Modinomics rings hollow

Look beneath government hype, and signs of deep economic distress are evident
By Kapil Sibal – This government is in denial.

It believes that black economy has been given a fatal blow. At 7.1% India continues to be the fastest growing economy in the world. Spurt in public investment has created jobs. FDI flows are evidence of investors’ confidence in the growth story of India. Reforms have led to ease of doing business.

Let us critically examine each of these claims.

On November 8, when the prime minister announced demonetization of all 500 and 1,000 rupee notes freezing 86% of India’s economy. If this ill-thought decision was an attempt at eradicating unaccounted wealth then it failed miserably. Most cash is either invested in real estate, gold or is stashed abroad. Undisclosed cash in circulation represented only around 5% of unaccounted wealth.

Now that real estate is outside the GST net, cash will continue to be a factor in real estate transactions. What is alarming is that unaccounted cash entered the banking system and is slowly being withdrawn and reconverted into undisclosed cash.

Modi believes in seducing foreign investors in digitizing the economy, little realizing that most of India earns less than Rs 10,000 a month and seldom accesses digital platforms for bank transactions.

Record levels of Sensex, we all know, do not reflect the true state of the economy. With real estate giving no returns and interest rates down, the only option for investors is in equities. This is risky because once the bubble bursts investors will be badly hurt. more>


Farmers revolt

India’s farm distress needs structural solutions, quick fixes such as loan waivers won’t do
Times of India – All of a sudden it seems to be Kashmir in Madhya Pradesh: at least five protesters shot dead in Mandsaur district, prohibitory orders and internet shutdowns enforced.

This is testimony to the deep-seated crisis in India’s agricultural economy and must serve as a wake-up call to the Centre as well as state governments. The usual populist fixes – such as farm loan waivers – is not going to defuse this crisis.

Rather, policy makers must now remove the structural bottlenecks in India’s farm economy. Agriculture supports more than half of India’s population but makes up just 15% of its economic activity. It follows that holistic solutions to farmer distress will have to combine creation of non-farm jobs and enhancement of farm incomes.

A bird’s eye view of agriculture points to an anomaly. Around 77% of farmland is devoted to staples such as cereals. This results in output almost equivalent to what high value crops such as fruits and vegetables yield on less than 20% of the land.

Rectifying this mismatch will solve many problems. This is where government policy has a crucial role to play.

The Indian farmer has to function in an over-regulated environment made worse by capricious bans on exports. This is compounded by restrictions on internal food trade, unfounded fear of new technology such as genetically modified crops and the new bogey that has coincided with the unchecked rise of gau rakshaks: restrictions on cattle trade. more>


Wishy-washy government programs

The Times of India feature, “Transforming traditional sectors” (Aug 14, 2016), reveals the wishy-washy thinking prevalent in the Kerala Government.

The report says, “The need of the hour is a comprehensive strategy that would lead to the region’s sustainable development.”

“Only 7-8 per cent of our coastline is ecologically stable.” But, “Kerala’s 590-km coastline is home to 20% of the state’s population.”

Promising immediate action to address the woes of the cashew industry under her portfolio, J Mercykutty Amma, minister for fisheries, and harbor engineering, remarked, “The industry is in chaos. It is now completely dependent on import for for raw material. 600 out of the 800 factories have shut down and intermediaries are stealing all the benefits. There will be strong intervention to restore some order in the sector in the next six months.”

T Peter raised the concern of plastic waste dumping and discharge of sewage into water bodies. “A fund of Rs 15,000 ($225) has been granted to each ward for the purpose. An intensive awareness and monitoring campaign and strict regulations have been initiated to bring about a change in coastal pollution,” she explained.

Rajmohan Pillai lamented that Kerala’s cashew industry which used to control 97% of the world market had now fallen to a measly 11% and called for measures to improve productivity. “An empowered committee has been appointed to suggest steps to rejuvenate the sector financially,” the minister replied. “My dreams are big and in the next five years, I plan to initiate a process that would engender a revolutionary transformation in these sectors,” she concluded.

“Local Self Governments Department is linked to the daily lives of people and giving power to the people is our priority,” said K T Jaleel, minister for local self governments, welfare of minorities, wakf and Haj pilgrimage. “A corruption-free Kerala is our aim and as the first step, we will start with the LSG department. A website named “For the people,” will be launched by October, through which common people can interact with the officials in the department. From peon to the minister, if anyone has a bitter experience from anyone in the department they can complain and immediate action will be taken,” he informed.

Shaji Joseph talked about the poor quality of the works done by LSG (local self government) Department. The minister said, “The Consumer Protection Forums were established to ensure quality of work but unfortunately it is not happening.”

