jammu. Efficient urban services reduce transaction costs, attract private investment, and support the expanding services economy. Urban renewal also restores confidence, an intangible but powerful economic factor. Functioning cities act as hubs of innovation, consumption, and entrepreneurship, amplifying regional growth beyond their geographic footprint.

Economic planning increasingly integrates disaster resilience and climate sensitivity. Investments in flood management, river training, resilient infrastructure, and early warning systems reduce vulnerability to climate shocks. Given the region’s exposure to floods, earthquakes, and extreme weather, resilience itself has become an economic asset.

Youth, skills, and social resilience

With one of the youngest populations in the country, Kashmir’s long-term economic trajectory depends on skill development and diversification of employment. Growing engagement in IT-enabled services, creative industries, sports, tourism management, and digital entrepreneurship reflects a changing labour profile. Government-led skilling initiatives, combined with digital connectivity, are opening up non-traditional employment pathways. Equally important is the social resilience demonstrated during recent disruptions. Community cooperation, the revival of festivals, and renewed trust between citizens and institutions strengthened recovery and reinforced grassroots confidence.

Consolidating resilience through public finance

Going ahead, the Jammu & Kashmir Budget 2026–27 reinforces the Union Territory’s shift from recovery-led spending to resilience-driven development. With a total outlay of ₹1,13,767 crore, comprising ₹33,127 crore for capital (development) expenditure and ₹80,640 crore for revenue expenditure, the budget underscores a calibrated push towards asset creation while meeting routine administrative and social commitments. Own revenue is estimated at ₹31,800 crore, complemented by ₹42,752 crore in central assistance, underscoring the continued importance of external fiscal support in sustaining the region’s development momentum.

The budget prioritises capital expenditure over consumption, focusing on infrastructure, connectivity, power, tourism, urban renewal, and human capital. Enhanced allocations for roads, tunnels, rail connectivity, and urban services aim to deepen economic integration and reduce regional disparities. Tourism receives targeted support for diversification through eco-tourism, winter tourism, and heritage conservation, alongside confidence-building measures. Agriculture and horticulture are strengthened through cold-chain expansion, orchard rejuvenation, and market linkages. Continued investment in hydropower underscores long-term fiscal sustainability, while skill development, MSME support, and digital governance initiatives emphasise employment generation and youth engagement.

From recovery to resilience

The Jammu and Kashmir economy has moved beyond recovery into a phase of resilient, diversified growth. Backed by infrastructure-led integration, service expansion, energy development, industrial revival, and human capital investment, the region is redefining its economic growth trajectory.

As India advances toward long-term development goals, Kashmir’s experience offers that true economic performance cannot be measured by numbers alone; it must be judged by resilience, inclusion, sustainability, and confidence. By these broader and more meaningful measures, the economy of Kashmir is not just performing, it is performing beyond measures.