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Kerala Eyes NRIs
Wednesday, December 3, 2008

As the world grapples with one of the most serious economic crises in recent times, the tiny south Indian state of Kerala finds itself on very thin ice owing to its near complete dependence on exports, tourism and remittances - all of which are external strengths.

In the present situation, the state is badly losing out on the first two and there is no saying how long the third would be able to sustain at the present levels.

It is not surprising, therefore, that the Left Democratic Front government in the state has proclaimed a renewed interest in infrastructure development to build some internal strengths and generate jobs.

Kerala's Finance Minister T M Thomas Isaac has recently admitted before the state assembly that nearly 150,000 people might lose their jobs in the state's traditional sector. Tumbling prices of cash crops, decline in export of traditional goods, severe credit crunch and fall in business in new generation sectors like IT and tourism have been noticed in the state due to the global financial crisis.

Fall in export of coir, sea products, cashew, rubber, pepper and spices have also been reported. There was a 20 percent recession in the tourism sector while the impact in the IT sector was 25 percent. With the large-scale import of edible oils such as palm oil and soyabean oil, the price of coconut oil has drastically fallen.

Going by conservative estimates, Kerala's economy is set to lose around Rs 1,600 crore due to recent erosion in prices of natural rubber, said a report in the Business Standard. The estimates were based on a trading of 400,000 tonnes of the commodity during the next four months, and taking the average price at Rs 120 per kg.

The recent high price tags of rubber had made the rubber-producing areas economically more vibrant as the average daily revenue of small and medium scale farmers spurted. This had a stimulating effect on other services and business sectors, including increase in car sales, buying of land property and apartments.

Kerala earns a good deal of foreign exchange for the country by exporting various commodities. It exports each year cashew worth Rs25bn, spices worth Rs23bn and marine products worth Rs20bn. Lately, tourism has also emerged as an important source of revenue. The earnings from foreign tourists are estimated at about Rs20bn. The US, Europe and Japan are the main importers of Kerala produce. They also account for the bulk of the foreign tourists. A decline in their economies can, therefore, result in shrinkage of state's earnings.

At present, the State is facing the challenge with NRI remittance from Gulf countries. The weakening rupee has boosted the value of foreign remittances into Kerala and expats from the state around the world have upped remittances to cash in on the twin advantages of increased value realization and a higher interest offer for non-resident deposits.

According to KP Kannan, member of the National Commission for Enterprises in the Unorganised Sector and a former director of the Centre for Development Studies here, nearly a third of the $26bn flowing into the country as remittances, or about $8bn, is from Kerala expatriates.

The remittance of $8bn was equivalent to only Rs320bn when the rupee was 40 to a dollar. Now that it is about Rs50 to a dollar, it translates into Rs400bn, signifying a windfall of about Rs80bn.

But once the recession affects the Gulf region, remittance would come down, taking the state economy to deeper crisis. The state government has already asked the Centre for Development Studies (CDS), Thiruvananthapuram, to study and report on the likely impact of the global meltdown.

Stating that State alone could not overcome the present crisis, Issac called upon the central government to increase the credit borrowing limit of the state by Rs.10 bn from the existing Rs.50 bn, so that more money could be put on infrastcture.

The state is looking to increase public investments and strengthen the National Rural Employment Guarantee Scheme. Finance Minister Isaac hopes to channel the additional remittance bonanza from rupee depreciation into projects like the Vizhinjam Port, an international airport in Kannur and the new north-south highway. Reports from Kerala also said that the LDF government planed to allow agencies like the Kerala Water Authority, the Infrastructure Kerala Ltd (InKEL), the Roads and Bridges Development Corporation, the Tourism Resorts (Kerala) Ltd and the Fisheries Corporation to raise money through borrowings to develop infrastructure.

Solid measure would have to be put in place beginning now, if 'God's Own Country' is to save itself from this man-made global crisis.



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