For the cashew industry, the problem is “government intervention.” What is needed is for the government to create conditions for a thriving cashew industry by encouraging and supporting private businesses to grow cashews trees, process cashews, and create derivative products. A necessary first step will be to define a “Mission and Vision” for KSCDC (Kerala State Cashew Development Corporation Limited).

Granting Rs 15000 ($225) to each ward and focus on awareness campaign demonstrates utter lack of understanding of the waste/ garbage problem. Waste and garbage are intrinsic part of a consumer economy. The first step is for local governments to take responsibility for waste/ garbage clean up to implement systemic solutions.

“A corruption-free Kerala” is good aim. However, building a website will not achieve it. People are not interested in “interacting with officials in the department” and have “bitter experiences.” What they need is efficient processes that deliver the services the LSG department is responsible for. For example, Consumer Protection Forums are “Red tape paradises.”

If the ministers are genuinely interested in bringing about transformative changes in their respective ministries, they need to do more than make wishy-washy proclamations, platitudes and token actions. Since the proposed programs do not take into account the full scope of the problems, but propose token solutions, the problems continue to grow and fester.


How to be a model State again

By Jayan Jose Thomas – Kerala today is not generating enough jobs to meet the expectations of educated Keralites entering the labor market. Changing this is vital and doable.

On the one hand, Kerala has made spectacular achievements in land reforms, education, and health since its formation. Amartya Sen [2, 3] has attributed these results to public action, brought about by State governments and by the political, social and labor movements in the State.

On the other hand, a serious cause of concern emerged by the 1980s: Kerala’s inability to kick-start economic growth despite its social progress. This thankfully changed by the early 2000s: while Kerala’s per capita income was 16 per cent less than the Indian average in the early 1980s, it was 34 per cent more than the Indian average by the end of the first decade of the 2000s.

The biggest stimulus to Kerala’s economic growth comes from the remittances sent by its migrant workers, mostly skilled and working in West Asian countries.

Kerala’s failure to build a diversified manufacturing sector has often been attributed to the activist role played by labor unions. However, my research has shown that the roots of Kerala’s industrial backwardness can be traced to investments to the State starting from the 1930s. Investments were mostly in chemical-producing industrial units.

These industries have hardly built any linkages with the rest of the economy. Further, they have been constrained in growth in the State due to power shortage, unavailability of land, and environmental problems. more>


Mismanagement of a high potential industry

The Times of India report, “Futile int’l bid forces cashew corp to turn to desi markets” (Aug 9, 2016), illuminates lack of understanding of basics of market economy by the Kerala Government, and flawed decision making.

The report says, “In a last ditch attempt to reopen the 30 closed down factories of Kerala State Cashew Development Corporation (KSCDC), the government has finally given up efforts for global tender owing to poor response and has decided to bid locally to procure raw cashew nuts.”

“After the eighth international bid for procurement of raw cashew failed to yield results, the cabinet gave clearance to float local tender, in which the raw cashews that have been imported and stored here can be procured.”

“The corporation is already a loss-making one, and the factories were shut following allegations of corruption in large-scale procurement of raw cashews.” The report adds, “The corporation had floated eight international tenders since January seeking suppliers. But, there was not a single respondent, except in the last bid. It was rejected because there was only one bidder. According to sources, several bidders backed off after the government appointed two IAS (Indian Administrative Service) officers as the chairman and managing director of the corporation, who began strictly enforcing the guidelines for bidding, on the basis of the expert committee report constituted by the industries department, led by the then principal secretary (industries) P H Kurien.” In addition, “The committee also found that the tender was seen awarded to JMJ Traders, even when they did not participate in the bid.”

Putting together the pieces from the report, this is the picture that emerges. Motivated by the need to provide employment for the workers of the 30 cashew factories that are closed, KSCDC sought bids from international raw cashew suppliers 8 times this year. There were no bidders, except for the last one in which there was one. The tender process was defined by a committee of bureaucrats, apparently lacking basics of global market economy. Since the international bidding process has failed, the Kerala Government cabinet of ministers has given clearance for local tenders, from bidders who stock imported raw cashew. Inside sources say the lack of participation was because in an earlier tender the contract was awarded to a company that did not participate in the bidding process.

One of the conclusions is that the Kerala Government tender process is a sham. The bureaucrats and ministers apparently want to manipulate the outcomes of the tenders, but give an appearance of legitimacy and transparency. (The one bidder in one of the international bids could not be accepted, because the rules of the tender process was written such that there is an appearance of due process and transparency.)

The problems facing cashew industry and potential solutions are not hard to find. For example, “Cashew Industry in Kerala: Problems and Potentials,” (pdf) K A Retheesh, Cochin University of Science and Technology, provides extensive background details. Even a casual assessment of the situation leads to the conclusion that there is gross mismanagement of the cashew industry [2] by the Kerala Government. The scope of the mismanagement may be inferred from the fact that the “Mission & Vision” page of the KSCDC website is empty.

