Where is the battered Kerala economy headed?

Kerala drifting towards a full-blown fiscal crisis

Lately, Kerala seems to be slouching towards a full-blown fiscal crisis as a series of developments during the past few months have inflicted fatal blows on the state economy. It started with the state government’s decision to bring in a new liquor policy, which envisaged not allowing the renewal of licenses of 418 bars that were closed in March 2014 across Kerala. This was followed by yet another bizarre decision to shut down 312 existing bars by September 12. Thereafter, as part of imposing total prohibition in a phased manner, it was decided that 383 state-owned retail liquor stores of Kerala Beverages Corporation (Bevco) will be closed down at the rate of 10% each year in a bid to whittle down their number to zero over a 10-year period.

Since liquor sale is one of the biggest revenue sources, when this decision gets implemented in toto it will deprive the state government of revenues in excess of Rs 8,000 crore. Secondly, it will also adversely affect the tourism and hospitality sector and will throw more than one lakh people across Kerala out of their jobs. So in terms of loss of revenue and rehabilitation of workers, this imprudent decision on the part of the state government has inflicted a serious blow on the fiscal health of Kerala.

While this bizarre decision was abruptly announced by Chief Minister Oommen Chandy without even consulting any of his Cabinet colleagues, a worried Finance Minister K M Mani immediately went on record saying the new liquor policy would hit Kerala badly and the state finances could be in for a difficult time in the days to come. Imposing prohibition in Kerala is undoubtedly an absurd decision because the state government is heavily dependent on the excise and taxes from the liquor, hospitality and tourism industry. How can a state already reeling under a financial crisis forgo such huge revenues is very difficult to figure out.

Then came news of the declining coconut oil and copra prices, which has been attributed to a clear shift of big consumers to other edible oils. Several soap and biscuit makers now prefer to use the cheaper and more easily available palm kernel oil to meet their production requirements. Coconut was once the equivalent of cash in Kerala's rural economy. Not anymore! As if this was not enough, came the news of falling rubber prices. It soon hit a five-year low and has adversely affected lives of 11 lakh rubber-growing families in the state.

Kerala then witnessed the outbreak of bird flu or avian influenza in three districts of Allappuzha, Kottayam and Pathanamthitta, causing huge losses to poultry rearers, most of them medium and marginal farmers. This is expected to inflict yet another blow to the state economy. The industries that are going to reel under its negative impact include poultry farming as well as hotel and tourism. The Houseboat Owners’ Association Secretary Shanej Indraprastham has already reported a 50% cancellation in bookings.

Meanwhile, almost three lakh ducks have been culled in the state since November 26 –after the outbreak of the infection in the three affected districts. The government has also distributed an amount of Rs 84.20 lakh among farmers who have suffered losses due to the culling of birds. As the state government has had its hands full and was convening ministerial-level meetings to cope up with the aforementioned developments came yet another news of the plunging crude oil prices, which have started hitting multi-year lows with each passing day.

Though this development augurs well for the Indian economy, it is a cause of alarm for the remittance-dependent Kerala as it has the potential to trigger a tide of woes for the entire state. Currently, inward remittances and bank deposits from non-resident Keralites (NRKs) working in oil producing and exporting countries account for about one-fifth of the state GDP. As their revenues decline due to plunging oil prices, these Mideast countries may tighten their belts and resort to salary freeze and also start downsizing their foreign labour force, in which Keralites dominate.

When this happens, earnings of a large number of migrants from Kerala would be the first casualty. It can also result in the return of a significant number of NRKs to the state. Since Kerala is one of the top remittance receiving states, it won’t be an overstatement to say that without remittances it would be one of the poorest states in India. Since Kerala does not have the wherewithal to either support the returning migrants or to provide them gainful employment, clearly a gloomy future looms large for them as well as their families across the state. And the overall negative impact that these developments can have on the Kerala economy is really unimaginable.

