Kerala: New dawn or half-way house?

The state should place private enterprise, national and multinational, at the heart of its economic development

Kerala Chief Minister AK Antony has reason to be pleased as punch. The recently concluded Global Investor Meet (GIM), which saw firm investment commitments of roughly Rs80 billion, has been hailed as a great success in laying a new path to sustainable development in the industrially backward state. The meeting, which has been instrumental in attracting investment proposals to the tune of Rs260 billion, is being seen variously as a "great success and a new beginning,'' by Antony, and a political milestone for the state, according to commentators in the local press.
Antony is mightily pleased with the response of the investor community, both from India and abroad – mostly from the NRI Diaspora in the Gulf. The strategy of proactively identifying investment opportunities and placing them before the investor community has paid off very well, he said. The meeting has lead to hopes of a turnaround in the industrially moribund state’s fortunes after remaining trapped in outdated dogmas and sterile ideological debates for decades. For the state, which has a rate of unemployment almost three times the national average, the success of the meeting is being seen as the result of a new mental churning among the people to leave the past behind and to make up for lost time.
For Kerala, which missed the industrial boom and the later IT boom, in this era of globalisation it is now or never. And GIM is being seen as a precursor to more positive changes to come and many more bold initiatives to be adopted. After lurching from one crisis to another from a worsening financial crisis for the past 20 months it has been in power, GIM has given the government an opportunity to provide a direction to the new developmental model. And that politics has for once taken a back seat as the focus of discussion in the run-up to the meeting is something for the politically volatile state to be happy about.
Also noteworthy is the fact that GIM has achieved a breakthrough in political consensus-building on development after an all-party meeting convened by the chief minister. True, controversies over some of the project proposals, which were to figure at GIM, did create a problem but this has only helped in highlighting the need for transparency in every step. The government has hailed the Leader of the Opposition's gesture in co-operation, and post-Gim the government has reiterated that it would hold more discussions with the Opposition parties on projects and that the government would go ahead only with their consensus.
And the results are there to see. The federal government has promised an investment of Rs100 billion in the public sector over a few years, which basically involves expansion of units in the State. Federal investment in Kerala as a percentage of the total sectoral investment in the country has been declining steadily from 3.24 per cent in 1975 to 1.28 in 1995, though the population of the state is about 3.4 per cent of the country's total.
The other proposals include interest in the proposed Express Highway project and others from the private sector, including Reliance, Infosys, Microsoft and Sutherland of the US. Within the MoUs, the sources of investments are as follows: foreign companies (nine) Rs4.64 billion, from outside Kerala (17) Rs 9.07 billion, Public Sector Units (four) Rs46.2 billion, Non-Resident Indians (17) Rs23.26 billion and the Kerala entrepreneurs (48) Rs28.34 billion.
The figures look attractive. They offer a lot of promise on the outside. But will this “new beginning” propel Kerala to the ranks of the industrialised states in the country and make it ready to “take on globalisation,” as Antony said on the opening day of Gim? Has the state really jettisoned the ideological baggage and cherished shibboleths of the past decades so quickly to set off on a path of sustainable development to catch up with the world?
The reason why Antony has been harping on the need to build consensus has not been lost on anyone. Kearla’s polity is still fractured and till some tectonic shift happens in the thought process of the state’s pro-socialist/pro-organised-labour politicians the so-called new dawn could run empty anytime soon. The signs to this were on much before GIM. The Marxist-led Left Democratic Front had made it clear it would not allow any multinational company to “exploit” the state and its labour force, come what may. The recent controversy on a water supply scheme in Palakkad, allegedly proposed by struggling French conglomerate Vivendi, is just a case in point. Kerala’s politicos and it feeder organisations and even the state’s mostly-left-aligned media (read journalists) have yet to come to terms with the role of global private capital in the development paradigm. For a state which has been brought up on a strict diet of anti-capitalism and bourgeoisie avarice and colorful catchwords such as “exploitation,” “capitalistic culture” and “bourgeoisie” over the past five decades and where people looked to the state as the provider of jobs, it will not be easy to instill an outlook that paints the private sector/multinational mega corporation in favourable light.
Kerala’s tragedy is that it is still where China was before Deng Xiaoping initiated his pro-capitalist experiments -- inward looking. And to a great extend this malaise could be blamed on the state’s media, which could not see beyond its nose and perpetuates the myth that the state is one of the most progressive in the country. Of course Kerala has a lot to its credit in social sector advances in terms of infant mortality and literacy levels. But that was all. In a state where popular littérateurs/artists were given the status of oracles who could pronounce “learned” verdicts on every developmental/entrepreneurial activity, which were taken as unvarnished truth by the middle class, it comes as no surprise that more emphasis was placed on small-scale industry and government initiatives on investment. And the results are there to see -- a bloated government with an empty treasury, too broke to pay salaries even after taxing every conceivable item, tangible and intangible, and a hemorrhaging public sector, which eats up more and more scarce government funds to feed its excess labour. This madness had to stop, somewhere. Therefore came Gim.
