'Political stability is a key factor'

Interview with Elamaram Kareem, Minister for Industries.

R. KRISHNAKUMAR in Thiruvananthapuram

KERALA'S political leaders have a favourite phrase, "building a consensus", to denote their willingness to work unitedly to rid the State of its image as a region of militant labourers who are unfriendly to investors. Ever since policy-makers stopped describing its unique way of social development even at low levels of income as a "model", Kerala has been striving hard to be industry-smart, curbing misguided labour enthusiasm and quietly building economic infrastructure. Labour militancy and poor infrastructure are cited as reasons for its low investment syndrome.

But all that is changing. Today, the Left Democratic Front (LDF) government in the State is taking initiatives to stay the hands of unreasonable agitators and extortionists who masquerade as industrial workers. There is a `consensus' on feverishly building roads, bridges, airports, container terminals, technology parks and special industrial zones. Following the success of Technopark, Thiruvananthapuram, described as the "largest single campus for employment in the State", with more than 10,500 professionals employed in 105 companies, Kerala has found its IT-BT (Information Technology-biotechnology) mantra to entice its skilled labour force and try and checkmate industry-savvy neighbours.

And, the State has started talking about new-age "models", for instance, of building tangible investor confidence through joint sector infrastructure projects such as the Cochin International Airport Ltd. (with 26 per cent government participation), which declared a dividend just five years after its inauguration in 1999. But it is only a beginning, and bold, forward-looking measures are needed if Kerala is to capitalise on its unique strengths, says Industries Minister Elamaram Kareem in this Special Feature interview on the challenges facing industrial investment in Kerala, on the eve of the announcement of a new industrial policy by the LDF government.

Mention the investment climate in Kerala today and it invites a knee-jerk comparison with the much better situation in another Left Front-ruled State, West Bengal. Why is Kerala seen as lagging behind other States in generating investor enthusiasm?

We are not able to provide sufficient land for big industrial ventures. It is impossible even to think of acquiring 1,000 or 2,000 acres in Kerala to start an industry because of the high population density. Consequently, land value too is very high. These are important factors. A third problem is the difficulty we still face in developing infrastructure, especially for quality power, industrial water supply and a world-class road system that are essential for big industries. I think such factors, especially the backwardness in infrastructure, act as a deterrent to new generation investors.

But many people see this also as a failure of government policy vis-a-vis the policy of the Left Front government in West Bengal.

There is some truth in this criticism. We have never had a forward-looking policy in the industrial sector. For instance, the previous [Congress-led United Democratic Front] government implemented a policy that favoured foreign investment. But they did not take it forward consistently. Moreover, the policy did not succeed in bringing projects that could gain the trust of people. The few projects that came invited allegations about the exploitation of nature and scarce natural resources. There was no genuine project in the lot.

Second, because the government in Kerala has been changing every five years, the policies too change frequently. But in West Bengal, the government and its policy have remained the same for the past 30 years. Here, there is a policy change every five years, and that has affected investor confidence. Frequent policy shifts can play havoc with the fortunes of investors. Political stability is a key factor in development, and Kerala's peculiar political situation has affected its development. In contrast, in West Bengal, the industrial policy put forth by a coalition has continued without a break for 30 years, and that has gained the trust of people. We don't have that advantage.

Are you saying that Kerala has no escape from this situation: on the one hand, it badly needs industrial investment; on the other, it faces the prospect of a change of government at frequent intervals?

Kerala needs to ensure that its investment and industrial policies will not undergo changes when there is a change of government. We need to learn from neighbouring States such as Tamil Nadu. We are trying to reach a consensus among political parties about this. That is the only solution.

Let us look at a few proposals that were considered by the previous government and that generated a lot of hope because of their investment and employment potential in Kerala - proposals from BMW and Nokia to start manufacturing units and one from the Dubai Internet City authorities to establish a Smart City IT venture in Kochi. But like many other grand schemes in the past, Kerala failed to bring them to fruition. What do you think went wrong?

When discussions began on the Smart City project, the important criticisms that arose were that the government was unnecessarily offering concessions and that the discussions were not being held in a transparent manner. But a government has to provide certain facilities to investors to start an industry. That cannot be ignored.