Even before the commencement of the above problems, the fiscal health of Kerala has already been precarious. The state had borrowed Rs 42,663 crore from the open market till November 26 through issuing of bonds. Of late, the fund crunch has started adversely affecting the development and welfare schemes. For instance, projects taken up by Kerala Road Fund Board (KRFB) under the public works department have not been initiated or implemented solely due to a massive financial crunch. KRFB was formed to manage the non-budgetary funds of PWD to execute road projects. Not only has KRFB not been getting any financial support from the state government, even the dues of contractors after December 2013 are yet to be paid.

As part of cutting down of expenditure, restrictions have been imposed on the creation of new posts and formation of new institutions and agencies till March 31, 2015. Furthermore, pension of former KSRTC employees are pending for the past six months and even the modest wages of Rs 700 per month for ASHA workers have not been paid since May 2014. Emphasizing that the state treasury will be forced to shut down if the current trends prevailed, former Finance Minister and CPM leader Thomas Isaac has sought a ‘White Paper’ on the State finances explaining how the State reached the current pass. The Kerala government should clarify whether the present financial crisis was the result of unbridled expenditure, mismanagement or the impact of the decision to clamp down on liquor sale, Isaac added.

Meanwhile, knowledgeable sources have alleged that the Kerala government is currently staring at an ugly overdraft situation and it will soon be compelled to seek help from the state-run Devaswom Board or the cash-rich Kerala State Beverages Corporation to meet its commitments of salaries, pensions and interest payments that are piling up. Sunil Madhavan, an NRI based in Doha blames the corrupt politicians, non-functional bureaucracy as well as the arrogant and militant trade unionists for the precarious financial situation that Kerala currently finds itself. However, Chandrasekharan Nair, a corporate executive based in Ahmedabad attributes the problem to the fact that Kerala is an over-politicized state because of which the unproductive public sector has been allowed a stranglehold on the state economy and the private sector has been absolutely sidelined.

[Suresh R Menon is the Consulting Editor of Business Digest. He has earlier worked in senior editorial positions with several publications and corporates such as Ernst & Young, Business Standard, The Times of India, Asian Age, The Indian Post, Dalal Street Journal and the Gulf Today. He can be contacted at sureshmenon@hotmail.com]

Neera drink can be a money-spinner for Kerala

Neera can offer big returns to Kerala farmers

Neera, the sweet, non-alcoholic, nutritious health drink tapped from coconut flower sap, can become a big hit in Kerala due to the potential for high revenues and the huge demand for the product across the state. And its production and marketing can be transformed into a money-spinning proposition for the coconut farmers, tappers and the Neera processors if the state government creates an enabling environment to make this happen.

Until now this nutritious energy drink’s business potential could not be commercially exploited because tapping of Neera had been restricted by its inclusion under ambit of the Abkari Act despite it being a non-alcoholic drink. It was only on September 23, 2013 that the state government made the first move to exclude Neera from the provisions of the Abkari Act by issuing an order stating that the government will pluck out Neera from the excise regime to allow its commercial exploitation.

Though it is currently a sunrise sector, and full-fledged Neera production is yet to materialize, there are already some instances wherein coconut farmers easily generate up to Rs 55,000 to Rs 60,000 per month solely through Neera tapping. For example, Anil Krishnadas, a Palakkad-based farmer who has been tapping Neera from 18 trees for the last few months, is earning around Rs 59,000 every month. It has now become a regular income for him. Similarly, all those farmers who have lately switched over to Neera production are reportedly making good profit every month.

Furthermore, as Neera is also the raw material for many value-added products like palm syrup, palm jaggery and palm sugar, which have high domestic and international demand owing to their high nutritional values, its processing is undoubtedly a very lucrative and paying proposition. With the growth in processing of Neera, the income of farmers who supply the drink to the processing units have increased by fourteen fold because of which a large number of farmers have decided to switch from copra cultivation to extraction of Neera.

