Tasks on the economic front

Published : Jul 18, 2003 00:00 IST

State Industries Minister P.K. Kunhalikutty, Union Disinvestment Minister Arun Shourie and Chief Minister A.K. Antony during the Global Investor Meet organised in Kochi in January 2003. - K.K. MUSTHAFA

State Industries Minister P.K. Kunhalikutty, Union Disinvestment Minister Arun Shourie and Chief Minister A.K. Antony during the Global Investor Meet organised in Kochi in January 2003. - K.K. MUSTHAFA

An aggressive repositioning strategy on multiple fronts is needed in order to promote investment and employment growth in Kerala.

KERALA has a high physical quality of life index and a large reservoir of qualified manpower. But it has not been able to leverage these strengths to the advantage of the productive sector, in particular the industrial field, over the last four and half decades of development planning. It is paradoxical to see industrial backwardness on the one hand and a vast pool of educated unemployed manpower and a high savings rate on the other. A good part of its manpower has gone outside the State in search of employment; likewise, a number of entrepreneurs from Kerala have gone elsewhere to make investments.

Kerala's sluggishness is attributed mainly to the fact that it is resource-poor. It does not have any known reserves of coal, oil or natural gas. Its chief source of heat energy is firewood and most of its electricity generation is hydro-electric. Added to the poor resource endowment, labour militancy and logistic disadvantages, a policy vacuum worsened the situation. In order to promote investment and employment in the State, an aggressive repositioning strategy is needed. The ruling United Democratic Front government has taken a series of steps, including reform measures in this direction.

We have to analyse the major factors that impede the development of the industrial sector in Kerala, and review the strengths in terms of resources and manpower, along with the opportunities that have emerged from the repositioning strategy under the Tenth Plan.

The poor performance of an economy is usually attributed mainly to sluggish growth in the industrial sector and in its contribution to gross domestic product (GDP). The contribution of the secondary sector including manufacturing to GDP in 1994-95 was 21 per cent, which figure fell marginally to 19.6 per cent in 2001-02 (Table 1). In the secondary sector, excluding electricity, gas, water supply and construction, the contribution of manufacturing alone to GDP is at a low of 11.3 per cent. These figures reveal that the contribution of the manufacturing sector to GDP is the least when compared to other major sectors such as agriculture and services.

In the Tenth Plan, the Government of India has set the target of an overall growth rate of 8 per cent. In order to achieve this growth rate, the industrial sector should grow at the rate of 10 per cent. But the State government has set an overall growth rate target of 6.5 per cent, with 5.89 per cent growth in the industrial sector. The latest figures show that the State is moving in the right direction in this regard (Table 2). The initiatives taken by the State government here are exemplary.

The backbone of industry in Kerala is its biomass and its human capital, including in the field of information technology. The former includes agro-based small-scale and traditional industries, and the latter includes tourism and information technology. During the Ninth Plan period (1997-2002), the reduction in the value of output by the small scale industry (SSI) sector was to the tune of Rs.6,068 crores, with an investment of Rs.2,044.93 crores (capital-output ratio of 2.97). Out of 1.92 crore employment opportunities generated in the SSI sector in the country during 2001-02, Kerala accounted for 6 per cent. On the other hand, the SSI sector in the State accounted for only 1.75 per cent of the production of the country's SSIs as a whole. It shows the low productivity of the SSI sector in the State when compared to the performance at the national level. Out of the 2.58 lakh SSI units registered in the State, 5,526 are now identified as being sick.

The traditional industries include handloom, coir, cashew and handicrafts. Handloom is a major industry providing employment to about 2.5 lakh persons. The sector accounts for about 13 per cent of India's handloom exports. During the Ninth Plan period, although a marginal increase in production was achieved, the number of working looms came down. Accumulation of stocks, loss of man-days and the economic under-performance of the primary societies provide evidence of misdirected schemes over the years.