The new government is clear that we need to acquire and provide the land that industrialists need. But instead of approaching the deal in a transparent manner, the previous government created an impression that it was trying illegally to offer concessions to the Smart City investors. Hence the opposition to it.

Kerala's development agenda cannot be decided ignoring the political situation and the social awareness of people. Here, we have to take into account the awareness level, the educational status and social progress of people when we consider any project proposal. I think the UDF government failed to do this.

Do you think the globally noticed action against the Coke and Pepsi units in Kerala, though widely seen as pro-people in the State, has given Kerala a bad name as an investment destination?

The action against Coke and Pepsi was an unavoidable one in Kerala's social context. Given the level of educational, social and political awareness in the State, we cannot consider certain issues in the context of industrial investment alone. It is a peculiar feature of Kerala. I think industrial investors will be able to understand this. We do not have a policy that industries should not be encouraged in other sectors.

For instance, everyone knows how the Kerala government tried to sustain Mavoor Rayons, a company of the biggest monopoly capitalist in India. The government tried to grant that unit the maximum possible concessions. It never said: "No, you are a monopoly capitalist; you have no place here." Instead, till the very end, the government even tried to provide raw materials at reduced rates when the company faced a raw material shortage. Therefore, I don't think that Kerala will be seen as an investor-unfriendly State on the basis of the action against the cola makers.

What kinds of investment proposals would be acceptable to the LDF government? Do you think Kerala needs different strategies to attract domestic and foreign investment?

We have a two-pronged approach with regard to investments. First, we are trying to attract investment from non-resident Keralites [NRKs] in a big way. We are trying to create a system that will facilitate NRK investment and create NRK investor confidence in Kerala. We have a proposal for an infrastructure development company, which will have 26 per cent equity participation by the government and the rest by private individuals, a majority of them being NRKs. We will acquire land and develop world-class infrastructure and offer it to investors at market rate. Naturally, it will never be a loss-making proposition. This will help Kerala attract NRK investment as well as much-needed infrastructure.

Secondly, Kerala is very backward in attracting foreign investment, but the LDF government is not against foreign investment. However, we are clear that such investment should help us upgrade our technology and provide jobs to those in Kerala. We will not oppose foreign investment if these two conditions are met.

Kerala now gets only a miniscule proportion of the foreign direct investment coming to India. Is it because the above two conditions are not met by such investors?

What I said was there is no other policy hurdle in Kerala against FDI. But I would not say foreign investors went away because they could not agree to the two conditions. Earlier, many did not see Kerala as an investor destination. In recent years, however, there is a change in this perception, even though the change is not complete. Now investors are indeed coming in search of opportunities in Kerala. That is a positive trend.

We cannot now say how many of them will eventually invest in the State. A number of such investors come with other conditions: that they want suitable land near an airport, that they want it only in Kochi, and so on. But it is a problem finding land for industrialisation near airports for all of them. There are issues of rehabilitation of people, of environmental damage. The government will have to take into account all these factors before providing land. We do have land whose value is not so high, but only in north Kerala, where investors find connectivity a major problem. Though we can say there is an airport at Mangalore [outside Kerala], the facilities at the Kozhikode international airport are limited.

Kochi, in central Kerala, with its international airport and seaport is, therefore, the prime attraction for investors. The government sees this as a major problem. When we say infrastructure development, we also mean provision of good roads, quality power and water supply, and hope it will solve Kerala's problems soon. I would say such problems, especially non-availability of land, are the main hurdles vis-a-vis foreign investors.

A perception did exist that high wages and labour militancy are the real villains that shoo away investors from Kerala.

There is a sea change in such perceptions. According to a survey conducted by a national news magazine, Kerala ranked third in overall parameters among States with the best industrial climate. A study by the CII [Confederation of Indian Industry] recently showed Kerala's position as below the all-India average in the number of man-days lost as a result of strikes. Kerala witnesses five or six State-wide agitations a year. Production loss caused by industrial action has come down drastically in Kerala.

But the media often fail to reflect such positive changes. Nowhere else in India can you see such a concentration of skilled workers. Significantly, they receive very low wages, compared with their counterparts elsewhere. The wages of factory workers in Kerala is lower than the national average. Only in a few islands, so to say, such as in the unorganised sector, such as cashew, or at the Cochin Port, are wages higher than in other parts of the country. But in general, wages are low in Kerala.

