Tuesday, February 3, 2009

Kerala government yet to act on report on economic downturn

Gulf Today

THE Kerala government displayed commendable sense of urgency when, immediately after the collapse of major global financial institutions, it asked the Centre for Development Studies (CDS), Thiruvananthapuram, to study the impact of the meltdown on the state and recommend remedial measures.

The CDS, too, acted with a sense of urgency. Within weeks, it came up with a report which pointed out that there may be slackening in some sectors of the economy, leading to loss of about 150,000 jobs. It also outlined some measures to mitigate the situation.

Six weeks have elapsed since the CDS sent the report to the government.
So far there is no sign of any action by the government.

The chances are that the people have to wait until Finance Minister TM Thomas Isaac presents the budget to find out what action, if any, it plans to take to tide over the crisis.

The global economy matters more to Kerala than to other states for two reasons. One is that it is a major exporter of cash crops. The other is that the state's economy is sustained largely by remittances from about two million non-resident Keralites (NRKs), working mostly in the Gulf states.

The CDS prepared its report after taking a close look at six areas: remittances by NRKs, availability of bank credit, exports, tourism, input prices and import costs.
The CDS report says the state's growth rate to come down by two to three per cent for a couple of years. This may push up the state's revenue deficit. It estimates that marine exports may decline by 33 per cent and result in loss of 20,000 jobs. In the labour-intensive areas of coir and cashew, decline in exports may be only 15 or 20 per cent but as many as 50,000 jobs may be lost. A small decline is likely in the information technology sector too.

Sectors like coir and cashew, which, according to the report, will be badly hit, are notable for their unorganised nature. Job loss in these areas does not mean people will be rendered totally unemployed. It will manifest itself in the form of reduction in work days for a large number of people.

These sectors employ hundreds of thousands of rural poor. This means those affected will be from the most vulnerable sections of the society.
The report warns that the intensity of the problem may increase if appropriate measures are not initiated at the earliest to address the credit squeeze and find new markets for traditional goods. In this context, the state government's current tardiness is a matter of concern.

Kerala accounts for 90 per cent of India's rubber production.
This time last year natural rubber fetched a record price of Rs140 a kilogram. Over the year, its price has more than halved, causing distress to the growers, most of them small cultivators.

Some sources have estimated that the state has already suffered a loss of at least Rs16 billion as a result of the fall in the price rubber.
Migration to the Gulf states has slowed down and there have been reports of job loss among NRKs.

However, there is no reliable estimate of the extent to which the developments in the Gulf region, resulting from the low level of crude oil prices, has hurt Kerala.
While a fall in remittances from the Gulf is on the cards, some economists believe this will be offset by the decline in the value of the rupee.

Noted economist KP Kannan was recently quoted as saying, with the dollar rising from Rs40 to Rs50, the value of the state's foreign remittance, which is of the order of $8 billion has gone up from Rs320 billion to Rs400 billion. A net fall in remittances may upset such calculations.

The finance minister's public statements indicate that he is looking up to the Centre to bail out the state. He wants the Centre to widen the reach of the National Rural Employment Guarantee Scheme and raise the state's borrowing limit from Rs10 billion to Rs50 billion.

Reckless spending by successive governments has increased the state's debt burden over the years. The public debt, which stood at Rs114.2 billion in 1996-97, was estimated at Rs571.4 billion in 2007-08, a staggering fivefold increase in 11 years. The state will go deeper into debt if the government goes in for large-scale borrowing to tide over the crisis.--Gulf Today, Sharjah, February 3, 2009.

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