As a result of this, lately more and more youths are getting attracted to this field and have started undergoing training in production and processing of Neera and its byproducts. The Coconut Development Board (CDB), which is one of the implementing agencies for the production of Neera, has been providing the required training to those who are willing to take up the new initiative. Similarly, the Mysore-based CSIR-Central Food Technological Research Institute (CFTRI), which has expertise in the development of a number of coconut-based products, has also unveiled a Neera-based technology-transfer initiative to ensure a respectable livelihood for coconut farmers across Karnataka and Kerala.

Meanwhile, CDB Chairman T K Jose believes Neera production in Kerala can contribute substantially to the Gross State Domestic Production (GSDP). According to him, if 50% of the consumer price of Neera is offered to the coconut farmer, 25% to the Neera technician and the remaining 25% towards processing, packaging and marketing costs, it can result in an all round increase in the incomes of all stakeholders. Neera can also kickstart a whole lot of food processing industries. The export potential of coconut palm sugar made of Neera from Kerala could be double that of software export from the state!

The Kerala government has recently issued licences to 16 companies for the production of Neera, and some of them have already started Neera processing in Palakkad, Kollam and Kannur districts. The Palakkad Coconut Producer Company Ltd (PCPCL), which is a cooperative association, is one of the establishments that have recently commenced commercial production on a small scale. PCPCL has started tapping in 350 coconut trees in Palakkad and this figure is now being increased to 1,500 trees. Around 1,000 litres of Neera juice is being produced daily from Palakkad district, which will be raised to 6,000 litres per day once the company starts tapping the proposed 1,500 trees.

Emphasizing that his company was forming federations of farmers in various villages in Kerala and coastal Karnataka so that farmers can extract Neera and send them for processing, PCPCL Chairman Vinodkumar P said bottled Neera will be made available, after processing, by December this year. There are also plans to introduce pet bottles. Large-scale processing of the drink has become possible due to the technology developed by the CFTRI, he elaborated.      

Revealing that his company is currently selling Neera through seven outlets, Satish Kumar, who is the Project Coordinator at PCPCL, said, “We are selling unprocessed, fresh Neera through juice dispensers. Its shelf life is 4-5 days. We have partnered with CFTRI for developing technology for processing and packing Neera, which would ensure that shelf life is increased to three months or more. Once this is done, we would be in a position to export Neera. There are already enquiries for by-products like Palm sugar and Palm honey. We are in the process of finalising automatic production line and packaging of by-products. Currently we sell the by-products in our stores, but would need to scale up production very soon for meeting export requirements.”

When asked what role the state government and other stake holders can play for providing an enabling environment to boost the growth of the Neera producing sector, Satish Kumar said though a few months back permission has been given to tap Neera, lot of clarity is still needed in government policies. Presently, the Excise Department has to be approached for permissions at multiple stages and there are draconian laws that says even 0.1% alcohol content can lead to the producers being booked. Since Neera is susceptible to fermentation and it is a natural process, a farmer or producer company can't do anything about it. In a country where liquor is freely available, it is ironical that slight fermentation of a natural produce can take farmers to jails!

Perhaps, Kerala government can also create a special purpose vehicle (SPV) for financing Neera projects. Meanwhile, Agricultural Universities can also design and launch courses and relevant programs aimed at training and developing Neera technicians and management professionals. Since there is a massive dearth of skilled hands in the industry, and farmers on their own are find it tough to start and run Neera producer companies, technical and management professionals need to be inducted in such companies, he added.

Meanwhile, our government should also allow Neera stalls to be set up in public places like Railway stations, bus stands, Parks, Stadiums, etc. And it can also extend the needed support to enable Neera producers to tap the export potential by opening export sales channels, Satish Kumar elaborated.

Vast potential seen in processed food and agro-based business

Vast potential seen in processed food and agro-based business

India has tremendous potential to emerge as a major player in the international processed food markets and other agro-based business provided the country’s industrialists and farmers are actively supported in their endeavors by appropriate government policies.

Today, India is the world’s highest producer of milk, the second largest grower of fruits and vegetables, the second largest producer of wheat, rice, groundnuts and sugarcane, the third largest producer of coconuts and the seventh largest nation in terms of marine holdings. Furthermore, the country is blessed with diverse agro-climatic zones that produce almost all species of food, horticulture and cash crops, which can be easily transformed into hard cash. Despite all these advantages, India’s food processing industry, which could have been the spine of an agricultural economy, has not yet tapped its vast potential.