One should not also discount Kerala's advantage with regard to the law and order situation and safety of industrial employees. Compared with IT hubs such as Bangalore, many industrialists have told me, Kerala offers a safe environment for industrial workers and employees 24-hours a day.

Moreover, it is a beautiful State to work in, with no extremes of climate. We should not fail to see the advantages that Kerala offers. But, true, now, we are not able to utilise them fully, and a wrong impression has been created outside that Kerala is a land of labour militancy. We have a responsibility to tell the world that this is not true. And I feel there is now a sea change in such perceptions.

How does the new government plan to meet the challenge of inadequate infrastructure? Is it going to depend solely on the private sector?

The government cannot any longer spend money on infrastructure development. Its financial situation is so bad. Therefore, private sector participation is inevitable in this. I am sure we can find the required resources from non-resident Keralites. But they are hesitating to invest in Kerala because they lack confidence. Most see NRI [non-resident Indian] accounts as the only option for depositing their money. They fail to invest in productive ventures. If at all they do, they invest only in real estate or spend as consumers. If we succeed in redirecting investments from NRIs accounts, we will find enough resources for infrastructure development. This is a priority for the government.

But Kerala had identified NRK funds as a potential solution for its problems some years ago but has not yet succeeded in making non-resident Malayalees invest in the State on a large scale. What exactly is affecting NRK investor confidence in Kerala?

An important reason is that so far there has been no scientific thinking on how to utilise such funds. It is not enough merely to call on the NRKs to start industrial ventures in Kerala. Cochin International Airport Ltd. has proved to be a success and is today considered a model for infrastructure development. It has a 26 per cent government equity participation that ensures government responsibility for the project. But majority shares are owned by private individuals and that makes them more confident about investing in the venture. An impression soon gained ground that the government could run such ventures more effectively than the way it runs public sector units. The State is now trying to promote similar ventures.

Kerala's traditional industries have been in crisis for a long time. Given the State's financial situation, how do you propose to revive the traditional sector? Are private investors reluctant to put their money in the traditional sector?

A lot of private investment has come to sectors such as cashew, coir and handloom. The largest numbers of workers are employed in the traditional sector. That is its importance in a State like Kerala. Even if it wants to, the government cannot rehabilitate all those workers into modern industrial sectors. So we should be able to modernise the traditional sector in a way that increases their income through value addition. The government is not against utilising private investment for this purpose.

But we think that changes in the traditional sector should be carried out under the supervision of the government. Instead of the government continuing to distribute scarce resources merely as subsidies, it should focus on the modernisation of machinery and production and find better marketing strategies for them. For this the government has a new strategy of establishing industrial clusters of such units. Only through such strategies can we help workers in traditional industries.

But is not the government also responsible for the rehabilitation of those who have lost their jobs and incomes in the traditional sector?

It is an undeniable fact that many traditional industries have vanished from the scene over the years. It cannot be avoided. For example, in the beedi industry, the number of workers has come down gradually over the past 10 years. We can only protect the existing workers. We cannot improve their lot even if we want to. Another example is the pottery sector, earlier in great demand, but now there is no demand for its products in the market. On the other hand, handloom is a traditional industry now finding new markets.

Why is Kerala not tapping the cooperative sector for industrial investment?

There is indeed a huge mobilisation of funds in Kerala through the various cooperative sector institutions. But we have not been able to harness these funds for the industrial sector. A part of the cooperative sector funds are being utilised by traditional industries such as handloom and coir. But the government is now thinking of directing funds from the cooperative sector to other industries also.

So far public sector undertakings have formed the backbone of Kerala industry. Will it surely be a private sector-led growth from now on?

Certainly. It is not practical to generate additional capital for the public sector. It is difficult even to sustain some of the existing PSUs. So the government's policy today is to sustain and improve and modernise the technology of only those PSUs that are potentially viable. The government has no intention of starting more PSUs in new areas. We cannot do that without private investment. Our strategy is to bring in as much private investors into the State using the existing infrastructure facilities available in the public sector.

