According to the dependency theory, the differentiation between core and periphery is predicated on the power asymmetry in favour of the former. Moreover, the political-economic configuration in the peripheral country is subservient to the interests of the core country. As a consequence, the pace of socio-economic development in the peripheral society is hampered. But the story of AJK is further complicated by the fact that in the realm of global capitalism, Pakistan itself plays a role of a peripheral country. Therefore, at the scale of global capitalism, AJK can be conceptualised as a periphery of a peripheral country.
But out of the total fiscal budget of Rs68 billion for FY2015-2016, the AJK government has only allocated 17 percent towards development. Eighty-three percent of the budget is allocated to non-development/recurring expenditures to reproduce state machinery.
AJK does not have ‘inclusive’ political institutions; instead it has ‘extractive’ political institutions. In AJK important political and administrative powers are entrusted with a non-elected body – the Kashmir Council. It is headed by the prime minister of Pakistan (who is not elected by the people of AJK) as the chairperson, with twelve members, six of whom are picked by the prime minister from the National Assembly of Pakistan (none of them are elected by the people of AJK) and the remaining six come from the elected assembly of AJK. All the executive powers of the council are vested in the chairperson. Important subjects such as electricity, hydropower generation, tourism, population planning, banking, insurance, trading corporations, telecommunication, planning for economic coordination, highways, minerals, oil and gas, and development of industries, all fall under the dispatch of Kashmir Council. Therefore, the most important political institution is of an ‘extractive’ nature.
Now let’s take the example of high unemployment rate and its linkage with political institutions in AJK. The high rate of unemployment is a result of insufficient public and private investments in the productive sectors of the economy. A government would undertake development projects in the public sector only when the right incentives are in place –.in other words, when there are ‘inclusive’ political institutions in the country. Because in electoral democracy, the governing party undertakes development projects in the service of their electorate while hoping that they will be re-elected with the support of their electorate. But because the Kashmir Council is neither an elected nor a representative body, therefore there is an obvious incentive problem.