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	1.Developments in the National Economy The national economy is passing through a bad patch brought about by a combination of several unfavourable elements like deceleration of the global economy, poor performance in manufacturing and exports, fall in prices of agricultural commodities and continuing high fiscal deficit of Central and State governments. However it is estimated that GDP grew at 5.4 per cent in 2001-02 showing considerable improvement over the low growth rate of 4 per cent during the previous year. The year under review is the final year of the Nineth Five Year Plan. Figures show that the annual growth during the Nineth Five Year Plan (1997-2002) is 4.5 per cent. This is lower than the targeted growth rate of 6.5 per cent. The key indicators of the national economy are given in Appendix 1.1. Decomposition of the growth rate shows that it is 5.7 per cent in Agriculture, 3.3 per cent in Industry and 6.5 per cent in Services. Agriculture has shown good improvement from a negative growth rate of - 0.2 per cent in the previous year. But growth of Industries has decelerated. The average annual rate of inflation in terms of the Wholesale Prize of Index declined from 7 per cent at the beginning of 2001-02 to 4.7 per cent by mid January, 2002. The Gross Fiscal deficit as proportion of GDP is estimated at 5.1 per cent compared to 5.5 per cent of the previous year. The combined Fiscal Deficit of the Central and State Governments comes to 9.6 per cent of the GDP in 2000-01. Further, in spite of tax reforms, tax revenue continues to be below 10 per cent of the GDP. Over the medium term, there have been some positive features. The balance of payment position has been comfortable during the last two years, the foreign exchange reserve reaching a record 50 billion dollars. But the Reserve Bank of India has indicated that due to slow down of exports the current account deficit for the year may increase to one percent of the GDP from the figure of 0.5 per cent in 2001. An encouraging feature is the steady improvements in India's external debt situation which has decreased from 28.7 per cent of the GDP in March 1991 to 21 per cent at the end of September 2001. Consequently the debt service ratio declined from 35.3 per cent of current receipts in 1990-91 to 16.3 per cent in 2001.Inflation has come down this year, which is a record low level. And food grain stocks with government reached a high level of 58 million tonnes , also causing several problems in its wake.At the national level poverty has declined to 26 per cent in 1999-2000, a fall of 9 per cent since 1993-94. However growth of employment has been only around one per cent during this period and employment growth in the organized sector has been only 0.53 per cent. This causes concern. 2. Developments in the State's Economy: a) The problems The State's economy is beset with two major problems, one resulting from the steep fall in agricultural prices and the other due to severe fiscal crisis of the State Government. Cash crops form the backbone of the agricultural economy on the state. The main cash crops like Rubber, Coconut, Arecanut, Ginger, Pepper, Tea and Coffee experienced steep fall in prices. This has depressed the economy considerably.The state's fiscal situation is described in detail in Chapter 2. Rising expenditures mainly due to salary and pension commitments and interest payments and sluggish growth of revenue due to low demand and suboptimal tax compliance have combined to make the situation very difficult during the current year. Realization of Sales Tax, which is the major revenue item of the State, is likely to fall short of target by about Rs.700 crores. On the eve of the Tenth Five Year Plan the government's financial situation is such that to improve services in the public sphere and to renew the development effort, it is absolutely essential to put in place and implement a programme of expenditure control, efficient resource use and aggressive revenue mobilization. The fiscal crisis has had several serious negative effects like: (i) The Plan size had to be pruned by 25 per cent in 2000-01 and 2001-02. Due to restrictions on actual payments from treasuries, the real cut in plan was much higher last year. Thus new investments by government have been severely affected. (ii) Since local governments get about 1/3rd of the state's Plan allocation shrinkage of the state plan has resulted in proportionate squeeze of the local government plan shares as well. As local governments provide the spread of investment across regions, focusing on the agricultural sector and social services, reduction in size has affected the local economy in every part of the state, particularly the backward areas. (iii) The crisis has caused sharp decline in allocations meant for maintenance of assets with a result that the excellent social and physical infrastructure created by the State is deteriorating. (iv) The services provided by the government have come down in quality. This is particularly true of health and education where supply of drugs and provision of teaching aids have been badly hit. (v) The financial crisis has resulted in the delayed payment of bills to contractors and other suppliers so much so there is a natural expectation of delay in government payments which is leading to increasingly higher cost of works and procurement as the probable delay is factored in by the bidders. (vi) The severe financial difficulties of the KSEB and KWA have resulted in slowing down of works as funds for development were diverted to revenue expenditure or repayment of loan instalments. (vii) The poor are the worst affected as they depend on government services like Health, Water Supply etc. The social security