Ease of doing business in Kerala necessary for job creation
India has jumped 30 positions since last year to occupy the 100th rank in the World Bank’s recently released Ease of Doing Business ranking. In the past few days since the release of this ranking I read with dismay two news of violent protests in Kerala, one against GAIL’s pipeline project and another over unloading work at a port (incidentally both in Kozhikode). The contrast is stark. At the national level we are trying to improve the business environment to make the economy more attractive for foreign investments. But that progress is limited to only a few parts of the country with other places lagging behind. For instance, the World Bank’s ranking has surveyed the business environment in only Mumbai and Delhi. NITI Aayog’s survey of the business regulatory environment in Indian states throws up significant inter-state differences. While there is no ranking available, but the survey shows that it takes 63 days to set up a business in Tamil Nadu and 67 days in Andhra Pradesh whereas in Kerala it takes 214 days. The time taken for a business to get construction permit is 41 days in Madhya Pradesh and 43 days in Bihar, but 117 days in Kerala.
The natural question to ask is why does ease of doing business matter? Does it help to achieve economic growth, generate jobs or raise quality of life? Kerala can be justifiably proud of its achievements in the social sector and most people here enjoy living standards higher than rest of the country. I am not getting into the merits or demerits of the Kerala model where social development is given priority over economic growth. I am not in disagreement with it. But my limited point is that it is a high risk strategy to allow economic growth to be fuelled by consumption riding on the back of remittances from the Gulf. The future is uncertain. The Middle East economic boom is threatened by recent technological innovations that are reducing global dependence on oil. In the not too distant future, electric vehicles will replace automobiles that run on oil (this has already started). Shale gas explorations in the USA (and even India) will pose a serious challenge to OPEC (a little bit is already happening). When remittances eventually slow down, Kerala economy will be in a crisis.
What is required is an acceptance that the state cannot shoulder the full responsibility of running all engines of the economy. Government departments and PSUs cannot fulfil the entire employment needs of the state’s youth. In any case government finances are not in the best of health. Kerala’s revenue deficit (which indicates the amount of borrowing that funds current consumption of the government) is second highest in the country (as a share of economic output). The government has very little money to spare for asset creation and is having to depend on NRIs to finance infrastructure creation through KIIFB. This is because the government is unable to raise revenues in a state where per capita consumption spending is among the highest in India. There are news reports of rampant tax evasion that go undetected. The state has the capacity for tremendous economic growth but lacks ‘state capacity’ to finance it. Kerala has the highest unemployment rate among the major states of India. Income inequality is the highest among major states of India. There is simply no option but to encourage private investments. Only the private sector can create the required jobs and sustainable income opportunities.
Tourism is one sector which can create a large number of jobs if the government can act as a facilitator for private investments. It is heartening to read in this newspaper that the state government has announced the setting up of a Tourism Regulatory Authority and an Entrepreneurship Fund which will facilitate private capital in the sector. It will improve the ease of doing business in tourism industry. I hope the government recognizes the challenges I have underlined and takes similar initiatives in other sectors as well.
(The author is Professor of Economics, Indian Institute of Management, Kozhikode)