There are many systemic flaws. What should be the legitimate role for the of Kerala State Cashew Development Corporation? Why should the Kerala government cabinet of ministers need to authorize operational decisions (approving local tender, for example) of KSCDC?

Market development for cashew products would be a logical mission for a Kerala cashew development agency. Instead, KSCDC seems to think its mission is providing short term jobs for the workers in its factories. Market development means promoting steps for increasing cashew production, which necessarily means growing cashew trees. But KSCDC seems to think its role is in trading and processing raw cashews. Idiotic decisions by past governments in Kerala cut down cashew trees and planted rubber trees. Now, price of natural rubber has crashed due to industrial scale production of synthetic rubber. And Kerala government is providing subsidies to rubber growers. While there is high demand for cashews, cashew cultivation in Kerala is far below its potential.

A rational government that understands its purpose for existence would take steps to improve the situation. Reduce or eliminate growing rubber trees and increase cashew growing. Instead, Kerala government and KSCDC engages make-believe activities, such as the ill-conceived international tendering.

Why is the Kerala Government operating loss-making cashew factories?

Currently, Kerala Government (cabinet) is operating as a bottleneck in cashew related decision making, inhibiting industry development. Instead, Kerala Government should be creating conditions for a thriving cashew industry by encouraging and supporting private businesses to grow cashews trees, process cashews, and create derivative products. Kerala Government could provide additional industry level support such as branding, marketing (similar to that for tourism), research on improving the yield and other biological attributes of cashew and better methods for its cultivation.

The plight of the cashew industry provides yet another example that the Kerala Government does not understand its purpose for existence.


Kerala model’s mutation over the years

By K V Joseph – The pattern of development, which ushered in Kerala during the third quarter of the 20th century, attracted worldwide attention.

It was eulogized as an ideal form of development as Kerala could achieve impressive level of improvement in various social indicators without a corresponding development of the economy.

The growth of consumerism has paved the way for the emergence of various kinds of undesirable consequences. One of them relates to the attitude of Keralites towards work. A mentality for hard work, essential for economic development sadly, seems to have vanished from the bulk of Keralites. A fall in agricultural production, particularly of paddy, is a clear manifestation of such a mentality.

Though overall prosperity is discernible, the quality of life has also deteriorated beyond recognition. The state is facing new problems like shortage of clean drinking water and the menace of waste management with no clear solution in sight. Heaps of plastic bags containing household wastes are a regular sight from one end of the state to the other.

How to retrieve the model poses a major issue calling for serious attention. more>


A plan for economic development

A confluence of forces — increasing chronic budget deficits, declining agriculture, slowing tourism, reduced foreign remittance, among others — make it necessary to think about new ideas for developing Kerala economy.

It seems Kerala government gimmicks and shortcuts are catching up with the tourism industry, reports The Times of India (“God’s own destination, but heading nowhere,” Apr. 27, 2016).

“The problem is that what you see on the screen is very different from what a tourist experiences when they touch down,” says the report. Seems like the Kerala tourism department has been using the skills from the movie industry in the state to win awards, but lacks understanding of essentials for building a brand. Brand is about trust and promise. Marketing makes promises about future experience that must be fulfilled. Otherwise the trust is broken, and the brand withers. Apparently, Kerala tourism marketing was about “luring tourists,” and the methods are no longer working.

“The basic requirements are infrastructure development and capacity building. Government needs to ensure good quality roads, make tourist spots garbage-free, provide hassle-free inland navigation by mid-size boats from Kollam [2. 3] to Kottpuram, develop eco-tourism clusters to protect Kerala as a green destination, besides ensuring continuous quality audit of tourist facilities,” said E M Najeeb, president Confederation of Kerala Tourism Industry. Tourism cannot function in a bubble, but is enmeshed in the local economy. It is not viable or practical to develop good quality roads, make tourist spots garbage free, or provide hassle-free inland navigation for the sake of tourism. However, it would be feasible to achieve those goals as part of overhauling the Kerala economy for making it sustainable.

First step is to develop a plan for an optimum transportation network for whole of Kerala. Once different modes of transport suitable for different regions are identified and transportation networks are designed, they can be constructed as funds become available. It will not solve the problems immediately. But, over time, will provide adequate transportation — which will never be achieved with the current piecemeal, ad-hoc, fragmented approach. Here is an outline of the priority areas for transforming Kerala economy to be sustainable:

  1. Enhance quality of education
  2. Agriculture producing premium organic agro-products [2]
  3. Plan Kerala-wide optimum transportation networks for phased implementation
  4. Implement integrated wellness and heathcare solutions
  5. Implement integrated water distribution and management
  6. Implement integrated waste management and pollution control
  7. Develop electronics and ICT (information and communication technologies) industrial capabilities, beyond the current services focus

Building malls and apartments will not result in a sustainable economy. Neither will “exporting partially educated people.” As experience has shown, IT Parks, as currently implemented, will also not produce required results. So it is time for serious investment in core industrial capabilities. Electronics and ICT sectors can form core “market activities” for a comprehensive economic development plan, for example, using “Metropolitan business planning” methodology.

