People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 02

January 09, 2011



Restructure Centre-State Relations for

An Equitable Resource Distribution



The following is the text of the speech of Prakash Karat, general secretary of CPI(M), at the inaugural session of the Third International Congress on Kerala Studies held from January 1-3, 2011.


FIVE years ago in December 2005, we met at the Second International Congress on Kerala Studies held here in Thiruvananthapuram. I think it can now be said that this congress has become the most important forum of discussion and research on Kerala. It is particularly commendable that this event covers a diversity of disciplines and themes – from economics, history, political science, sociology and other social sciences to the arts and culture and issues of science and society.


From the inception when the International Congress on Kerala Studies was held in 1994, the theme taken up and reiterated in the second conference was that the social gains made in Kerala should be defended in the face of the neo-liberal onslaught and steps should be taken to develop the productive forces in agriculture and industry so that all round development is assured. The second conference had provided the basis for the Left and Democratic platform for an alternative path of development. The formation of the LDF government in 2006 provided the opportunity for some of the policy prescriptions coming out of the second conference being taken up for implementation.


Five years ago, I had the opportunity to say that Kerala is an example in India of what public action can achieve – and to note that the gains of public action are the first target of neo-liberal economic policy.   Kerala is a particular victim of the centre’s neo-liberal policies.  There are many examples of this victimisation of Kerala, of which four are cited below.


(i) The Indo-ASEAN Free Trade Agreement (FTA) was signed without any consultations with the Kerala government. A whole range of commodities of vital interest to Kerala will henceforth come into the Indian economy at vastly reduced duties, from the ASEAN countries which produce similar commodities. This poses not only a direct threat to Kerala’s producers but an indirect one too. In years when world prices in these commodities collapse, Indian producers’ prices will also nosedive because we cannot protect ourselves against the world market. Since we do not have a common external tariff with ASEAN, low world prices will affect Kerala via ASEAN. The Indo-ASEAN FTA may benefit Indian monopolists by securing markets for them in ASEAN countries, but this will be at the expense of small commodity producers. This constitutes yet another instance of the central government’s class bias hurting the people of Kerala.


(ii) Kerala had an excellent universal public distribution system going back to 1966, which had drawn international acclaim. Sustenance of this system required that as Kerala moved increasingly into cash crop production which brought precious foreign exchange to the country, the central government should supply adequate foodgrains to meet Kerala’s food needs, which could be distributed through the PDS. Under the neo-liberal dispensation however the PDS suffered a setback when “targeting” was introduced. The amount of foodgrains given to Kerala by the central government under the TPDS is inadequate not only to meet the food needs of the state as a whole, but even to meet the needs of the actual BPL households, since their numbers are grossly underestimated by the central government.  The erosion of the PDS is part of the neo-liberal agenda, and Kerala, with its excellent PDS, is a victim of it. 


(iii) Even now, the money transfers from the non-resident Keralites (NRKs) in the Gulf is a major prop for the Indian balance of payments. The total annual private transfers from abroad into India at present amount to about $50 billion, of which at least $20 billion is from the Gulf. This is slightly more than the net foreign direct investment inflows into the country. But while a red carpet is unrolled for the multinationals investing in India (often to the detriment of local small producers), the NRKs in the Gulf are a completely neglected lot. Some of them are languishing in jails, with no legal assistance provided by the government of India through its embassies; even bringing back the bodies of deceased NRKs is difficult and expensive for the family, because no legal mechanism exists to enforce payments from employers for this purpose. The NRKs go to the Gulf as poor migrants and return as poor migrants, with their rights unprotected by the government of India. 


(iv) The central government has been raising petro-product prices in the interests of large monopolists. Every such hike increases the production costs for fishermen, whose output prices however do not increase. Their incomes therefore get squeezed in order to benefit the monopolists. An average fisherman in Kerala gets an income, which, per labour day, is less than the MGNREGS daily wage of Rs 125. The central government wants to make further inroads into this subsistence. And since oil prices are currently on an upswing, given the central government’s decision to “free” oil prices, the fisherman’s lot in the coming days will become even more unenviable. 


In the last conference I had stressed the importance of defending and strengthening the public sector which was under serious attack. This required restructuring and bringing about changes in the method of management in public sector enterprises. I am glad that the LDF government has made remarkable progress in this regard. In 2005-06 majority of the public sector industries were making losses. Only 12 out of the 44 companies were making profits. In 2009-10 out of the 37 companies in the industries department 32 have become profitable. (From 41 companies the number came down to 37 as four subsidiaries of Keltron were merged into one).


Behind this turn-around has been the initiatives taken to reorganise the management, restructuring of the PSUs, strategic tie-ups with central PSUs and eliciting full cooperation of the workers and the staff. The Kerala experience of the four and half years have shown that the public sector can be made viable and make a valuable contribution to material production and public services. This is an effective counter to the neo-liberal propaganda against the public sector.  


