Monday, February 23, 2009

Please-all budget will push up Kerala's debt burden


EVERY Indian is born with a debt, thanks to deficit financing which has been the order of the day for many decades.

The Keralite's debt burden, already the heaviest, will increase substantially as a result of the populist measures in the budget presented last week.

Following in the footsteps of Union Minister Pranab Mukherji, who presented a please-all budget with an eye to the Lok Sabha elections, State Finance Minister TM Thomas Isaac proposed only soft measures to meet the challenge posed by the global meltdown.

To those below the poverty line, who will be hit hardest by the economic slowdown, he offered rice at Rs2 a kilogram. To the people of Malabar region which lags behind the rest of the state in many respects, he offered a Rs15-billion development package.

With all his kindness, Pranab Mukherji could not escape criticism from the opposition, that he did not enough. The United Democratic Front (UDF) has levelled the same charge against Thomas Isaac.

The previous UDF government had fixed the price payable by BPL families for a kilo of rice at Rs3. UDF spokesmen have argued that considering the current distress situation the Left Democratic Front (LDF) government should have fixed the price to Re1.

The UDF has termed the budget provision for migrants returning from the Gulf region as inadequate. Actually, what the minister presented as a rehabilitation package is nothing new. He merely made small financial provisions for them within the existing framework.

He offered Rs100 million to the newly created Non-Resident Keralites Welfare Fund to extend "at least a small assistance" to returning migrants. Only those coming back without completing two years of work in the Gulf region will be entitled to help.

He also provided Rs1 billion to the Kerala Financial Corporation (KFC) to support Gulf returnees who wish to set up industrial or commercial ventures.

KFC, the state's first public sector undertaking, provides financial assistance to small and medium enterprises. Over the past half-century, it disbursed over Rs30 billion to more than 40,000 units. However, its contribution to the state's economy has not been significant because of the high mortality rate of projects assisted by it.

A worrisome aspect of the budget is the wanton abandonment of the fiscal discipline that was bringing down the level of deficit financing in the past few years.

Along with other states, Kerala has been under pressure from the Centre to restrict deficit financing. Under the last UDF government, the fiscal deficit fell from 5.49 per cent of the state domestic product (SDP) in 2002-03 to 5.41 per cent in 2003-04, to 4.44 per cent in 2004-05 and to 3.70 per cent in 2005-06.

The trend continued for a year under the LDF, which came to power in 2006, with the fiscal deficit falling to 2.88 per cent of the SDP in 2006-07. Thereafter it started climbing again and stood at 4.11 per cent in 2007-08.

The public debt has risen steeply in the past decade under both the LDF and the UDF. In 1998-99, the state's debt was Rs157.00 billion. Before leaving office two years later, the LDF pushed it up to Rs239.19 billion.

Under the UDF, the public debt rose from Rs269.51 billion in 2001-02 to Rs 459.29 billion in 2005-06.

Returning to power in 2006, the LDF raised it further to Rs 498.75 billion in 2006-07 and to Rs554.10 billion in 2007-08.

The estimated figure for the last financial year is Rs616.53 billion.

The Economic Review, comparing the situation obtaining in the southern states in 2006, observed that the per capita debt burden in Kerala was Rs14,358, as against Rs8,555 in Karnataka, Rs8,605 in Tamil Nadu and Rs9,338 in Andhra Pradesh. The national average is about Rs9,176.

Since 2006, the state's debt has registered an increase of nearly 35 per cent. Factoring in this increase, the current debt burden on every Keralite may be estimated at about Rs19,000.

The Planning Board limited the comparison to the neighbouring states. But Kerala has left even Gujarat (Rs13,371 in 2008) and Punjab (less than Rs10,000) far behind in the matter of debt.

The state's reckless borrowing is a matter of worry because the government is unable to ensure productive use of funds. --Gulf Today, Sharjah, February 23, 2009.

Monday, February 16, 2009

Gulf slowdown sets alarm bells ringing in Kerala


AS people who have lost their jobs in the Gulf states are trickling in, about two million Kerala families whose breadwinners work in that region are wondering what the future holds for them.

Since the oil boom started transforming the region's economy more than three decades ago, it has been the dream destination of the state's job-seekers. It is there that nearly 60 per cent of 3.35 million Keralites, who left home seeking means of livelihood, found employment.

According to media reports, 100 to 150 persons are returning jobless from the Gulf region each week. This is a small number, but there is reason to worry as the outlook for the immediate future is not rosy.

Observers of Gulf developments are of the view that there may be a steep rise in loss of Gulf jobs as the year 2009 progresses. The International Monetary Fund's forecast that plummeting oil prices will bring down the region's economic growth rate, which stood at 6.8 per cent last year, to 3.5 per cent this year reinforces local fears.

India is today the largest beneficiary of expatriate remittances. The Gulf region accounts for only about a quarter of the country's remittance income. However, remittances from the region are the mainstay of Kerala's economy. Ninety per cent of all Keralites working abroad are in this region.

Experts do not share the anxieties of expatriates' families. "There is no cause for worry," says an economist. "There is nothing to indicate that the Gulf job market is shrinking. All Gulf-bound flights from Kerala are going full."

According to Gulf-watchers, while employment opportunities are dwindling in some sectors, other sectors are still attracting job-seekers. They point out that all Gulf states are not equally affected by the economic slowdown. There are also noticeable differences in the way the different countries are responding to the situation. While Kuwait has said it will cut spending by 36 per cent this year, the United Arab Emirates (UAE) has announced plans to increase public spending by as much as 42 per cent. UAE and Saudi Arabia are the countries with the largest number of Keralites.

