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In Kerala, the need to budget for the future

Kerala, under duress from the novel coronavirus pandemic, is passing through a recessionary phase, shrinking by about 3.8% during 2019-20. Disease containment measures, including intermittent lockdowns, have stalled the livelihoods of many, probably the entire 66% of the workforce who are either self-employed or casual labourers. The Centre for Monitoring Indian Economy (CMIE) estimates Kerala’s unemployment rate at a high of 23.5% for May 2021. The extent of wage loss is uncertain, though primary surveys indicate substantial wage reduction.

The pandemic and welfare

Social priorities for financial planning under such a crisis must appear straightforward. The Budget of the newly elected government of Kerala presented by Finance Minister K.N. Balagopal weighed the priorities right, keeping the pandemic in focus. The free vaccination policy, despite a drastic decline in public revenue by 18%, positions the Government as one that prioritises its people. Unemployment and employability find mention early in the Budget reiterating its inclinations. Setting aside ₹8,900 crore for an income transfer scheme would be a rescue line for the poor and the vulnerable. Such an infusion will also stimulate the economy by boosting consumption demand.

 

High unemployment

Beyond the immediate crisis, Kerala is undergoing a transformation grappling with structural issues. For decades, the State has recorded one of the highest open unemployment rates in India — around 10%. Further, the labour force arguably suffers from the problem of ‘employability’, alluding to poor skills and incompetence.

With the youth bulge in Kerala’s age structure, a large share of the population entered the labour force. This coincided with the structural transformation of the economy, i.e., the share of output shifting from agriculture to service.

However, this large rise in the labour force could not be absorbed in the emerging sectors that were less labour intensive causing structural unemployment. The economy now needed to grow at faster rates to absorb the new entrants. Concurrently, high reservation wages owing to international remittances, institutional wage setting and the State’s welfare programmes implied that jobseekers sought jobs with decent wages as well. Low wage sectors are filled with inter-State migrant workers, remaining unattractive to the locals. Open unemployment is thus a problem of economic growth and distribution.

 

Knowledge economy

This Budget’s focus on tackling unemployment is through the knowledge economy mission, initiated by the outgoing Government. With Kerala’s reasonably high levels of an educated workforce, global exposure and its fragile ecosystem, a globally-linked knowledge-based economy has the potential for ecologically sustainable high economic growth. However, upon close reading, it seems that the mission addresses the wrong side of the problem. Instead of enhancing production in the knowledge-based economy, it envisages to increase the supply of skilled workers, through skilling programmes and matching demand and supply. The fundamental problem is not of labour market mismatch or supply of educated workforce, but that of poor labour demand.

Also read | Knowledge Economy Mission to boost job prospects

The above view is often countered by the argument that poor labour demand is due to poor employability. Part of the knowledge economy frame is to improve ‘employability’ by improving skills and skill certification. Improved skills may enhance immediate employment chances. But the notion that skill is static and once acquired, the worker is employable is misplaced. Skill is dynamic, especially in the knowledge economy. The skill requirements are continuously being redefined. The knowledge economy is distinguished by its ability to innovate in short time spans.

As innovations take place, the skill requirements also evolve. For firms to remain competitive in the knowledge economy, they must recognise skill obsolescence and re-skill their workers. In fact, lifelong learning is a well-known feature of the knowledge economy. Under such circumstances, firms would want to reduce this complex phenomenon into a deficiency in workers, labelling it as poor ‘employability’ and arguing it as State failure in skilling. In fact, what labour market participants lack is the skill requirements that are ever changing in firms. Firms are best placed to know what skills are needed, and not the State. Firms are best placed to train the workers, not the State. Firms are the prime gainers in skill training, not the public. The Government could at best facilitate producers to undertake skill training. The innovative German programme on skilling can inform us.

 

State of traditional industries

Meanwhile, industrial transformation has pushed many into frictional unemployment, due to their inability to move from one sector to another. Even while Kerala entered a high-growth trajectory in the 1990s driven by the services, the traditional industries and agriculture sectors remained stagnant. These traditional agro-based industries are now competing in the global markets with not only competitor firms but even substitute products — for instance, coir with its plastic variant. Many such industries, such as cashew, are either moving out from Kerala or are being out competed in export markets. Having joined these sectors at an early age and worked throughout their lives, workers in these sectors are trapped in these ‘sunset’ industries, surviving on subsistence incomes and welfare support. With shrinking incomes and no alternative employment, these households are being driven to penury. The State must devise mechanisms to survive their lives with dignity.

Small and marginal farmers, and petty service providers suffer from poor incomes despite their efforts, a form of underemployment. Effective interventions can encourage collectivisation to overcome size-related diseconomies. New forms of collectives such as Kudumbasree and the new initiative of the Cooperative Initiative for Agriculture Infrastructure in Kerala (CAIK), are encouraging. Nevertheless, history must guide us to steer clear of the cooperative failures in the past, marred by poor incentive structures, rent seeking and political intervention.

Vinoj Abraham is Professor, Centre for Development Studies, Thiruvananthapuram


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Printable version | Jul 27, 2021 9:48:55 PM | https://www.thehindu.com/opinion/lead/in-kerala-the-need-to-budget-for-the-future/article34874096.ece

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