Despite the difficulties created by the neo-liberal policies pursued by the central government, the LDF government has put in place certain policies to raise production and adopted measures to provide assistance and relief to different sections of the working people.  Some of these are:


i)                   The government is providing foodgrains at Rs 2 per kg to 25 lakh families by bringing the workers of the unorganised sector into the ambit of the BPL category.  Under the cooperative network, more than 50,000 retail outlets have been arranged for  sale of essential commodities at prices ranging from 15 to 45 per cent less than the open market. 

ii)                 Setting up of  Debt Relief Commission to provide relief for indebted farmers.  Under the Food Security Programme, 15,000 hectares of fallow land has been brought under rice cultivation and an additional production of  1.25 lakh tonnes of paddy was achieved. Procurement price of paddy was  hiked from Rs 7 per kg to Rs 13 per kg, the highest in the country.

iii)               A comprehensive health insurance scheme has been introduced for 18 lakh families and the effort is to raise the number of beneficiaries to 35 lakhs from the coming financial year.

iv)               Under the EMS housing scheme, 3.5 lakh houses have been constructed till date and the aim is to provide house sites and  houses to all landless and houseless families under the BPL category.

v)                 An income support scheme was introduced for fishermen, coir, khadi and handloom workers; minimum wages have been fixed or revised for the first time for industrial workers in the unorganised sectors covering about 65 lakh out of the 80 lakh workers in the state. 

vi)               Provision of debt relief to fishermen amounting to Rs 380 crore which has benefited more than 80,000 fisher folk families.  As a result of Matsyakeralam Project, inland fish production increased from the current level of 0.75 lakh tonnes to 1.03 lakh tonnes.

vii)             Pattas have been given to 1,20,300 landless poor for house sites in the past four years.  10,000 tribal families have been vested with land under the Forest Tribal Rights Act. 

viii)           50 per cent of the seats in panchayats and local bodies have been reserved for women.


These measures were geared towards protecting the social gains and to increase production in agriculture and allied sectors.  They were taken despite the state government’s resources being limited.  But even these meagre resources are being further constricted by the centre in several ways.  At least three instances can be given. 


First, the Thirteenth Finance Commission has not only further reduced the share of Kerala in the total grants-in-aid made available to the states, but has also condoned, at the centre’s behest, the continuance of centrally-sponsored schemes, which have led over the years, to a shrinking of the divisible pool. Secondly, the central government, having started centrally-sponsored schemes, has developed the habit of suddenly, arbitrarily and unilaterally reducing its share in the financing of such schemes. The Sarva Shiksha Abhiyan is an obvious case in point, but the practice is almost universal. The state governments, already short of resources, are then suddenly left with the additional burden of financing schemes in whose formulation they never had a say.


Second, the unilateralism of the centre is nowhere as evident as in the case of the Right to Education Act. While this is a welcome legislation, the central government has consistently refused to make available to the states the resources required for implementing it. In the case of Kerala, even the amount set aside by the Thirteen Finance Commission for this purpose is so meagre that the state government will have to spend from its own coffers vast amounts to implement this central legislation. In the case of other schemes, such as the health insurance scheme the state government is obliged to hand over to the centre substantial sums in the form of service tax on this scheme. All these impinge crucially upon state government resources.


The third way in which the centre has started squeezing the states is reminiscent of what the private capitalists have been doing for some time. Just as the capitalists make state governments vie with one another for attracting investments to their respective states by offering larger concessions, the central government too has started deciding on the location of central projects, on the basis of which state gives larger concessions. If a railway project has to be located in Kerala then the Kerala government has to offer free land of the railways’ choice for the project. Then the railways intend to go for a public private partnership without giving the state government any stake in the project. The same is true of airport renovation and a host of other projects of the central government, or of its undertakings. This is contrary to the spirit of any cooperative federalism.


The struggle to restructure centre-state relations for an equitable distribution of the resources has to be  continued.  This is part of the struggle against the imposition of neo-liberal policies.




Taking stock of the situation today, we have to seek the way forward.  It is necessary to build on the strengths of the land, resources  and the people of the state.


Firstly, Kerala has to devise strategies to enhance value addition in agriculture.  The immense opportunities for agro and food processing industries should be utilised; there can be production activities based on rubber, wood, bamboo, hard fibres like coir and production of herbal and medicinal products.


Secondly, there should be effective use of bio-technology. Kerala has the great potential to emerge as the leading centre in health care, bio-technology and bio-medical sciences.  Kerala has the biggest advantage in health care and bio-medical sciences in the large number of health professionals in the state.  The government has to build on this advantage by setting up new educational and research institutions and by encouraging investments by the public and private sectors in bio-technology and bio-medicine. 


Thirdly,  there has to be a growth strategy which focuses on economic activities that intensively uses skilled labour. This requires  large public investments, especially in higher education and research.  The momentum built up in consolidating and expanding public sector enterprises should be maintained. Private investment should be solicited for labour intensive medium and small industries. 


Fourthly, expansion of employment opportunities for the millions of educated women of the state should be a priority for any future economic agenda.  The low level of female labour participation is an obstacle in consolidating Kerala’s gains in the sphere of gender equality. 


Fifthly, there should be a review of how decentralisation of powers and resources to panchayats and local bodies have worked.  Involvement of the panchayats in rural industrialisation such as agro-processing and use of new technologies like IT should be worked out.


Finally, it needs emphasising that the path of economic growth should be environmentally sustainable.


I hope that the discussions at the International Congress on Kerala Studies will help us build on the historical strengths, consolidate recent gains, identify the main obstacles to development and build a better future for the people of Kerala.