Sometime in the early 1980s, Malayalis were asked to name one most important investment they want to see in Kerala. It is said most people demanded an airport near their village. Amusing it may sound, but it exposed Kerala's development conundrum.
In the previous decades, driven by rising unemployment and an unfriendly business environment, a large number of Malayalis had crossed the Arabian seas to reach the deserts of West Asia in search of jobs and a better future for their families back home.
Not surprisingly, the big development they wanted to see then was an airport near their home. The only airport then was located in Trivandrum, the state’s southern tip.
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The 1980s and 1990s accentuated the flight of people to outside the state as a large number of companies including the likes of Gwalio Rayons, (Grasim Industries), Toshiba Anand, Premier Cables, and Madura Coats shut their factories while no big fresh investment materalised here, thanks to the militant labour unions, hyper-active environment groups, and the infamous red tape. More than four decades later, the situation seems to be no different.
Kerala ranks 28th in the country in the ease of doing business rankings, down from 18th position in 2015.
The state’s ill-famed business environment is back in focus now after Kitex Garments, the world's third-largest supplier of infant wear which employs over 9,000 people at its factory in the outskirts of Kochi, announced it was scrapping a Rs 3,500-crore expansion plan in Kerala alleging that the company was being harassed by various government departments.
The labour department notice served on June 28 said Kitex violated at least 73 rules while the company’s promoter and MD Sabu Jacob termed it a witch-hunt and challenged the authorities to prove the violations. It’s no secret that the company’s growing political ambitions have triggered the sudden raids.
For the uninitiated, Kitex Group unruffled both the Left and the Congress-led fronts in the state after Twenty20, the political outfit floated by Jacob, won power in Kizhakkambalam where the company is headquartered and nearby panchayats in the local body elections last year.
As both Kitex and the Communist government accuse each other, the state’s attempt to improve the business environment has taken a massive hit. Meanwhile, unruly trade unions continue to rule the roost.
In 2018, Synthite Industries, one of the world’s largest producers of spice oils and oleoresins, threatened to shut down its factory in Kochi after the Left union-led strike disrupted its operations. Since then, Synthite has reduced its workforce from 800 to 500 at its Kochi unit, even as it expanded in neighbouring Tamil Nadu, Karnataka, and Andhra Pradesh. In 2019, Muthoot Finance, a leading gold loan NBFC, said it will wind up its branches in Kerala after a CITU- backed union disrupted the functioning of 300-plus branches of the company in Kerala.
While the state government seems to be in no hurry to settle the dispute with Kitex, the quick move by other states to lure the company has brought to fore the contrasting views of Kerala and other states on attracting investments.
At least eight states including all the other southern states are wooing the kids-wear maker, offering various sops including cheap loans and land at half the price for setting up factories there. Telangana, on Friday, sent a special private jet to Kochi to escort a Kitex delegation led by Jacob for talks in Hyderabad with Industries Minister KT Rama Rao to clinch a Rs 1,000-crore investment deal for a kids garment facility that would generate 4,000 new jobs.
"While I received invitations from chief ministers or the industry ministers from eight states inviting me to invest in their states, no one from the Kerala government enquired to check what’s going on for four days," says Kitex's Jacob.
VK Vijayakumar, chief investment strategist, Geojit Financial Services, attributes the worsening investment climate to Kerala’s predominantly left bureaucracy, fed on anti- business ideology, which he reckons is far worse than in other states.
This has to change, he says. "One solution is to remove human discretion from company inspections. This should be system-driven with adequate prior information," said Vijayakumar.
To be fair, Chief Minister Pinarayi Vijayan, who led the LDF to its second consecutive term in the May elect ions, has been taking several key decisions to attract investment into Kerala. The completion of the long-pending Gail gas pipeline and the land acquisition for NHAI six-lane conversion in record time have sent the right messages.
“The Kitex episode signals to the public a partisan approach of Kerala government administrative machinery laced with a political vendetta which could seriously derail the hard-fought achievements of the state in improving the investment climate and ease of doing business in Kerala,” says Ashok Thomas, assistant professor and chairperson, economics at IIM-Kozhikode.
Additionally, such misadventures would puncture the perception of quality of administration and on corruption, among future entrepreneurs and potential MSME promoters in the state, the IIM-K professor says. Adds Geojit's Vijayakumar: "Entrepreneurs have to be encouraged and not harassed."
There have been many instances of politicians at the local level asking for many favours, including jobs for their people, from businessmen and when not obliged, harass them, he says. Kitex’s Jacob admits Chief Minister Vijayan sincerely wants to bring investment into the state, but the message has not gone down to the officials and local-level party leaders down the ladder.
"In reality, the ease of doing business has not improved on the ground. What I’m going through is what an overwhelming majority of businessmen are facing in the state. No one is speaking out due to fear of repercussions," says Jacob.
While the Chief Minister is yet to comment on the Kitex controversy, the state industries minister P Rajeeve termed the allegations "baseless" and alleges Sabu was trying to paint Kerala as an "investorunfriendly state".
Lulu group founder Yusuff Ali MA says it’s unfortunate that big investment is going out of Kerala. "The solution to the unemployment is through private entrepreneurs along with the government. The government should intervene and stop Kitex from going out of the state," Yussuf Ali, who is no stranger to activist groups, says.
Since the 1980s, Kerala has built three more airports -- in Kozhikode, Kochi and Kannur. The tiny state is now planning its fifth airport, in Pathanamthitta district. It is also the only state with three international airports. Remittances by an estimated 25 lakh expat Malayalees have been powering the state economy for the last several decades.
The state has the highest unemployment rate at 40.5 per cent among youth between 15-29 years of age, nearly double the national average of 21%. It’s time Kerala changes its approach towards business and investment. Else, as Kitex’s Sabu says, the state will be one big old-age home where parents spend their sunset years alone while their sons and daughters toil in a distant land. The solution won’t be in having more airports.