The Hindu Business Line : Kerala has an image problem with investors: Study

Despite the State's pre-eminence in a number of social indicators, the entrepreneurs find the going tough for a variety reasons and are forced to spread out to other States. This has also made it hard for the State to attract investments at any cost, according to a study by the Institute for Enterprise Culture and Entrepreneurial Development (IECED).

To begin with, official statistics showed that in the post-liberalisation period between 1991 and 2004, Kerala was fourth lowest among the major States in attracting industrial investments. Also, the other southern States were way ahead of Kerala both in proposed investments and employment.

More importantly, a study undertaken by the World Bank - Confederation of Indian Industry (CII) across 13 States on their attractiveness in terms of industrial investments had rated Kerala as the third best in overall ranking. However, in two key parameters, namely, investment climate and labour, it had been ranked 13 and 8, respectively.

The IECED survey among a cross section of entrepreneurs, who opted for cross-border expansion or diversification, showed that 76 per cent decided to move out because of the strike-free atmosphere in other States.

The other reasons cited were easy availability of quality raw material at cheaper rates (72 per cent); comparatively lower wages (70 per cent); flexibility in the case of minimum wages, gratuity and provident fund (68 per cent); more friendly approach of bureaucracy (64 per cent); stressful environment of Kerala (62 per cent); higher productivity of labour outside (60 per cent); and the need to ensure supply in the market in the event of Kerala unit getting closed due to strikes (56 per cent).

At the same time, these entrepreneurs were wary of launching their ventures in alien land for psychological reasons. Besides, the size of the Kerala market is another major attraction. With just 3 per cent of the total population of the country, the State consumes 10 to 15 per cent of the consumer goods manufactured in the country.

However, once the product is accepted in the market, the main challenge is to retain the market share within the State and to expand the market beyond the States.

The study revealed that the major problem faced by the entrepreneurs in Kerala was the threatening demands from the leaders of the political parties, trade unions and social organisations.

The gravity of the situation was underlined by the fact that as many 92 per cent of the entrepreneurs pointed to this problem. The other factors were frequent hartals (88 per cent); loss of time and stress arising from negotiating with the unions (70 per cent); frequent power failures and the poor quality of power (68 per cent); and low productivity of workers.

It was found that the labour problems typically occurred in the take-off stage of an enterprise when the product was accepted by the market and the sales turnover registered faster growth. From the workers' point of view, it may be the right time to strike a bargain.

However, it was also observed that the potential threat of entrepreneurs establishing units outside the State seemed to have weakened the bargaining strength of the workers. And, this could be the main reason for the decrease in the number of days lost due to strikes and lockouts.

The study feels that from the policy point of view, the present strategy of industrial promotion based on infrastructure development, tax concessions and subsidies was not effective enough to attract investments. Along with physical infrastructure, the State should focus on building "psychological infrastructure" also, the study said.

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