Several months ago the world woke up with an uneasy sensation that there is an economic crisis engulfing it. And once it was confirmed that it was not just a nightmare, bailout packages started tumbling down governmental aisles world over. Sensitive as it is almost always to the international seismograph, the Kerala state government asked the Centre for Development Studies (CDS), Thiruvananthapuram, to study the implications of the global financial crisis for the local economy, and to suggest remedial measures.
CDS is an autonomous research institute. Its main objective is to promote research, teaching and training in disciplines relevant to development. Established in 1971 by the noted economist Professor K N Raj, it is considered to be one of the foremost development economics research centres in the country. This is how CDS describes itself in its website http://www.cds.edu/. The organisation also draws financial support from the Government of Kerala and the Indian Council of Social Science Research (ICSSR). The Reserve Bank of India and the Indian planning commission have instituted endowment units for research in selected areas at CDS, says the CDS website.
CDS submitted its report (prepared by a team led by its director K N Nair and seven other experts) in December 2008. In February 2009 the state cabinet formed a sub-committee with finance minister Thomas Isacc as the chairman for implementing the recommendations.
The report has left much to be expected in terms of rigour and quality of data used for estimates and recommendations.
Summary of the report's observations
Kerala being historically more integrated with the rest of the world, is more susceptible to any external shocks compared to the rest of India. Six possible ways through which the crisis can affect the Kerala economy have been identified as remittance inflows, availability of credit from the banking system, exports, tourist arrivals, prices of intermediate inputs and prices of imported goods.
Considering that the Gulf countries, where most Keralite migrants are, have not been seriously affected and also in view of the falling rupee-dollar exchange rate, inward remittances are not going to be seriously affected.
The credit crunch is likely to continue and will dampen the scale of all credit dependent activities such as cashew export, sale of automobiles, construction, real estate and the micro, small and medium enterprises.
CDS expects at least 20 percent decline in export of coir and coir products leading to loss of direct employment to about 32000 persons. Similarly a 15 percent reduction in cashew export and consequent loss of jobs to 18000 workers is anticipated. The decline in marine exports will be about one third and job loss to about 20,000 is on the cards. A 15-20 percent decline is possible in the handloom sector.
Exports of spices, tea will be affected. The price of rubber has already come down by 40 percent. Software export will also feel the pinch.
Even though price of intermediate inputs like oil, steel, cement, etc., will decline, the state will not benefit from this because of the general decline of traditional industries and the plantation sector.
Mitigation measures
The state government has to monitor the credit availability through mechanisms such as state level bankers committee. It may also consider using the co-operative banking network to extend credit to small and medium enterprises and exporters.
Pro-active measures like rationalisation of stamp duty should be taken to keep the real estate, construction sectors going.
The state government can do precious little to induce demand in foreign markets for coir, cashew, fish or cash crops. Ensuring crop insurance and changing over to other crops and practicing different forms of animal husbandry, etc., can be encouraged and adopted.
Since thousands from these sectors will lose their lively hoods, social security measures are to be enhanced. Urgent steps should be taken to implement NREGA (National Rural Employment Guarantee Act) in all districts.
In the tourism sector, government should correct those policies that work against the competitive advantage of tourism operators and service providers. Taxes charged on hotels and licence fee for bar/beer parlours aimed at foreign travellers should be lowered to be on par or lesser than other tourism oriented states.
The public distribution system should be revamped to make it more effective. Even though it is not possible to attain self-sufficiency in food, food production can be increased by utilising the land left fallow or under cultivated. The existing lease laws will have to be amended for this.
SEZ (Special Economic Zones) and private investments
Private investments should be encouraged and for this it is imperative that all administrative hurdles as well as the social mindset that works against private capital should be overcome. Private industrial estates with SEZ designation can be considered for attracting capital.
Inefficiently used forestland can be made available to private investors at competitive rates. Public Private Partnership (PPP) model can be considered for using the government land in urban areas and in the custody of loss making public sector undertakings for developing shopping malls, entertainment complexes, and parking lots and for housing. The PPP model can be emulated in infrastructure building also. Not only in infrastructure, private capital is required in distribution of water and electricity. All kinds of subsidies, not only in these sectors, but in all sectors have to be scrapped.
Critique: Dependability of the report
The picture projected by the experts is quite alarming. A close reading throws up many doubts about the fundamentals on which the economists have formatted the future scenario. Economists generally analyse and make projections on the basis of numbers and statistics. Credible data is the whole and soul of all their predictions. Their reports are totally dependent on the authenticity and the immediacy of the data used.