To put it rightly, the Indian food processing industry is still in its infancy. This can be gauged from the fact that the total exports of processed foods from the country are only a lean 0.5% of the entire global trade. Only 12% of agricultural raw materials and less than 10% of the annual fruits and vegetables production are processed. The percentage is as high as 70 in Brazil and the US, 78 in Philippines and 83 in Malaysia.

Another statistics show that every year 18 per cent of the fruits and vegetables valued at Rs 13,300 crore is being wasted due to poor harvesting, storage, transportation and post-harvest processing. Inadequate storage alone destroys 20% of the total food grains output.

The result is low capacity utilization, non-availability of quality raw materials and uneconomic operating sizes coupled with other problems. This is not only a criminal waste and an intolerable state of affairs; it is also dangerous for the future growth of India’s agricultural sector.

Unfortunately, the reform process and liberalization measures pursued since 1991 by the successive governments in India have so far failed to benefit or percolate to the millions of hectares of farmlands, orchards and water stretches across the country. So they have not only been neglected as low technology areas, but have also remained immune to the winds of change sweeping the industrial sectors and urban heartlands of India. 

This has led to falling marginal incomes in agriculture because of lack of required infrastructure and market linkages for farm produce and stagnant opportunities in the agro and food processing sector. 

However, among the large nations of the world, India is one of the most fortunate in that it has the climate, the land and the people to grow more of almost anything. People are now conscious that in India’s rural areas, away from the urban centers, there is vast potential to make a great deal of money. So the central and state governments should make concrete and planned efforts to revive the agriculture and allied sectors across the country with the aim of providing remunerative livelihood to the farmers. As such, the following steps need to be taken to accelerate the growth of this sector:

Investments in the sector should be monitored and steps should be taken by the states to attract investments in rural areas, close to the raw material sources so as to help in reduction of post-harvest losses and thereby provide better returns to the farmers.

Contract farming should be encouraged. Besides, the present Land Ceiling Act prevents companies from setting up their own farms. As land is a state subject, the Centre cannot intervene. This matter has to be looked into and solved amicably.

The Indian food processing industry has been surviving on the same technology levels for a long time now. Hence, most of the products cannot compete in the global market because of poor product quality and production economies. Upgradation of technology, therefore, becomes essential.  

An export enhancement plan would require setting up marketing and warehousing facilities overseas and combining it with the necessary packaging facilities. This will enable exporters to ship their products in bulk with the packaging done over there at cheaper rates. For this to be effective, tie-ups with multinationals should be explored.

Developing and actively pursuing a policy to industrialize the agricultural sector and making it an essential element of the market economy, besides building assets for the nation, can also stop the disturbing migration of the rural population to the urban areas. A well-developed agro-based industry will not only put food in the people’s stomachs, but also money in their pockets without having to shift their base.

Thus, possibilities and prospects for the farmers as well as the agro and food processing units are immense both in the domestic market and in the international market. Innumerable new and lucrative projects in fruits to sea foods to bio-engineered food products can be set up and promoted if the state and central government policies are fine-tuned and made more conducive for the growth and development of the agro and food processing sector. And the already existing companies in this sector can profitably expand their operations and foray into new global markets with their edible brands and they can successfully establish a high-profile presence internationally.

This will not only enable India to take a quantum leap in its export earnings, but also provide new opportunities to farmers, thereby spreading growth and prosperity evenly throughout the villages across the country. And then, maybe Mahatma Gandhi’s dream may come true – perhaps, not exactly, the way he would have done it!

[Suresh R Menon is the Consulting Editor of Business Digest. He has worked in senior editorial positions with various publications, including the Business Standard, The Times of India, Asian Age, Indian Post, Dalal Street Journal, New Global Indian and The Gulf Today. He can be contacted via email at sureshmenon@hotmail.com]