For example, the State Electricity Board. The government believes that privatising the Board will not be beneficial for the industrialisation of Kerala. So our strategy is to keep the existing institutions in the public sector as a backbone and to encourage private investors in new manufacturing sectors. That will be the thrust of Kerala's industrial policy.

What is the Kerala government's stand on Special Economic Zones, especially on related crucial issues such as land, tax concessions and creation of private profits utilising public assets?

We are not totally against SEZs. But the government is against exploitation of farmers on a large scale. It is impossible in Kerala to acquire 2,000 or 5,000 acres for establishing SEZs. But we need only 25 or 30 acres for an IT project. But it does not believe in offering legal exemptions to such units. Laws should be applicable equally everywhere in the State.

Moreover, the government is also against replanting existing units into SEZs so that they can avail themselves of the special benefits and concessions. That would not help generate employment but would only help the industrialist. However, the government is not against SEZs in principle, if they help bring in more industrial units.

Do you think Keralites lack the spirit of entrepreneurship, a reason that has been pointed out for the State's industrial backwardness?

The government recently conducted a study on Kerala's trade and commerce that showed a huge growth in that sector. It is certain to grow further. That shows there is a market here. However, manufacturing has not kept pace with the expansion of the market. But it is sure to follow.

A new industrial policy is about to be announced by the LDF government. What are its important objectives?

From now on, the aim of the Industries Department will be `industrial promotion'. The policy will aim at equipping the Industries Department to help and encourage investors, to remove procedural bottlenecks, and to offer a fast-track mechanism to provide licences and other sanctions to investors. It will aim at creating a peaceful industrial climate in Kerala by encouraging healthy relations between trade unions and investors. We will not allow unhealthy tendencies in the labour sector. There will be effective government action against such tendencies.

At the same time, the government will not allow industrialists to run away from their statutory obligations. The aim will be to create a healthy employer-employee relationship. The other objective will be to ensure that employers have the right to employ workers of their choice. Sons-of-soil arguments and similar unhealthy ideas will not be encouraged. The aim is to create a good climate that will allow industries to flourish.

One should know that recently, the LDF government took the initiative to stop the practice of extortion of money in the name of workers at the Cochin Port. Though, it may appear at first sight to be an anti-labour action by a Left government, it was really a move to improve business and employment opportunities at the Port and help port workers in the long run. Thus, the government's aim is to create the right industrial climate.

The government will also give more importance to infrastructure development. No longer will the government offer subsidies to traditional and cottage industries; instead the aim will be technological upgradation and value addition of products, an important strategy that will help revive Kerala's agriculture sector too. There is a realisation that highly polluting chemical industries are not feasible in Kerala.

The government's focus from now on will be in developing tourism, textiles, and the IT and BT industries that will be able to utilise Kerala's educated, skilled manpower and will not put unrealistic demands on the State's scarce land resources. In the small-scale sector, the government will establish [more] industrial clusters; some of them are already successful.

Kerala's neighbours are industrially more advanced and have a lead over Kerala in infrastructure facilities. Do you think that the policies of the governments in those States have affected Kerala's industrial advancement in any way?

They are offering vast tracts of land at concessional rates. There are a few such areas where we are unable to match their offers. But then we can compete with them using our advantages of skilled manpower and expertise in advanced technology, in knowledge-based industry. That is our strength.

What are the threats then that the State has to overcome?

From the point of view of an industrialist, it is, no doubt, the inadequacy of infrastructure. For example, though the State has the best road connectivity in the country, with a network of roads that reach even the remotest villages, it has very few roads that can move big containers. Power is available, but quality power is not, all the time. These are factors that hinder modern industries.

I cannot say these problems can be solved all of a sudden. It sort of pulls the State back and is an obstacle. As an immediate measure we are now trying to identify more hydel power projects so that without increasing the tariff we will be able to provide more power. Similarly, some infrastructure development projects are being taken up, such as one more airport at Kannur and expansion of the Kozhikode airport that would pave the way for more industries in north Kerala, and the international container transhipment terminal at Kochi.

Another important problem I did not mention earlier is Kerala's location, at the southern-most tip of the country, which makes fuel very costly by the time it reaches the State. The government therefore sees the proposed LNG terminal at Kochi as a must-do for the State.