Triggering industrial development

The Times of India feature, “The Cooperative Way Forward” (July 24, 2016) offers examples of bland planning efforts by Kerala Government.

According to the report, A C Moideen, minister for cooperation and tourism said, “A committee headed by an expert who has worked in the Reserve Bank of India will be established to prepare a detailed report on the project. The bank will be launched after seeking consensus from all the stakeholders.” He added, “Kerala Cooperative Bank will reach more people and boost agriculture, industry, and entrepreneurship in the state.”

About tourism, the minister added, “Waste management is a major challenge in the (tourism) industry.”

“43 rivers and sumptuous rainfall from an active south-west monsoon have blessed Kerala with an abundance of water resources. But over the years, drastic ground water depletion, rampant urbanization climate vagaries have all lead to acute water deficiency in the state.” (“Clean drinking water for all”)

Mathew T Thomas, minister for water resources, said, “Currently only 30 per cent of the state’s population has access to clean drinking water. Our target target is to take it to 100 per cent.” He added, “We aim to strengthen it (Kerala Water Authority) making it more competent, accountable and customer friendly. There are projects to the tune of Rs 2000 crores ($300m) on the anvil, so we need to beef up operations and manpower gaps. Unscientific processes that burden the customer will be revisited and there will be more vigilance in project implementation.”

Statements of the ministers are examples of what the minister of finance and coir T M Thomas Isaac, termed “lackadaisical ways“. The statements of the cooperation minister, A C Moideen, is lacking ambition. The minister’s statement “a committee headed by an expert who worked in the Reserve Bank on India will prepare a report” for the bank reform is bland, to say the least. The scope of the cooperative bank reform is being diminished. The goal is preparing a project report. By limiting the scope of the effort, the results will automatically be reduced.

There is a breakthrough opportunity with the planned cooperative bank reform. “The finances of Kerala are in dire straits,” so says the “White Paper on State Finances“. The mainstay of the state economy, foreign remittance, is in decline. The boom years of remittance [2] from labor migration are behind us, and the flow is beginning to reverse. The remittances were a cause of the financialization of the Kerala economy and was inhibiting economic development. The current gulf crisis is generating an urgent need to develop local jobs. The proposed co-operative bank could become a key institution for instigating economic development in Kerala by building capital formation channels from the huge amount of bank deposits and gold in the state.

One of the current global problems is the excessive importance given to finance in the economy [2]. Overuse of financial stimulus methods over the past several decades have left them ineffective. Economic successes of Japan, Korea, Taiwan, China, Germany and France were the result of focus on “wealth-generating economic activities.”

Luckily, all critical ingredients for jump starting economic development in Kerala are present, if the Kerala government can take the initiative. What is needed is breakthrough thinking. Banking, as the economic activity regulator, has a critical role. But banking needs to go back to its roots, funding the real economy, as was the case, for example, with the Chemical Bank in 1820s. Misplaced faith in finance has resulted in the decline of American economy [2]. It also resulted in the near collapse of Boeing, among other business disasters.

The key requirement is for the planned Kerala Cooperative Bank to develop expertise in the industries it wants to finance. This will overcome the real bottleneck businesses currently face — banks have their own language and terminology. And businesses and industries have to translate their business needs into financial terminology to get financing. Instead, if the banks have expert knowledge of businesses and industries they are targeting, then financing economic development will become much easier.

If the new Kerala government is able to master breakthrough thinking to take advantage of the current opportunity, it can trigger industrial development that has eluded Kerala so far.

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Author: Kerala Insider

Topics and issues related to Kerala economic development challenges.

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