It is a common spectacle to see teams of officials and politicians from the State board planes and fly off to distant destinations to pitch to investors there the advantages of investing in Kerala. Even a cursory study of the outcomes of such exercises will indicate that there have been very few investments that have resulted from such jaunts. One common aim of every such effort is to explain to sceptical overseas investors that the ill-reputation of militant labour tactics is a thing of the past, together with all the other adverse factors affecting the low EODB (Ease of Doing Business) rating of Kerala.

I have quite a different view on this subject, and that primarily stems from the fact that these efforts are doomed because they are focused in the wrong direction! Instead of wasting time and effort on the uphill (and essentially impossible) task of convincing sceptical outside investors about investing in a State seen as one of the last bastions of militant leftist trade unions, it is my view that we should focus inward, on assisting local entrepreneurs to set up ventures and expand their existing businesses. My remarks are of course addressed to the task of increasing investment in manufacturing SMEs, which are the key to creating large number of well-paying jobs needed to absorb the young people entering the workforce every year. These jobs alone can provide the incomes that will enable these young people to raise families, buy homes, and create the effective demand that will power the economy to the next orbit.

There are several ways in which such a reorientation of industrial promotion will help the Govt. of Kerala better utilise their resources. Since the focus will be on existing businesses, there is no need to reassure them about the ’labour militancy’ which seems to dominate any discussion about business and industry in Kerala. Industrial enterprises in the State have worked out different but effective ways of dealing with industrial disputes. Their business success and national and global competitiveness are testimony to the success of their business strategies, including on the industrial relations front. Thanks to a policy of positive encouragement towards trade unions pursued by the Govt. of Kerala over a long time, the State has put in place a robust dispute resolution mechanism under the Labour Dept. with a cadre of well-trained District Labour Officers that is probably the best in India. Such a tri-partite dispute resolution mechanism is what will ensure that there are harmonious industrial relations maintained in all industrial enterprises regardless of differences that may exist between companies in many aspects of labour disputes.

The second difficulty that will be removed by an inward focus is that the need to offer all manner of ‘incentives’ to persuade outside investors to come to Kerala will no longer be necessary. The history of industrial investment by outside capital is replete with generous incentives being offered to companies like Gwalior Rayons to come into the State, with consequences that were not only of little benefit to the State, but actually ended up being environmental disasters. There are other examples of generous power tariff concessions being offered to companies which also have turned out to be of little advantage to the State’s long-term interests.

And thirdly, local businesses are already familiar with the good and bad aspects of our ecosystem. A constructive dialogue with local business will help redress some of the weaknesses, and put in place steps that will help improve the EODB rating of the State. Some of these steps may be State-wide policies, while others may be based on local issues. Such a process of consultation with local businesses and responsiveness to their needs will improve the sense of wellbeing among local businesses. 

To sum up, the Govt. of Kerala should refocus their industrial promotion efforts towards businesses already in operation in Kerala. This will have several beneficial effects on industrial and investment outcomes, especially since most of the industrial investment in Kerala over the past three decades have come from businesses within Kerala. More startups are already setting up in Kerala, and such a reorientation will only further improve the business climate that will, in turn, improve the prospects of these startups. And, a very important collateral effect could also be that outside investors would begin to see value in being present in Kerala.