The Hindu Business Line : Foreign remittances don't translate to industrial investments for Kerala

The issue of why there are no industrial investments in Kerala from foreign remittances cannot be detached from why there have not been major investments.

Arun M. Kumar, Partner, KPMG LLP, Silicon Valley, California, US

Kerala's Economy: Crouching Tiger, Sacred Cows is a compilation of articles relating to economic development in Kerala. The book, edited by Sunil Mani, Anjini Kochar and Arun M. Kumar, paints a bright picture of Kerala's economy and the authors suggest several measures to sustain the growth. Co-editors Arun M. Kumar, Partner, KPMG LLP, Silicon Valley, California, US, and Member of the Kerala Global Support Network, and Sunil Mani, Planning Commission Chair Professor in Development Economics at the Centre for Development Studies, Thiruvananthapuram. , spoke to Business Line recently.

Excerpts from an interview:

What is the inspiration for the striking title of the book?

Arun M. Kumar: In December 2005, the Kerala Global Support Network, Stanford University's Centre for International Development, the Asian School of Business, Thiruvananthapuram and The Indus Entrepreneurs (TiE) Kerala organised a conference in Thiruvananthapuram on `Kerala in the Global Economy.' What became clear at the conference was that despite many challenges that Kerala needed to overcome, the State's economy was on a growth trajectory. In addition to the statistics that spoke of its growth since 1998 after a long spell of stagnation, case studies showed up the State's potential for progress through both private and public sector entrepreneurship.

When do you expect the `crouching tiger' to pounce?

A crouching tiger pounces when it is confident it can vanquish its prey. It seems to me that Kerala needs to build and project the confidence that it will be a leading economy. Foundational issues need to be addressed in regard to the quality of education at the primary, secondary and tertiary levels, and transportation and power infrastructure. To project its confidence, it needs to build an investment and industry-friendly brand, as it has done in the tourism domain.

Is Kerala's economy continuing to be a hostage of the State politics? Do you think that business can shake free from the shifts in political climate?

All the political parties are in support of initiatives that will move the State forward. Technopark in Thiruvananthapuram is an excellent example of an initiative that has received the consistent support of the government regardless of the party in power. Success stories such as Technopark and the Cochin International Airport speak of the need to have effective leaders such as Mr G. Vijaya Raghavan and Mr V. J. Kurien in charge of such initiatives. Select such leaders, empower them and they will deliver.

Changing aspirations and market conditions will undoubtedly create pressures on many traditional constituencies of political parties. A process of awareness building and education is required to prepare people for the inevitable transitions and to equip them, primarily through skill building and education, to take advantage of new opportunities.

How do foreign investors look at Kerala?

Kerala is not on the first Tier list of places for foreign investors interested in India. The State has had a negative image, mostly unjustified in the last several years, for industry and investment. This image needs to be corrected, by promoting the positive factors of the State - its economic growth, its highly literate populace, its clean and attractive environment.

What of the quality of higher education in Kerala?

Higher education in Kerala needs to be expanded and upgraded in quality — technical education as well as the humanities and basic sciences. Many in Kerala have promoted the idea of creating an IIT-like institution. ThePre are a number of research institutions in Kerala — the units of the Indian Space Research Organisation, the Rajiv Gandhi Institute of Biotechnology and laboratories of the CSIR. One wonders if the talent in these organisations cannot be harnessed to benefit the undergraduate and postgraduate students of Kerala.

Are entrepreneurs returning from abroad to their home base in Kerala? Is the movie `Varavelpu' of Mohan Lal getting disproved?

US Technologies in Thiruvananthapuram is an excellent example of a very successful company, employing some thousands of engineers, that was started by an expatriate Keralite, Mr G. A. Menon, who inspired Mr Murali Gopalan and others to return to Kerala to build this venture. There are smaller examples of companies located in Kerala by expatriate entrepreneurs who continue to live overseas but are focusing on Kerala as a base.

Can you list some industries/sectors that are the most apt for the state?