assistance is stagnant and is in huge arrears affecting the poorest among the poor. The efficiency of governmental functioning is affected due to ways and means restrictions on office expenses. Training programmes have been seriously hit.b) Growth of the Economy:The growth of the state economy sector-wise is summarized in Appendix 1.2. The estimates of growth show that the state has been able to achieve moderate growing during the last seven years.c) The Price Situation:In keeping with the national situation, the price situation in the state has been quite stable. The Consumer Price Index for industrial workers, urban non manual employees and agricultural laborers are given in Appendix 1.3: Towards the Tenth Five Year Plan On the threshold of the Tenth Five Year Plan, it is the time for a quick stock taking. The Ninth Five Year Plan of Kerala was approved by the Planning Commission for a five year outlay of Rs.16100 crores at constant prices and Rs. 21700 crores at current prices. Major alteration was made to the size of the Plan 2000-2001 and 2001-2002 reducing the size by 25%. At the end of the Plan the expenditure is likely to be a little above two-third of the originally envisaged outlay. Achievementsof the Ninth Five Year Plan. The salient achievements of the Ninth Plan were : Decentralisation of development through local governments by devolving 30.5% of the Plan as practically untied grant-in-aid for local level participatory planning and implementation of projects planned for is the high water-mark of the Ninth Plan. This has made Kerala the pioneering State in the country in the progress towards creation of genuine institutions of local governments as envisaged by the 73rd and 74th Amendments of the Constitution. Through decentralisation considerable achievement has been made in provision of minimum needs infrastructure to the poor especially houses, drinking water, sanitation and infrastructure in Schools and Hospitals. Information Technology got a belated boost in the State. E-governance gradually came to be recognized as a thrust area of development. Various Departments started computerization. Treasury computerization has been completed in two districts and is likely to cover the entire State within one year. Introduction of e-governance in the Secretariat and in the offices of the Heads of Departments is nearing commissioning through a wide area network. The introduction of computers in schools has progressed albeit at a slow pace. The Civil Supplies and Registration Departments have advanced in computerizing their work.Public service centers where people can remit their dues to several public agencies called 'Friends' is an interesting innovation. An ambitious project to link local governments including Village Panchayats through an electronic network has progressed considerably and can be operationalized in one year. Tourism has become the sunrise development sector of Kerala holding promise for generating employment and wealth. It is estimated that tourism industry has generated 1.5 lakh jobs directly and 5.5 lakh indirectly. Through a policy of facilitation of private investment and carefully planned marketing Kerala has been developed into a preferred tourist destination. Kerala now figures prominently in the World Tourism Map. The State made important strides in reduction of poverty through the twin agencies of local governments and the State Poverty Eradication Mission called 'Kudumbashree'. In the last two years alone Kudumbashree provided self-employment to nearly 25,000 woman. The thrift mobilized by the women groups in the urban local governments and selected Panchayats comes to Rs.64 crores. The scheme, which had started in the urban local governments and in whole of Malappuram District at the beginning of the Ninth Plan, has now been extended to all the Village Panchayats. It has 66,340 Neighbourhood Groups of women working under it. Allocation to SC/ST development was stepped up considerably in real terms giving up the concept of notional flows to SCP and TSP. Investible resources to the tune of 11.31 percentage of the State Plan was provided under SCP and TSP which more than doubled the share in the Eighth Plan. Drawing lessons from the experiments of some of the Village Panchayats a massive participatory water supply project was launched to cover six districts suggesting a paradigm change in rural water supply. Piped water systems are constructed with 15% capital contribution from the beneficiaries and 10% from the Village Panchayat and the systems have been handed over to beneficiary groups for future maintenance. This is likely to become the model for rural water supply in the coming years. Thirteen Power projects were commissioned which added 964.1 MW to the installed capacity. Four long pending Irrigation projects have been completed and two are nearing completion. In Education, the DPEP for primary schools and delinking of pre-degree courses from Colleges in line with all-India practices were significant steps. Shortcomings: The fiscal crisis, which started in 1999, got worse during the next year resulting in substantial reduction from the originally envisaged Plan size. This created several problems in programme implementation according to schedule, in stepping up productive investment and in infrastructure development. Delayed payment of bills slowed down the development momentum and increased unit costs. The pace of agriculture growth witnessed during the Eighth Plan at 3.8% could not be kept up even though the growth rate of 2.27% in the first three years is higher than the performance in the 80's. Steep fall in the price of cash crops like rubber, coconut, pepper, coffee and tea with prices coming down by more than half affected the agriculture sector. Widespread