Tuesday, December 30, 2008

Kerala seeks fresh investments amid global slowdown

Even as the recession exported by the United States is slowing down economies around the world and capital is becoming increasingly scarce, Kerala is seeking fresh private investment in various sectors.

Last week the state government placed before an invited gathering of Non-Resident Keralites 60 tourism schemes requiring investment ranging from Rs. 10 million to Rs. 4 billion. Tourism Minister Kodiyeri Balakrishnan said later that investment of the order of Rs 10 billion was expected.

He added that the government would encourage NRKs to form companies and use their resources to develop tourist facilities in their own places.

Also last week the Kerala Chamber of Commerce and Industry released a study report which indicates that, apart from tourism, there are a dozen sectors which offer scope for profitable investment. These include processing of spices, products based on coconut, engineering, education, Ayurveda and, of course, information technology.
The Chamber commissioned the study in advance of the global investor meet, which it plans to hold in April, to promote capital flow to the state.

Meanwhile, the Communist Party of India (Marxist), which heads the government, has put behind it the controversy over the role of private capital. Chief Minister VS Achuthanandan, who was considered an opponent of foreign capital, said the other day that it can be accepted if it is in the state’s interests.

Achuthanandan’s clarification came after party state secretary Pinarayi Vijayan’s chief lieutenants, Finance Minister TM Thomas Isaac and Industry Minister Elamaram Kareem, emphatically argued that the state needs to attract private investment.
Thomas Isaac has indicated that in the next state budget he will go all out to encourage the inflow of private capital. According to him, that is the only way to overcome the effects of the global economic slowdown.

He has set two primary budgetary goals for the next financial year. One is strengthening of social security measures in the context of the economic crisis. The other is raising of capital investment from the current level of Rs 300 billion to Rs 500 billion. This, he says, can only be done by attracting private capital on a large scale.

Thomas Isaac has evolved a strategy to overcome the restrictions on borrowing by the state government. He proposes to encourage local bodies and public undertakings to go in for maximum loans. The state government will provide guarantee for their loans.

The report of the Centre for Development Studies, Thiruvananthapuram, which was asked by the government to study the likely impact of the global meltdown on the state’s economy, also lays emphasis on the need to attract private capital.
According to the CDS, credit availability is likely to decline in spite of the measures taken by the Central government. It points out that the global crisis has had a perceptible impact on the state’s traditional exports already. There may also be a drop in tourist arrivals.

While the state government may not be able to adopt pro-active strategies with regard to provision of credit, the CDS says it may consider using the cooperative banking network to help small and medium enterprises and exporters of products like cashew.

The government cannot do much to boost the demand for the state’s traditional exports. However, it can take steps to raise the ability of commercial crop growers and workers to withstand the effect of a decline in the prices of export products.
The CDS report says, “The crisis should not lead to panic reactions like suicides by the affected people. However knee-jerk reactions like writing off credits at the time of such crises are not sustainable.”

Although there may not be any immediate fall in foreign remittances, the mainstay of the state’s economy, the report cautions that the West Asian countries may reduce investment activity in the light of the fall in oil prices.

It estimates that the global crisis may reduce the growth rate of the state’s economy by two to three percent and lead to an increase the government’s revenue deficit.

The 98-page report goes beyond the immediate problem of mitigating the effects of the economic crisis and discusses such matters as raising the state’s capacity to face crises, strengthening social security, stimulating the economy and improving governance.

Pointing out that institutional rigidities are preventing optimal use of Kerala’s resources, including human capital, the report urges the government to use the window of opportunity provided by the global crisis to usher in reforms. -- Gulf Today, Sharjah, December 29, 2008.

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