The CDS report says that 32,000 workers in the coir sector will become jobless. So we would expect them to tell us how many are currently working in this sector, at least approximately. But what they know are the figures of 1997 only. As per a survey done in 1997, there were 3,50,000 workers in the coir sector. They are ignorant of what happened in the last 12 years. But this was the period when the Kerala society underwent drastic changes.
How many workers were rendered redundant due to the mechanisation of coir sector that was rampant during that period? (One mechanised ratt needs only five workers and substitutes 25 manual workers). Did the younger generation step into the shoes of those who died during this period? (That the youth hardly care to work in coir is common knowledge.)
When it comes to the fisheries sector, the report flatly claims that 1,91,000 people are engaged in this activity. There is no mention of where they got this number from. Take this at face value, or leave it, seems to be the refrain.
Does this sound like mere nitpicking? Then have a look at this: Historically, productive sectors of Kerala's economy are known to be more outward oriented than that of most other states. The available estimates (Isaac and Reddy, 1992), though out-dated, tend to suggest that exports accounted for 14.8 percent of the states Domestic Product.
What a piece of information to build on, from 1992. After all its only 17 years old, one might think. But if you have some more patience and ferret out the paper by Isaac and Reddy, you are confronted by the startling fact that Isaac and Reddy had undertaken this study specifically regarding the exports of the financial year 1980-81! So the report is on the basis of a figure that is 28 years stale.
Let us also not attach any significance to the fact that the Isaac is none other than, T M Thomas Isaac, the present Finance Minister of Kerala, who was then with the CDS. It is the practice of CDS to quote from a past paper by a CDS associate to substantiate a new study.
Kerala has the reputation of being a remittance economy meaning that the backbone of Keralas economy is remittance from abroad. However CDS does not know the quantum of actual remittance being made to Kerala annually. Unfortunately no official estimates of remittance to Kerala or any other states in India are available, laments the report.
As an alternative, CDS used field surveys conducted in 2007 spanning 10,000 households, dispersed through 200 localities. Some of their estimates: The number of international migrants from Kerala stood at 1.85 million representing 24.5 emigrants per 100 households, the proportion of Kerala emigrants who went to the Gulf region accounts for 89 percent and our estimate of remittance to Kerala comes to Rs.24525 crores in 2007.
It is stupefying that all the debates that have raged in Kerala over the decades about the remittance economy, its gains and pitfalls were all based on mere estimates. Every financial institution in the state handling foreign inward remittance including banks and exchange companies submit remittance figures every fortnight to the Reserve Bank of India. Is it too difficult a task for the CDS to get a consolidation of this from the RBI especially when the central bank is one of their patrons? That no such arrangements are on stream for gathering information so crucial to the states economy is deplorable, especially in this age of information explosion.
The methodology adopted for analysing the banking sector is not quite convincing either. Much is made of the fact that two of the eight banks with asset-liability mismatch, Federal Bank and South Indian Bank are Kerala based. At the same time State Bank Of Travancore and Canara Bank which are the leading banks in respect of credit disbursal in the state are not brought under the scanner.
An attempt has been made to conclude that the credit disbursal has come down by quoting the figures for April-June quarter of 2008 and by comparing them with the previous quarter that ended in March. Traditionally, the first quarter figures have always been much lower than that of the last quarter of the previous financial year. If a comparison is to be made, it is to be done with the April-June 2007 figures, which have not been furnished in the report.
It is nobodys case that there is no crisis. But when remedies are being prescribed, the diagnosis and the investigation leading to that have to be beyond disputes.
National Rural Employment Guarantee Scheme
The recommendation regarding implementation of NREGA is a classic example of theoreticians losing all touch with the ground realities. Thousands will lose jobs in the traditional sectors and to mitigate their hardships NREGA should be implemented in the whole state exhorts the report.
But what are the facts? NREGA was first implemented three years ago in Palakkad and Wayanad districts. In the second phase the scheme was implemented in Kasargode and Idukki districts and the remaining 10 districts were covered in 2008-09. Employment has been provided to 5.22 lakhs families, 99.9 lakhs person days, 36687 works undertaken. But there are larger issues confronting Kerala in the implementation of NREGA: most of the unemployed in Kerala are educated, they share a general apathy towards physical labour, the wages guaranteed under the scheme being much less than the prevailing rates, and so forth.