Kerala clearly has significant additional potential in tourism. As of 2002, Kerala was getting only 10 per cent of the tourists who visited India. Tourism has the potential to grow five- or ten-fold as Kerala can compete as a standalone destination in addition to getting an increased share of India bound travellers.

Software represents a second avenue for growth, as evidenced by the various companies in Technopark, Thiruvananthapuram and the establishments set up by Infosys and other IT majors. IT enabled services ranging from back office accounting and transactions to Web-based tutoring services represent a third area. Significant BPO companies have already set up operations in Kochi.

Other knowledge intensive areas that would be natural for Kerala to focus on include biotechnology, pharmaceuticals and healthcare.

Kerala presents a natural connection point between Dubai and Singapore, two entrepots that have benefited from becoming locations for international business and finance. Kochi, for instance, could be developed as such a location. The natural market for Kerala is not just the subcontinent.

Rising incomes and standards of living along with the influx of people to work in sectors such as IT will also create opportunities for the home building sector.

Is a reallocation of land from agriculture to industry already happening? What are the problems?

MR SUNIL MANI, Planning Commission Chair Professor in Development Economics at the Centre for Development Studies, Thiruvananthapuram.

Sunil Mani: The general opinion is that there has been a shift in agriculture, from labour intensive paddy and foodgrains cultivation, to less labour intensive plantation and cash crops. The data on paddy use indicate a dramatic decline, from 884,969 hectares in 1975-76 to349,774 hectares in 1999-00. Mirroring this, overall land devoted to food crops has fallen from 1,909,205 hectares to 1, 295,298 hectares (1976-76 to 1998-99).

Most of the agricultural land that has been converted to non-agricultural purposes has ended up as housing sites, although there are no precise estimates of this conversion process. However, no significant parcels of agricultural land has been transformed into industrial issue for the simple reason that Kerala has not attracted much large-scale industrial investments for the last fifteen years; less than a per cent of major industrial investments made in India have come to Kerala.

Foreign remittances to the State have been much talked about. How is the utilisation of these resources?

There are no precise estimates of the amount of annual foreign remittances to Kerala but some inferences on the size of this inflow may be deduced from the increases in NRI deposits. According to estimates of the State Level Bankers' Committee, this amounts to Rs 9,000 crore for the most recent period.

According to a survey conducted by the Department of Economic Analysis and Policy (DEAP) of the RBI, the major portion (about 90 per cent) of this amount is used for family maintenance and as bank deposits. This has led to a low credit-deposit ratio in banks.

Practically nothing is invested in industry. The issue of why there are no industrial investments in Kerala from these remittances cannot be detached from the general question as to why there have not been major fresh industrial investments in the State. The investment climate has to improve for these remittances to find a way to financing new industrial ventures.

How do you reconcile the existence of concerns such as unemployment and high rates of suicide in `god's own country'?

Kerala has the highest suicide rates in the country. The reasons for this state of affairs require very careful examination. A hypothesis that has been floated deals with the divergence between the aspirations of individuals and their actual achievement. When it diverges beyond a threshold level, individuals do become desperate to the extent they attempt to take their own lives. It appears that this divergence is very high in Kerala although one must add that this proposition needs to be systematically researched.

One would think that increasing the opportunities for high quality and high wage employment in the State would help more people to achieve their aspirations and lower the incidence of these desperate situations.

What are the key environmental concerns in the State?

Keralites have a heightened sense of environmental concerns. This may be to do with the density of population, the rural-urban continuum and the high literacy rates and consequent awareness of the negative effects of industrial pollution. The social consciousness of Kerala's civil society is a good insurance against environmental abuse.

Kerala's economic and environmental concerns also neatly coincide as a clean and healthy environment benefits its tourism industry. The State's focus on service industries is similarly aligned with such environmental goals.

As a cautionary measure, civil society should also take care to see that the fears on environmental issues are not exaggerated to the extent that the State is seen as a difficult place to do business or make investments in.

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