While the state remains dependent on the central grants, parts of the economy have not just survived but thrived. The production and sales of handicrafts and agro-products ensured that the state maintained its economic activity.

The state's infrastructure lies in ruins, more money is being spent on government personnel than on development, there has been flight of capital from medium and large units, small scale sector is plagued by sickness but in the midst of this scenario, exports from the state rose from Rs 150 crores (Rs 1.5 billion) in 1989-90 (when the militancy spread its tentacles), to Rs 1,150 crores (Rs 11.50 billion) in 2005-06.

It is likely to exceed Rs 1,500 crores (Rs 15 billion) in the current fiscal.

In economic terms the buoyancy in the handicrafts,fruits, horticulture and agro-products, especially carpets, seems to have offset the losses in tourist trade.

This has also removed the myth that tourism is the backbone of state's economy as the tourism in the valley suffered because of militancy.

In the initial couple of years after the militancy set in, the sales of handicrafts plummeted, as there were no tourists in the state to buy the products. The traders then spread out and set up a network of shops in the country to sell their wares, experts say.

This was supplemented by the efforts of the government, which organized special exhibitions in the cities like Delhi, Udaipur, Chandigarh, Bangalore and Ahmedabad to provide sales outlets to the producers. 

The manufacture of handicrafts became more broad-based and the business went beyond Srinagar to other parts of the valley.

Handicrafts may be the silver lining but most of the state remains under a dark cloud. While the government spent most of its time and money in controlling militancy, development works suffered. The state of infrastructure worsened, they say.

About 725 school buildings and over 300 bridges and culverts were destroyed by the militants. The total loss of public property including timber, power lines, vehicles and buildings have been estimated at over Rs.500 crore (Rs 5 billion). Rebuilding this will be a tough task.

Though the state's expenditure has grown over the years, most of it is spent on paying the wage bill of government and security personnel of the state.

Of the total money alloted to each district, about four-fifth is spent on wages only and one-fifth is spent on developmental activities, according to official figures.

About 20,000 families in the valley were affected by loss of tourism, prompting many of them to shift to trading and handicrafts manufacture.

With overall law and order situation improving, the state is poised to attract over 10 lakh tourists and increased export turnover of handicrafts, sports and leather goods.

Preliminary findings reveal that about six lakh tourists visited the state and its tourist destinations for recreation, skiing, trekking and visiting the state in the last fiscal.

The state in the last few months, received roughly about two lakh tourists. However, in a well thought out plan government never reveals the figures to avoid repetition of last year when tourists were attacked forcing many of the prospective tourists to cancel their visit.

The trend will continue as gradually things will improve and with it the expected tourist arrivals will exceed a minimum of 10 lakh number by end of march 31,2008, officials say.

In 2005-06 the tourist arrivals in Jammu and Kashmir were less than three lakhs. Given the present infrastructure there may not be any problem in accommodating the tourists thissummer in tented accommodation, although several big hotels are also coming up in the valley.

With better law and order situation, industrial activities have commenced and its reflection has been noticed particularly in exports of various Kashmiri goods such as handicrafts, sports goods, walnuts, wooden furniture, leather goods, software, silk and silk products, they say.

The annual turnover in 2005 was estimated at Rs 900 crore (Rs 9 billion), which shot up by Rs 250 crore (Rs 2.5 billion) in the following year and is expected to go over Rs 1,500 crore (Rs 15 billion) by end of current fiscal.

The other areas in which the usual industrial activities will resume in the state on a large scale include exports for fresh and dry fruits like apples, almonds and walnuts which has already brought in a revenue of Rs 2,100 crore (Rs 21 billion) in 2007 against Rs 1,900 crore (Rs 19 billion) in the preceding year.

Saffron is another product with exports potential as 3,000 hectares of land is under its cultivation with annual production of nine tonnes. Of this, six tonnes are exported every year.

With its popularity gaining in not only in domestic and international markets, the area for saffron production might go over 4,000 hectares to enhance its production to 14 tonnes per annum in next five years, of which nearly 10 tonnes of saffron would have potential for export markets because of its growing demand.