Had the experts been more diligent and genuinely concerned about the fate of those who are going to be affected by the economic crisis, they could have gone deeper into these issues and could have come up with a Kerala model for the scheme. It is astonishing that such glitches appear in a report prepared for the cabinet to act upon when the NREGA Mission Directorate is almost next door to the CDS in Thiruvananthapuram.
Mitigation measures?
The report does not have any creative suggestion for the traditional sector. The Kerala government can do nothing to create international demand for the products traditionally exported from the state, says the report. But how about creating and increasing the domestic demand in the vast market that India is? Take for example coir products. Why not make a concerted effort to boost its domestic demand? But then certain basic maladies will have to be confronted. The ordinary person cannot afford the price of coir products and that is the reason why the domestic market stagnates. And the primary reason for the high price is the high cost being paid for the basic raw material, coir fiber.
Ironically enough, coir fiber is no more available in abundance in Kerala, the land of coconut. Environmental hazards and the change of life style have practically brought an end to husk retting and the subsequent thrashing of it into yarn. But at the same time the state did not also go for de-fibering machines that churn out yarn from coconut husks without the husk being retted in water. So Kerala now imports coir fiber from Tamil Nadu and even Sri Lanka at a high cost. Those in the know of things opine that setting up of such machines (which are costly) at various points and constituting a mechanism for collection of husks (millions of husk are now being wasted, either burnt or allowed to rot) will result in drastic reduction of cost of the coir products and thereby reduce the dependency on foreign markets. None of this is in the report.
The only recommendation regarding tourism is the reduction of bar/beer parlour licence fee. One has never heard of any group of tourists skipping Kerala because alcohol is costly.
The core recommendations which could lead to policy changes is that of conferring SEZ status to private industrial parks and the prompting to overhaul the existing norms for private capital. So far SEZ was mooted for augmenting the foreign exchange corpus of the country. But now the privileges enjoyed by the SEZs are sought to be extended for bringing in capital too! The debate in Kerala regarding SEZs was centred around the proportion of land in an SEZ to be used for production and for other purposes. And now the CDS recommends that since manufacturing is not a strong point of the state, let the new SEZs use any percentage of the total available land for residential/commercial/entertainment purposes. But give them all the tax concessions and incentives!
The one burning issue in Kerala during the last one decade has been the ownership of land, land reforms and the fate of the landless. The Muthanga agitation, the Chengara issue, the eviction of illegal constructions in Munnar, the renewal of lease/eviction of large plantations are all continuing to plague the government and the polity, defying solutions. Despite all this comes the recommendation of the CDS to handover all possible public owned land whether in the forests or in urban centers to private capital.
While strongly arguing for abolition of subsidies to the common people, the report does not have any qualms in recommending huge concessions for bringing in private capital conveniently camouflaging the fact that a financial concession is a subsidy in reverse.
The CDS has a word about trade unions too. Though the labour legislations have lost much of their tooth, occasional inspections can scare off investors, and they may reduce future investments .. So even inspections by the labour department must be stopped!
Most worrisome aspect is that the report devotes just three sentences in its 98 pages for food production. If anything is lacking in Kerala it is food. Rice, milk, vegetables, sugar, cereals .all of these have to come from neighbouring states. At the same time, the cultivation of paddy has been reduced to 2.29 lakh hectares where as the land under rubber cultivation has gone upto 5.12 lakh hectares (Pre budget survey 2009). CDS has lost a great opportunity to make a comparative study of the real cost-benefit aspects of a cash crop being double that of a food crop, to the society at large.
It must be noted inline with the introduction in the beginning, the credentials of CDS have never been suspect. Kerala governments irrespective of the hue of the political conglomeration in power have looked up to CDS for clarity and solutions whenever intractable problems cropped up (of which there has been no shortage in the last 38 years).
The CDS report itself has the following in its introduction: Nobel laureate Joseph Stiglitz considered the crisis an opportunity to reassess global economic arrangements and prevalent economic doctrines. Perhaps such a reassessment and revisit are imperative at the national and sub national levels.
Unfortunately that is exactly what the CDS has not done, despite having a clear picture of the collapse of the wholly deregulated private capital oriented economies of the western world.
The only development since the report came out, as noted earlier, was that the state government set up a cabinet sub committee headed by the finance minister Thomas Isaac, to study the report for implementation. This was before the general elections were announced and nothing has been heard of it since. Quest Features & Footage)
