It is a disturbingly known fact that the Government of Kerala is in serious financial distress. The situation is somewhat unprecedented in that the state, by definition, is already bankrupt because the government is unable to meet its payment obligations on time. Still, it continues to function only because of this rare privilege that the state governments can continue in power even if they are unable to honour their obligations.
How did the state get into this level of financial distress? Would the situation be different if the government was by another party? No, it wouldn’t be different. The optics may be different, but the state’s economic health will continue to deteriorate, as was the case during the terms of the previous governments in the last three decades. Political parties will debate endlessly for electoral reasons but with no merit or benefit. What we face is a deeper, fundamental problem, which cannot be solved by the usual austerity measures that are typically advocated.
We are seeing only the effects of the economic problem and not the underlying cause. The economic and sociopolitical ecosystem that we have created is a product of our thinking and if we want to change it, we must change our thinking. Our issues emanate from our mindset.
Healthy governments will have sufficient tax revenues to meet their expenditure - both day-to-day expenses - salaries, pensions, welfare activities, and capital investments needed for growth. The higher the tax revenues, the better will be the financial health of the government. Tax revenues go up when the state has profitable enterprises and well-paying jobs. Quality of tax revenues is better when they come from profitable enterprises and meaningful jobs. Also, raising the tax rates to raise tax revenues unreasonably, especially as a desperate measure to meet government expenses, does not help the economy – it will only hinder growth. Conversely, the lower the tax rates, the greater will be the investments and consumer spending, which will trigger economic growth.
In our country, but for any exceptions, PSUs will be loss-making, unless they are kept as monopolies or are made sole suppliers to governments. In either case, it is detrimental to the citizens. In the current state of India, PSUs are not only a financial burden on the economy but also a big opportunity loss for the country.
Governments should not attempt to create enterprises to generate profits. They should not own or operate businesses to provide jobs. They just can’t. KSRTC, KSEB, Air-India (before privatisation), and the hundreds of loss-making PSUs are examples. Instead, the government should attract investors and help them create profitable enterprises and well-paying jobs. This will grow tax revenues and the right way.
India’s future is in its enterprising people, and we must utilise it fully by encouraging and supporting private enterprises. A prosperous place will retain its best talent, employed by thriving enterprises. The way to address the unhealthy migration and brain drain is by creating successful enterprises within the state.
Governments should own citizen services, but, where possible, they should be operated by private enterprises, like the passport services operated by TCS.
In summary, the government should do less and not more for Kerala to become economically healthy.
Going by the above principles for economic prosperity, let’s look at the realities of our state.
- Anti-enterprise sentiment: Kerala has a socio-political setup in Keralais where the local administration and the political parties behind them have no motivation and accountability in promoting enterprises or creating jobs. They are not reviewed on that basis.
This prevents the establishment of profitable enterprises and well-paying jobs. The tax revenues continue to dry up, pushing the state into a financial crisis. - Public sector mindset: Politicians in Kerala are more interested in creating and supporting public sector enterprises, which do not create meaningful jobs. KSRTC, KSEB, and all those PSUs and “corporations” created for promoting trade/ industry are examples. These are wasteful spending that adds to the fiscal burden of the state.
- Lost opportunities: The state has the potential to become a leader in several industry segments such as IT, healthcare, tourism, high-end manufacturing, retail, and so on, but we are unable to unleash the potential. The interstate trade deficit of Kerala of goods and services was over a lakh crore last year.
- Unhealthy migration: We have great talent in Kerala, but unfortunately, they leave the state en masse because they don’t see opportunities in the state.
- Little capital inflow and investment: Our reputation is not great as an investment destination, evidenced by the very low capital inflow into the state (less than 0.5% in the last 3 years). We need capital to create meaningful jobs.
Path Ahead; I suggest the following:
Vision for Kerala
The government should work towards realizing Kerala’s vision “to become the finest place to live and work”, by focusing on just three priorities, all of which are about the basic infrastructure needed for the people to thrive and progress.
Clean Kerala
It is all about waste management and a clean environment – clean rivers, backwaters, and a clean environment.
Safe Kerala
It is about safe and efficient transportation infrastructure to travel, safe-to-drink water, safe-to-eat food, and safety from natural disasters. In other words, the basic physical and social infrastructure needed for quality living.
Travel, especially intercity travel, is a misery in the state and unless we improve the transportation infrastructure, the state will stagnate further.
Digitally enabled Kerala
We are living in a digital economy and Kerala should aspire to be a knowledge-driven digital future. Both from a consumption and production point of view, Kerala is digital-ready. The government should make sure that every citizen has access to best-in-class digital infrastructure.
In summary:
For Kerala to unleash its potential, our mindset must change and should pursue the following
- Government must stay away from business: The government must stop running companies and stay out of all business activities and restrict itself to areas that only the government can do - law & order, primary education, primary healthcare, infrastructure, and citizens' welfare. Remember the quote “The government has no business to be in business”
- Help profitable businesses to thrive: The primary goal of the government, at all levels, should be to facilitate the creation of profitable enterprises and well-paying jobs. The performance of the government should be reviewed on this metric.
- Change citizen service model: ‘Owned by the Government and Operated by Private’ and ‘Laws by Government and Compliance Monitoring by Private’ should be the model to adopt. TCS managing passport services on behalf of the Government of India is a brilliant case in point. Reputed private enterprises delivering citizen services will improve customer service, efficiency and reduce corruption.
(V K Mathews is the founder & executive chairman of IBS Software)