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The Rediff Business Interview/Dr I S Gulati

'Centre's apathy has robbed Kerala of economic progress'

Over the years, the Kerala development model has generated tremendous interest and debate among national and international economists and development experts. Kerala, like most other Indian states, inherited conditions of under-development after the British rule ended in the country in 1947. In the last 50 years, however, the state has witnessed remarkable transformation in human development areas like literacy, healthcare, increased life expectancy and low infant mortality.

Yet, critics opine that the Kerala model has failed to invigorate the state's economy. Despite its sterling achievements in human development, Kerala has failed to attract adequate industrial and agricultural production.

However, not all economists agree that the Kerala development model has failed to deliver. Eminent economist and the Kerala State Planning Board vice-chairman Dr I S Gulati explains why the state has fallen behind in industrial progress and how it is trying to route economic progress via local self-government initiatives in a tete-a-tete with George Iype.

There has been tremendous debate over the Kerala model of development. What are the state government's plans to sustain this development experience?

After 50 years of unique progress in areas of literacy, healthcare and other human development indicators, we have come to the conclusion that local level development, or the panchayat projects, are the best way to sustain the state's development model.

You might recall that when our Constitution was amended in 1993, our local bodies -- panchayat raj institutions and municipalities -- were given a permanent lease of life. Previously, all the state governments followed the British heritage towards panchayats and did absolutely nothing for local level development.

But Kerala was the first state to recognise that local level development is the best form of economic progress. So, the state decided in 1994 to transfer up to 40 per cent of its plan allocation to the local bodies. We have named it the People's Plan Project. It is now making waves in the state in all sectors: education, health, agriculture, industry, animal husbandry, etc. So the local level will sustain the Kerala model of development.

Do you think the Kerala development model can be really sustained by these initiatives alone? The paradox is that the state has failed to achieve economic progress though it has high human development indicators.

I dispute the argument that Kerala has been unable to make any economic progress. The so-called economic experts who spread this theory seem unaware of the facts. I think the state has made good economic progress in the last 20 years. They take into account only the point that in spite of being a relatively low-income state, Kerala has been able to make progress in literacy, education, female literacy, health.

The rates of growth of the gross state domestic product of Kerala are one of the highest in the country. Kerala's income growth is the highest, it is higher than the national growth level. Yet, Kerala's tragedy is that the state's people living outside do not want to believe that the state is doing well. They have created a climate of self-flagellation for the state.

You mean to say Kerala is one of the better economically-managed states in the country?

Yes, certainly. I do feel that it is one of the very well managed states in the country economically. We have been able to achieve the economic targets. Ask the Planning Commission. Kerala has consistently achieved economic targets every year. For instance, last year our plan size was Rs 32.50 billion, which we fully utilised.

But the state has been unable to attract industry or provide adequate employment.

Do not mix your argument with industry. So far as economic activity is concerned, Kerala is a predominantly agricultural state. I think the agricultural sector in Kerala is the most dynamic in the whole country. In the last 20 years, Kerala's agriculture economy has shifted from being a pure subsistence economy, where you grew only crops like tapioca and rice. Only 30 per cent of our agriculture land is now being used for rice and tapioca cultivation, whereas 70 per cent of the farmlands have gone into those sectors of agriculture that offer more income.

If the agriculture sector had not shown this vibrant growth, Kerala's economy would not have been what it is today. Actually, one reason why there is no labour available in Kerala today that our agriculture economy has been dynamic. So when people come from outside and say that we want to start a factory here, the wage rate is very high. This is so because agriculture is so productive that it can afford such a high wage rate than when it used to be a mere rice economy. So don't judge Kerala's economy by just looking at lack of industry here. The state is peculiar and one has to treat it as a whole. Though not many big industries have come up, it does not stand to reason that there is no economic progress in the state.

Why is industry not coming up in the state? If you compare with other southern states like Karnataka, Andhra Pradesh and Tamil Nadu, Kerala has not attracted any industrial activity.

That is because our agricultural economy is very dynamic. It has provided economic growth and employment whereas other states do not have this kind of an agricultural economy. How does an economy grow? For instance, in Kottayam district, two thirds of the land is under rubber and coconut cultivation and big industry is simply impossible there. So if an entrepreneur from Kottayam, living abroad, wishes to invest in any industrial project in the state, he is advised to buy rubber plantations.

So, for him, it is less of a bother. He invests in land and cultivates rubber and gets a good yield. He gets immediate and assured profits from the plantations. In Kerala, industry is competing with the dynamic agricultural economy. But I would also say that our industry has not been doing so badly.

But not many new industries have come up in the state.

When you talk of new industries, you talk of huge cement and petrochemicals plants.