In the last few years, the state has been witnessing return migration simultaneously with outward migration. According to official sources, about 890,000 non-resident Keralites returned home last year. There was, however, no fall in remittances. This was partly due to the continued outward migration and partly due to the rise in the value of the Gulf currencies in relation to the rupee.

Return migration figures for 2008 are yet to be compiled. However, officials are the view that more people might have returned than in the previous year.

Apparently the phenomenon of outward migration offsetting the effects of return migration still continues. If some people are losing jobs and returning home from the Gulf, others are finding jobs and going there. This, of course, is poor consolation for the families of those who have lost jobs or stand in risk of losing them. They are waiting to see if the central budget, to be presented on Monday and the state budget, to be presented on Friday, will offer them any relief.

Both the centre and the state initiated steps last year to create institutional mechanisms to help migrants returning from abroad. However, these mechanisms are yet to become functional.

Under the central scheme, the Ministry of Overseas Indian Affairs has set up an Indian Community Welfare Fund, which will allocate money to Indian missions to help workers who have gone abroad after obtaining emigration clearance. Obviously the scope of the scheme is extremely limited.

In last year's budget, Kerala Finance Minister TM Thomas Isaac made a provision of Rs30 million to set up an NRK welfare fund. The state assembly later enacted legislation to create the fund, designed to assist not only those working abroad but also those employed in other states of India.

The law envisages a voluntary scheme which NRKs can join. The monthly subscription will be Rs300 for a person working abroad and Rs100 for one working in other parts of India.
A person who has been member for a minimum period of five years will be entitled to a pension after attaining the age of 60. If the member dies before that age, the family will get the pension.

Unless developments in the ruling party force a change in his plans, Chief Minister VS Achuthanandan is expected to visit Dubai shortly to launch a drive to collect funds under the scheme. –Gulf Today, Sharjah, February 16, 2009.

Monday, February 9, 2009

CPI-M national leadership faces its severest test in Kerala


With faction leaders in Kerala fighting like Kilkenny cats, the Politburo of the Communist Party of India-Marxist (CPI-M), which meets in New Delhi this weekend, faces the severest test in its history.

The main item on its agenda is the Lavalin case, which relates to alleged corruption in a deal the State Electricity Board struck with the Canadian company SNC Lavalin when Pinarayi Vijayan was Electricity Minister. The Central Bureau of Investigation, which investigated the case, has named Vijayan, who is now the party's state secretary, as one of the accused.

This is the first time that a CPI-M Politburo member has figured in a corruption case.

The CBI decision to indict him came as he was preparing to lead a New Kerala march through the state's 140 Assembly constituencies to galvanise the party in advance of the Lok Sabha elections, expected in April.

As soon as the news broke, State Home Minister Kodiyeri Balakrishnan, who is also a member of the Politburo, charged the Central agency with implicating Vijayan in the case as reprisal for withdrawal of party support to the central government.

The next day the party's state committee adopted a resolution alleging the move to prosecute the party secretary was politically motivated. The central leadership quickly endorsed the charge.

Chief Minister VS Achuthanandan, who is the seniormost Politburo member from the state, flew to New Delhi apparently to make known to the national leadership his reservation in the matter.

As other party leaders railed against the CBI, Achuthanandan maintained silence, inviting criticism from the opposition and taunts from his own colleagues. When he broke his silence, he distanced himself from the party line and asserted he would only act in a manner consistent with the constitutional position that he holds.

Both Vijayan and Achuthanandan have made public statements which suggest that sectarianism in the party has reached the breaking point.

When Achuthanandan said he would not join the New Kerala march, Vijayan retorted, "All those who are in the party are in the march".

"A communist cannot be corrupt," Achuthanandan said later, clearly indicating that he wants Pinarayi Vijayan to get his name cleared to be counted as a communist.

The state party leadership believes Achuthanandan has violated party discipline by not accepting the Politburo's stand that the charge against Vijayan is politically motivated. It has sent a complaint to this effect to the central leadership.

Achuthanandan apparently holds the view that the Politburo has not taken a final position in the matter. The party's current position is based on consultations among available Politburo members. He wants a formal decision by the Politburo.

In a bid to distance the central leadership from the sectarian noises emanating from Kerala, general secretary Prakash Karat said on Saturday that the Politburo meeting, scheduled for Februart 14, has not been convened to consider any complaint. The Politburo was meeting since an issue concerning one of its members has arisen, he explained.

On a superficial view, the entire state party leadership stands behind Vijayan, and Achuthanandan is virtually isolated. However, a careful scrutiny of public statements by party leaders will reveal that not all of them are backing Vijayan with equal enthusiasm.

At one end are overzealous leaders who go so far as to suggest that Pinarayi Vijayan is the party, echoing the Emergency slogan "Indira is India". At the other end are circumspect leaders who say just enough to be counted among those who have endorsed the position taken by the leadership.

According to media reports, Achuthanandan wants Pinarayi Vijayan to be replaced as state secretary. This is not a demand that the central leadership can easily accept. With more than 336,000 members, the Kerala party is the largest unit, accounting for about 35 per cent of the CPI-M's countrywide membership. It is also a major source of funds for the party.

In last year's organisational elections, Pinarayi Vijayan tightened his grip on the party. His supporters now control party units and affiuliates at all levels. At the same time, Achuthanandan commands considerable goodwill at the grassroots level within the party and outside it.

The central leadership will have to summon all the tactical skills at its command to resolve the issue to the satisfaction of both the leaders. -- Gulf Today, February 9, 2009.

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.