The coir industry provides direct employment to 2.7 lakh workers and indirect employment to more than a lakh. Of those directly employed, 84 per cent are women. This industry is second only to agriculture as a source of employment, and it accounts for 95 per cent of the country's coir exports. Production is undertaken mainly through cooperative societies (there are 508 of them), and most of them are running at a loss. The performance of the promotional agencies is not up to the mark. Even though Kerala is the largest producer of coconuts in the country, the level of utilisation of coconut husk here is lower than that in Tamil Nadu. Attempts to promote coir-geotextiles have not succeeded. All these factors point to the need for technological upgradation to meet the needs of the times. The global community is moving towards eco-friendly fibres, and the opportunities involving them are bright.

Cashew, the second largest foreign exchange-earner among items of agricultural export from India; contributes .86 per cent of the total foreign exchange earnings. Kerala's share of cashew production in 2002 was 18.9 per cent, which is less than the previous year's figure. The Kerala State Cashew Development Corporation and the Kerala State Cashew Workers Apex Industrial Cooperative Societies are the two major agencies engaged in the development of the industry. They now run at a loss. In private cashew factories workers get jobs throughout the year, although they do so at wages lower than elsewhere. But in the public sector, factories are functioning but workers are practically being thrown out.

Among the traditional industries, handicrafts is one that has good potential in a globalised regime. The agencies engaged in the promotion of handicraft industries in the State are the Kerala State Handicrafts Apex Cooperative Societies, the Artisans Development Corporation, the Handicrafts Development Corporation and the Bamboo Development Corporation. The functioning of these apex organisations needs to be evaluated and reoriented in order to ensure that the benefits ultimately go to the craftspersons. Funding of these organisations for specific projects must be encouraged instead of providing lump sum grants. A number of institutions, such as the Kerala State Industrial Development Corporation (KSIDC), the Kerala Financial Corporation (KFC), the Kerala Industrial Infrastructure Development Corporation (Kinfra) and the Kerala State Industrial Enterprises Limited (KSIE) are involved in the task of developing industries. In 2001 there were 18,627 factories in the State, 553 of them in the public sector. Of the 642 medium and large-scale industries, 515 are in the private sector. Overall, the industrial climate is marked by low productivity and low efficiency, and obsolete technological application.

Kerala offers a unique blend of factors that has made it an attractive and cost-effective destination for information technology industries. In the coming years, Kerala's development will be driven increasingly by knowledge-based and service-based sectors, where ease of information transaction will be a key determinant for success. Recent trends in the convergence of technology have thrown up new opportunities and services, such as IT enabled services (ITES), e-commerce and multimedia services. The government's IT Policy (2001) constitutes a positive step. The IT sector should develop software and hardware, and at the same time catalyse development in the production and service sectors. In 2002, the State government launched an ambitious initiative named Akshaya, aiming to bridge the digital divide and universalise computer literacy. In Kerala, bridging the digital divide means enriching a fully literate knowledge society to enhance its productivity in agriculture and other sectors, and in service quality. Kerala today has 3,142 IT-related industrial units with a domestic turnover of Rs.550 crores and an export turnover of Rs.400 crores.

Tourism is one of the growth areas of the economy and it has performed well in the past. Kerala has earned a place for itself in national and global tourism. The Western Ghats region is today one of the world's 18 "hot spots''. Kerala has become popular as `God's Own Country' thanks to its natural beauty, eco-diversity and cultural heritage. The tourism sector generated 6.29 per cent of the State GDP, and provided employment to seven lakh people in 2001-02. Kerala has high potential in the field of health tourism, in particular in combining Ayurveda and eco-tourism.

Infrastructure and energy are catalysts that induce and promote economic development, in particular industrial development. This means that a well-developed infrastructure is a prerequisite for attracting investment and for achieving rapid development. The development of infrastructure requires coordination among various departments and agencies. Infrastructure projects typically involve high costs and long gestation periods. The inability to develop quality infrastructure is likely to stunt industrial growth as well as GDP growth.

Since Kerala does not have any reserves of coal, oil or natural gas, the strategy on the energy front is to develop hydel resources. The power generation system consisted of a 5 MW capacity hydro-electric plant in 1940; today the installed capacity is 2473 MW. Considering the need to promote the development of clean energy, renewed and vigorous efforts are required to tap non-conventional energy sources. Power projects in the State have been characterised by cost and time overruns.