But can Gim set a paradigm shift in development strategy? Hardly. Running through the set of proposals with a fine comb it can be seen that except for a few multibillion-rupee proposals on federal public investment and some telecom, IT and tourism initiatives most of the other proposals are on real estate – bus terminals and other sundry projects, most of which proposals were already there before but were signed at Gim.
Now of this much-touted federal investment in the state, only time will tell how much of it will materialise, if at all any. With New Delhi set on a programme of public sector divestment to cut losses and to rein in the ballooning fiscal deficit it remains to be seen how it will find the money to put where its mouth is. And that too when Kerala remains a political lightweight in New Delhi as any observer in the capital can attest to. For the time being Keralites will have to satisfy themselves with the platitudes the prime minister mouthed about the state and the people. And the investments proposed by Reliance Industries is nothing sue generis. It is just part of the national telecom network it is building, nothing Kerala-specific to buttress the argument that the state has come of investment age. The same is the case with the few petrol pumps in has promised to set up as part of its national chain of retail outlets. In any case petrol pumps can’t be a precursor to long-term development!
What Kerala needs now is a Deng who could cut through the outdated ideological mantras of the dying socialist developmental model. Like China before us it is time to emerge rapidly from the self-imposed economic isolation. The fruits of China’s determination to place private enterprise at the heart of its economic development are there for all to see – the communist state is set to see its total trade surpass Japan’s – the world’s second biggest economy – this year. China’s foreign direct investment (FDI) last year touched $52 billion, mostly from multinational corporates lured by its status as a low-cost manufacturer of quality good with world class infrastructure, including ports and roads.
In this context Kerala’s move to develop a multibillion-rupee express highway with private participation is a classic case of putting the cart before the horse. Instead the state, which lies bang on a major international maritime route to the fast growing Gulf region and Europe beyond, should have placed more onus on building a world-class port. The seaboard city of Kochi with its new airport and deep-water all-whether port could easily emerge as a base for relocation of MNC IT hardware, electronics production facilities if the government, the media and the people of the state used a bit of both imagination and dynamism. The lead shown by Kerala in building the country’s first private airport is a shining example of what can be done. But building facilities is not all, something it has not learnt. In the service sector service counts, and the reversion of the ownership of the airport to the government is nothing but a tragedy. Kerala should hand over the running of the Kochi deep-water port and airport to companies which can offer globally-benchmarked performance and turnaround times, the first outlook of an MNC manufacturer, for whom every second counts when it comes to merchandise transport. Along with this the state could also develop an export free zone in Kochi with a world class road network to the port and airport and a state-of-the-art telecom and power infrastructure thrown in. This will be money better spent than on a highway to nowhere.
Kerala, which missed the software bus, should now concentrate its energies on becoming a pioneering IT and electronics hardware manufacturing center by virtue of it port facilities and educated workforce. In this context it should be remembered that the state only recently opened a number of engineering colleges. What are the employment prospects to the thousands of engineers waiting to graduate in another four years? The law of economics says demand will fall as supply exceeds and it will only a matter of time before engineers could be hired dirt cheap as is the case in China. Japanese majors, involved in a massive exercise of shifting factories to China, are desperate to lock in manufacturing costs. What most firms are doing is shifting assembly of components for process and exports to developed markets. And the list of companies who have put their money in China is impressive – IT majors like Intel and Acer, telecom majors such as Motorola, Lucent and Sony Ericsson, contract electronics manufacturers such as Scoletron and Flextronics and almost all consumer electronics majors and the many more as can be evinced from the $52 billion the communist state attracted in FDI in 2002.
Experts are also of the opinion that this relocation of production bases could be a one-off “rebalancing” by global producers of their investment portfolios and that once an optimal portfolio distribution is reached things could even reverse, that is, the investment could move elsewhere. And they also say there are limits to China’s growth of competitveness; it can’t be the lowest-cost producer in all sectors. This should offer some hope to other countries, like India, which are interested in snaring at least a small part of the global FDI pie.
If Kerala with its quality human resources could get its act together with a global vision for creating a world-class export infrastructure FDI could easily wing its way to the state. But it has to accept one more thing, like China: place private enterprise, both national and multinational, at the heart of its economic development. That would be a real paradigm shift.
Now, did we hear Gim say MNC? No. Did anyone at Gim see BPL, the Rs30-billion electronics major built by a Keralite outside the state? No way, not today. Maybe tomorrow. Maybe.

This article was published in The Gulf Today