Vibrant local economy key to Kerala's revival

A solution to Kerala's economic woes is allowing local bodies to come up with an ecologically sustainable and vibrant local economic development strategy for their respective areas, say experts.

Published: 03rd December 2021 06:24 AM  |   Last Updated: 03rd December 2021 08:10 AM   |  A+A-

Economy, money

This is that time of the year when various ministries make their demands for fund allocation in next year’s budget. (Express Illustrations | Amit Bandre)

Express News Service

KOCHI: When tech giant IBM said in May that it would open an office in Kochi with a 400-seat facility, it was hailed as the ‘coming-of-age’ of Kerala’s IT sector. But nothing is further from the truth. The grim reality is that the state had to wait 24 years to get IBM to agree to start a centre after the American company first established its full-fledged India operations back in 1997. For the record, IBM popularly referred to as 'Big Blue' employs nearly 140,000 people in India -- more than its headcount in the US -- and none in Kerala, at least as of now.

While Kerala keeps missing every IT bus, what’s even more baffling is it also ignores the potential within the state to become a homemade self-reliant powerhouse, in some other areas at least. Take the case of coconut. 

“With Kerala’s yield of around 500 crore coconuts per year, this alone, therefore, is a Rs 10,000-crore industry,” says Ajit Mathai, founding partner of mByom, a consultancy. To put that in perspective, the figure is more than the entire state agriculture budget in 2021. Sadly, Kerala still brings in coir fibre from the neighbouring states for its coir manufacturing sector. Apathy and petty corruption in antiquated institutions like Coirfed hold coconut growing homesteads and the coir sector to ransom in the state. 

The story is no different in the case of coconut oil, with a significant amount consumed in Kerala coming from outside the state. There is the example of eggs too. Kerala brings close to one crore eggs a day worth Rs 5 crore from a single district in Tamil Nadu -- Namakkal. The ‘import’ translates to Rs 1,800 crore per year. For perspective, the figure equals Kerala’s annual spend for urban development in the current budget, explains Mathai.

K Raviraman, a member of the Kerala State Planning Board, says the state government must also be more imaginative to identify new tax sources if it is serious about increasing revenue. The new taxes can be on vacant houses/flats, through the introduction of a digital state tax (DST) and inheritance wealth tax, he says.  Currently, the property tax in India is as low as 0.2% of GDP compared to around 3% in advanced countries. Given the fact that Kerala is a state with high land value, and mostly with pucca houses, the potential for raising property tax is huge, says Raviraman.  It is estimated that there are about 12 lakh houses and flats that have remained vacant for several years in Kerala. An additional tax of Rs 2 per sq ft per year would yield a tax revenue of Rs 220 crore, which should be collected through local self-governments (LSGs), Raviraman says.

“There are three advantages in a symbiotic manner: first, it would help increase the state revenue, particularly the revenue of LSGs. Second, it would help bring around 12 lakh houses in the rental market benefiting those IT employees seeking accommodation; this would also help the guest workers who flow into the state. Third, it would discourage the over-extraction of natural resources for the building of expensive houses and flats aiming to reap speculative interests,” he points out.
Concurs Nirmala Padmanabhan, associate professor with the Centre for Economics at St Teresa’s College, Ernakulam. “The role of local governments (except block and district panchayats) in mobilising additional revenue, particularly tapping the huge potential in property taxes, cannot be ignored anymore,” she says.

Mathai reckons a vibrant local economy driven by micro-entrepreneurship is going to be the mainstay of Kerala’s employment strategy. “Every Home an Enterprise’ must now be the anthem of the LSGs propelling the youth and women enterprise,” he says. The proposed DST or the digital tax, Raviraman says, would reduce fraud and concealment by reducing electronic transactions, in addition to reducing tax abuse. DST has one more, and perhaps the most important, rationale.

“No other state in India is expanding its services sector as fast as Kerala. More importantly, the Kerala economy is poised for digital transformation, with digital interventions the key to transforming almost all sectors in the state, particularly education, health, deliveries and even day-to-day administration. There is a drastic reduction in transaction cost due to digital transformation which would also justify why a portion of the cost advantage should be mopped for the larger society. That is where the DST should be pitched in,” Raviraman says.

A further advantage of the new digital tax for Kerala would be, in contrast to GST, it would allow the state to exercise its rights on it. As far as inheritance tax is concerned, he says it is time to reintroduce it as one of the instruments to address the rising inequality in the country, particularly in states like Kerala. Nirmala Padmanabhan, who is a member of the Kerala Public Expenditure Review Committee, says a gradual calibrated increase in various fees and payments for services should be considered once the state economy is back on the recovery path. “Currently, many services are offered at very low rates which do not cover even a fraction of the cost of delivery -- a typical example being medical or engineering education,” she says. 

A feasible strategy would be to entrust dynamic personnel in each government department who is familiar with their day-to-day functioning with the task of identifying such revenue sources as well as strategies for expenditure trimming, says Padmanabhan. Rationalising the size of the government, including cutting down wasteful expense, and divestment or winding up of loss-making PSUs would also help the state, which is on the brink of bankruptcy. There are other avenues too, such as congestion tax in cities like Kochi, where the traffic comes to a halt in peak hours, says Raviraman. The big question is whether Kerala has the courage to think out of the box and provide lasting solutions to the financial mess.

Mathai suggests the way forward for Kerala is to transform itself into an ecology of micro-enterprise. “Tradable volumes of coconuts, coconut husks, eggs or chicken can be achieved with cluster-model approach using tech solutions. It is estimated that only 30% of homestead income can come through produce grown at home. The balance must come through members of homestead rendering services or via aggregated cluster-based manufacturing,” says Mathai.

This is that time of the year when various ministries make their demands for fund allocation in next year’s budget. When Finance Minister K N Balagopal rises in the assembly to present the Pinarayi 2.0 government’s first full budget, will he make up for the lost time? We will have to wait till February.


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