Kerala depends on road, rail and water transport for the movement of passengers and goods. The transport system consists of 1.38 lakh km of roads, 1,148 km of railways, 1,687 km of inland waterways and 111 statute miles of airways. There are 17 ports including the major port of Kochi. It is one of the most prominent ports on the western coast, which handled 12.06 million tonnes of traffic in the last financial year. The Vizhinjam port in southern Kerala is just 20 km off the international shipping route connecting Europe, the Gulf and the countries of the `Far East'. Considering the potential for Vizhinjam to be developed into an all-weather port, action has been initiated to develop it as a trans-shipment hub with private participation. Alappuzha is an important destination in all the tourist circuits operating in Kerala.

Telecommunications is a crucial part of infrastructure that is becoming increasingly important consequent on globalisation and a shift to a knowledge-based modern economy. The total number of telephone exchanges in Kerala rose to 1,088 in 2002. The equipped line capacity increased to 31.53 lakhs in 2002. The Kerala Telecommunications Circle has provided Internet nodes in all the 14 districts.

The UDF government has taken a number of initiatives for the sustainable development of the traditional industries as well as the knowledge and service-based sectors. In order to promote investment, a number of reform measures have been taken. The major features of this reform policy include:

* Aggressive promotion of private investment to make the State investor-friendly;

* According priority for attracting investment to high-growth, knowledge-based sectors such as IT and biotechnology;

* Repositioning traditional sectors such as coir and handloom by means of modernisation including in technology terms;

* Encouraging the private sector in the traditional fields for the manufacture of value-added products;

* Filling gaps in infrastructure on a priority basis by attracting private investment;

* Elimination of restrictive labour practices to ensure cordial industrial relations;

* Introduction of a new work culture with a productivity orientation and productivity linked wages.

One of the recent steps taken by the State government to change the industrial climate was the holding of the global investor meet (GIM). The success of the event can be gauged on the basis of two important parameters. First, the State has managed to send a clear message to the world that it has changed and will do everything possible to be investor-friendly. Secondly, and most important, the event brought out the capabilities of the State's bureaucracy. These changes are welcome because more than labour militancy, it was the policy vacuum that had deterred corporates from investing in Kerala.

The results of all these initiatives are being reflected in the industrial climate of the State. A study conducted recently by the Confederation of Indian Industry (CII) revealed that Kerala is the third best State in composite ranking in respect of industrial attractiveness among all States in the country. In the globalised regime and in order to face the challenges under the regime put in place by the World Trade Organisation, the industrial sector needs to adopt more progressive reform measures. By leveraging the strengths of the traditional sector through the proper utilisation of biomass, the products of Kerala can compete strongly in the foreign markets. Global markets are not new to Kerala's traditional industries. Cash crops, marine products and coir products from Kerala, for example, conquered the Western markets centuries ago.

Kerala accounts for 4 per cent of the country's exports as a whole. In the matter of food products, it accounts for 25 per cent of India's total figure. Food processing is considered as a thrust sector and the government has given it special attention. Special attention needs to be given to rubber processing as well: Kerala accounts for 95 per cent of the country's production of natural rubber.

While focussing on the strengths and potential of Kerala's resource base, the planners should frame a perspective plan for the development of the State, and the Kerala State Planning Board has initiated the preparation of a vision document to be titled Kerala Vision 2020.

If there is a vision and perspective plan for each and every sector, wastage of resources can be minimised, which will promote integrated development. The industrial sector should concentrate on the following areas:

* Small-scale and traditional industries should be made globally competitive by means of upgradation of technology and designs, and by attracting private participation. An appropriate mechanism and the professionalisation of marketing are important here;

* Necessary infrastructure support and technology are to be developed for the promotion of the food processing industry.

* In the information technology sector, emphasis should be given to attracting private investment in software, hardware and telecommunications. Special emphasis should be given to the tourism sector. Industrial development zones and special economic zones are to be promoted with private participation.

* In the development of small-scale and traditional industries, a greater level of involvement of local government entities may be ensured, and these institutions may be made responsible for the payment of subsidies. The gaps in infrastructure and energy that hinder industrial development should be identified urgently and steps should be taken to fill them through private participation.

C.P. John is a member of the Kerala State Planning Board.

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