Any government coming to power after an election usually looks at the economic priorities to be pursued during the coming years afresh. Prima facie, the recovery of the economy shattered by the outbreak of Covid-19 poses a major challenge to the government of Kerala. At the same time, the election was fought on the plank of development. How to satisfy the hundred and odd promises showered at the time of election becomes a baffling problem. Shortage of funds adds further dimensions to the whole affair. The options that should be adopted to tackle the manifold problems need careful examination.
Resource crunch: Kerala was able to emerge as an affluent state as a result of the inflow of remittances, being part of the earnings of the migrants from the state in foreign lands. However, basic productive activities like agriculture and industry have stagnated while consumer services have acquired unprecedented expansion. As a matter of fact, economic growth stemmed primarily from activities connected with the provision of various services to the consuming public. Normally, the volume of income earned by various service providers is taken as the criterion for the calculation of GSDP. In Kerala, as service activities widened, the number of people who worked in the services and their remuneration also went up and in turn, the economy grew.
With the outbreak of the pandemic, serious slowdown has occurred in various economic activities of the state. Furthermore, the volume of remittances has recorded a steep fall with little chance for speedy revival. In addition, more than 12 lakh expatriates came back to Kerala with bleak chances for regaining employment. Needless to say, all those developments have resulted in a steep fall in the state revenue.
A shortage of funds has made the functioning of various state activities very difficult. During FY2020-21, the revenue receipts of the state would have been Rs 93,115 crore against a total expenditure of Rs 1,28,382 crore. The shortage was covered by borrowing Rs 34,947 crore, nearly Rs 10,000 crore more than the previous year. Liberal grants from the Centre were also helpful.
Huge borrowings signal danger for various reasons. The accumulated debt of the state exceeds Rs 3 lakh crore. The interest charges surpass Rs 20,000 crore at present. If the government had not resorted to borrowings without hesitation, the state could have very well utilised the huge amount of interest for meeting various purposes. The scope for resorting to heavy borrowing again is dim as the state is in the brink of a debt trap.
Revival of agriculture: The crunch in resources calls for caution. An overdependence on outside sources for employment and means of livelihood have weakened productive sectors like agriculture. The state is able to produce approximately only six lakh tonnes of rice against the need for about 45 lakh tonnes per year. Not only rice, but even vegetables raised in the state are not sufficient. Significantly, the country as a whole could withstand the pandemic precisely because of the self-sufficiency attained in food production. Famines and starvation deaths were frequent in the past. Such calamities would have reappeared but for the self-sufficiency in food production. Ipso facto, Kerala cannot afford to remain deficient in food production forever and has to take steps to increase food production. Chances for an increase in production are bright as both the physical environment and the climatic conditions of Kerala are good for vegetable growth.
The self-reliant Kerala project launched by the state can be a starting point for promoting food production. Side by side, new policy options have to be thought of. A number of landless people who are willing to cultivate land can be prompted to take up farming, if tenancy becomes legal. Institutional arrangement for marketing agricultural products needs to be created on a permanent basis.
Promotion of new kinds of industries: Promotion of industries is another measure for reviving the economy. Industrial development is crucial for the creation of employment and also for generating income. Technology-based industries like IT, start-ups, etc., are the best bets for Kerala. They are sure to provide employment to the state’s educated youth. However, industrial development calls for an investment-friendly environment. The state has been exhibiting an unfriendly attitude towards private enterprises, apparently on account of ideological reasons. Recently, the state government adopted certain steps designed to promote an investment-friendly environment. It is yet to know how far they have been fruitful.
The attitude of the people at large cannot be modified at will with state policies by themselves. The political parties that mould public opinion can do much in the matter. Whether they will take up the issue and adopt positive steps is the question. If they nurture an investment-friendly environment, it will be a real service that they render to the next generation.Tourism is a promising field capable of creating large-scale employment opportunities. The potential for the development of tourism, though crippled by Covid-19, is very high. However, it calls for careful promotion to avoid ecological damage.
Development with an emphasis on the growth of productive sectors should be the main thrust of the policy option. The trauma caused by Covid calls for such an approach. The new government would have to keep in abeyance most of the wanton promises made during the heyday of the election campaign because of the government’s financial crunch. What is needed is self-reliance in place of overdependence on foreign lands for income and employment.
Joseph K V
Former Member of the Kerala Public Expenditure Committee
(The author is the Director, Institute of International Migration and Development)
(drkvjoseph@gmail.com)