To sum up, trying to build the infrastructure needs of tourism in isolation is not viable. But it can be achieved by an integrated approach for transforming the Kerala economy to be sustainable.


A case for “Kerala Coffee” brand

The Times of India report, “A ‘coffee cure’ for adverse effects of climate change” (Apr. 13, 2016) describes a contrarian thinking that Kerala needs more of.

The report says, “Conservation and agriculture experts in Wayanad [2] are in the affirmative and have mooted revitalization of historic ‘shade grown coffee plantation’ system in Wayanad as the best defense against the adverse effects of climate acutely being felt in the hill district.”

It is a step in the right direction, and need to be taken further. “For centuries coffee used to be grown in an agro-forest ecosystem with coffee plants grown under the thick green canopy provided by tall shade trees,” said N Anil Kumar, director of the biodiversity program of M S Swaminathan Research Foundation (MSSRF.) However, reviving ‘shade coffee’ is only the first step. There need to be a robust framework for effective marketing of Kerala agro-products. Due to the unique geographic characteristics of Kerala, it must be possible to grow premium quality coffee and other agro-products. Then effective marketing programs and distribution channels need to be developed and implemented to obtain premium pricing for Kerala agro-products.

The report also says, “Experts say that shade grown coffee would provide enhanced income generation for farmers as it commands a premium in global markets.” Labor cost being high in Kerala, premium pricing is the only viable option. Also important is to identify coffee varieties that grow well in Kerala and have high demand. It would also be worthwhile to create new varieties.

Such smart agriculture methods can also be adopted for pepper. cashew, spices, and enhanced with promotional programs similar to those by the tourism department. The goal is to establish Kerala as a source for premium organic agro-products. Another brand enhancing activity is processing and packaging. Rather than exporting raw produce, processing and packaging facilities must also be established. Without consumer-ready packaging achieving premium branding is difficult or impossible. In addition, food professing, packaging and marketing creates job opportunities in the local economy. (However, Kerala government should not start new agencies for this purpose. Instead enable new and existing businesses to take advantage of these opportunities.)

‘Shade coffee’ product is a smart idea that need to be fully developed. And similar smart agriculture methods can help revive organic agriculture in Kerala.


An ecological destruction example

The Times of India report, “Bleak future for Rubber Board” (Mar. 25, 2016) describes the results of ill-conceived programs by governments in Kerala. The report says, “The research staff were forced to pay for their own expenses while traveling to far off plantations, says a senior scientist.”

While one can sympathize with the plight of the staff, the current situation is culmination of earlier mistakes and years of neglect.

Rubber is not a native tree to Kerala. It was introduced in Kerala in 1902 by the British. Processing of rubber is environmentally damaging. And it has displaced cultivation of other crops such as tapioca, cashew and coconut. None of them generate the pollution similar to that generated during natural rubber processing. Other environmental impact include micro climate change, negative hydrological change/ drought, nutrient/ sediment run off, eutrofication and poisoning of rivers, and severe loss of species and extinction of local species. Kerala’s natural vegetation cover has reduced from 44% in 1905 to 14% in 1984. Rubber plantations are the main culprit.

Due to higher cost of natural rubber, search for synthetic rubber alternatives started as early as 1925. Now, industrial scale synthetic rubber production dwarfs natural rubber production.

In addition to these problems, most of the farming in Kerala is small scale, and cannot compete with efficiencies possible with large scale industrial farming. So it is high time Kerala woke up to the realities, instead of continuing to do what has been done in the past and expect different results.

The smart choice with the current “rubber crisis” [2, 3, 4] will be to use it as an opportunity to formulate and implement sustainable eco-friendly agriculture programs in Kerala. Being naturally fertile, there is no shortage of plants and crops that can be cultivated in Kerala. With small scale farming, the logical choice is to concentrate on high-value cultivation. Replanting cashews is a natural choice. Other choices include spices such as cardamom, pepper, ginger, turmeric, etc. In addition, commercial scale flower growing may also be feasible. Another worthwhile effort will be to implement large-scale reforestation to recapture the green cover that has been lost. Many small plants need or are helped by the green cover provided by trees. Besides, increasing green cover and increased biodiversity have obvious long term benefits.

Planning and implementing these programs require visionary leadership, which is sorely lacking in Kerala.