People do not care for small-scale industries. Kerala's small-scale industry has been doing extremely well, but nobody talks about it. Another reason why the state could not attract industry is the power problem. Also the state did not give priority to more public sector units. Four years ago, the state government gave priority to power generation that we are now in a position to produce enough electricity. In fact, the problem now is whether we will have enough demand for electricity with more small power plants coming up.

Critics say Kerala's low-growth economy is because of the state's extreme social conservatism. For example, 22.8 per cent of the Gulf money is spent on marriage of daughters.

This is an illogical argument. Only critics can think of such matters. If I go to work abroad and have a sister who has to be married off, I would spend as much as I can to help her. So what is wrong in that?

Do you think the deposits from the Gulf have largely sustained the Kerala economy? The state receives nearly Rs 140 billion as NRI deposits every year. Do you think the state will go bankrupt if this money stops coming in?

Yes, the Gulf money must have certainly helped us. I do not want to undermine their contribution. If a worker goes abroad and sends us remittances, what happens to it? First, it helps the relatives live better. Spending here will be much more than what the income locally generated will support. And if people spend more, there will be more trade, more activity, more housing, more construction and more jobs.

But a huge chunk of the NRI deposits is lying unutilised in banks because as there are no avenues for industrial development in the state.

One of my areas of interest is the banking sector in Kerala. There are many reasons why Kerala's economy is not growing as fast as it should. First, we are not getting our due share of the central sector investments. No new industry is coming up in the state because our share of the central sector investment now is a mere 1.65 per cent. It used to be 3.25 per cent earlier. The central government should have invested in power sector, airports and railways in the state. But it has been discriminating against Kerala for many years now.

Why do you think that the Centre has this attitude towards Kerala?

I would say that Kerala's political leaders are not putting enough pressure on the central government. We have so many Members of Parliament but they have done absolutely nothing to increase the central sector investment in the state. Many politicians have been ministers at the Centre, but they have done absolutely nothing for the state. K Karunakaran was the Union Minister for Industry. If he wanted, he could have set up any number of industries here, but he did not.

One of the first things that Railway Minister Mamata Banerjee did was to set up numerous railway workshops and projects in West Bengal and she is reaping rich benefits from that. A K Antony was a central minister, but he did nothing for the state. The Centre's neglect of the state continues. We now have to allocate money from the state planning board for central projects like airports.

Politics is the game of making noise. Those who make more noise walk away with aid, money and investments. The MPs from Kerala do not make any noise. I would say they should be fighting with the Centre always.

Similarly, financial institutions like the IDBI and the ICICI have also been neglecting the state. We do not even get 1 per cent credit from these institutions. They do not give credit to our entrepreneurs who want to set up industry in the state. They, however, offer credit to the same entrepreneurs if they set up the industry elsewhere. Many entrepreneurs have told me that they are setting up factories in Tamil Nadu and Karnataka because financial institutions do not give credit if they want to set up the same in Kerala. So there is a network of vested interests and consortium of financial institutions opposed to the investment in the state.

Do you think it is because of the bad industrial image the state has? Kerala is a state with labour problems, trade unions, strikes and high wages…

I would say that our critics are spreading untruths about Kerala. As for labour trouble, just consider the national figures. The man-days lost in Kerala on account of lock-outs and strikes are one of the lowest in the country. Yet, every one says, there is a lock-out and strike every day in Kerala. An image has been created that the state is full of labour troubles and strikes. It is very difficult to wipe out that image because Keralites -- living elsewhere -- themselves do not think very highly of the state. I am an outsider. I am from Punjab. I love Kerala more than many Malayalees do. The Keralites living outside are always looking for reasons to justify their deserting the state.

Reports say the Gulf boom has ended and many Keralites are returning from the Gulf countries. How will it affect the state socially and economically?

I do not think it will seriously affect the state. Every year, some people return from the Gulf, but many are also going for new jobs. So there is always a balance. To my knowledge, there has not been any alarming 'return' to the state. Yes, Saudi Arabia did decide to deport many illegal Indian immigrants. It might create an immediate, serious situation for the state. But we are trying to sort out the problem. The state government has already written to the Indian Ambassador in Saudi Arabia that all facilities be given to our people so that they do not fall prey to victimisation. We are also planning to set up Internet booths for the Gulf returnees across the state.

Do you think information technology is not as well promoted in Kerala as in other states like Karnataka, Tamil Nadu and Andhra Pradesh?

I would not say IT is not being promoted well because Kerala was one of the first states to set up one of the finest techno-parks in the country. You must remember that unlike Karnataka and Andhra, Kerala's money has gone into the techno-park in the state. I agree that other states have been able to mobilise more money and attract many companies in the IT sector. I believe we have to be doing more in IT to create facilities for the manufacture of software here. I am told that 30 to 40 per cent of the software engineers working in companies in Bangalore are from Kerala. The state has to take many new initiatives to attract leading software companies to set up shops here.

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