mono culture aggravated the problem in agriculture. Though the power crisis in terms of availability of power was solved to some extent, the increased operational costs, line losses vis-à-vis the cost of power from NTPC etc., and poor project and programme management increased the problems of KSEB and the Board is now facing a very bad financial crisis. Kerala Water Authority too faced acute fiscal problems prompting it to divert development funds to meet the establishment costs. This slowed down implementation of projects and consequent benefits to the people. Public enterprise reform did not really take off even though Government set up special bodies to regulate budgetary support related to improvement in performance. The credit deposit ratio in the economy continued to be low at 43%. The 'big-push' decentralisation saw some wasteful and non-productive use of funds especially in the first two years. In the last two years, the financial crunch led to restrictions in transfer of funds affecting the implementation of schemes and projects that had been started! The staff, especially engineers and clerks rendered surplus in government departments, could not be transferred in practice to the local governments though a policy decision was taken. This affected the performance of local governments. In this context the state has to adopt a radical new approach for the Tenth five year plan. The priorities to be followed and issues to be tackled are summarized in the Annexure to this chapter. TENTH FIVE YEAR PLAN FOR KERALA - THE APPROACH*INTRODUCTION The National Development Council has approved the approach to the Tenth Five Year Plan prepared by the Planning Commission. Against the general background of this approach, broad approaches to various areas of development are proposed. Part A consists of guidelines, which are applicable to all sectors of development, and Part B consists of sector-specific guidelines. Part-AGeneral Guidelines. As per the approach adopted by the NDC the Tenth Plan is to be as much a Reform Plan as it is a Resource Plan. This implies that going beyond making allocation decisions for resources in terms of projects and programmes importance has to be given to the processes and systems of development. There is need to move away from conventional methods of Plan preparation which have over a period of time got routinised. The Reform Plan requires a relook at institutions and structures which are related to development. Areas which need to be looked into are laws, procedures, systems and administrative and managerial processes. The basic objective of this reassessment is to do away with anachronisms and to improve efficiency through simplification, rationalization and economisation. Reform Plan calls for basic administrative reforms with a view to cutting the red tape and improving the quality of human resource in government. Essential administrative reforms would be to increase transparency, promote accountability and improve accessibility to the users. Administrative reforms also would involve a reassessment of manpower needs for carrying out the tasks assigned to a department or an agency. Surplus and redundant staff have to be retrained, reskilled and redeployed. This calls for a massive capacity building exercise. Thus the role of every staff member in government has to be redrawn. For reforms to be effective, it is necessary to trace the causes of lack of productivity, inefficiency and failure to produce the desired impact and tackle them holistically. As regards resources for development the participation of private sector is critical. This calls for setting up a level playing field for the prospective players, transparent rules of the game need to be evolved as also rigorous accountability systems and effective umpiring systems. Facilitation of private investment in the desired sectors of development would be one of the key objectives of development departments. Plans and reforms have to be carefully designed to draw resources from people as well as financial institutions. The Credit Deposit Ratio is abysmally low. Through elaborate tripartite consultations and discussions among bankers, development agencies and the beneficiaries an environment for flow of credit has to be created. As a rule of thumb, private investment of all kinds should be at least three times the plan investment. In order to free resources for development there is an urgent need to contain the revenue deficit for which wasteful non-plan expenditure has to be curtailed. The State should aim at reducing its revenue deficit from around 4% now to a revenue surplus at the end of the Tenth Five Year Plan. In order to augment resources for investment it is necessary to tap non-plan revenues to the maximum without hurting the legitimate interests of the poor and the needy. Those who can afford to pay must pay in the interests of those who cannot pay. In view of the scarcity of resources return on investment and quick completion of projects must be two inviolable pre-conditions of fixing priorities in investment. By 2005 borrowing should be resorted to only to finance the Plan and that too that part of the plan which ensures proper returns in future or that which goes to the most needy sections of society. Considering the limited resources available and the need to optimize resource use every existing plan scheme has to be suitably appraised before its continuance is suggested. It is time to give up the incrementalist approach and go in for a zero base approach which calls for full justification if some spending is to be continued. Through this method all sub-optimal schemes and those without any utility or impact may be scrapped. It is also not necessary to continue the same old sectoral allocations. The needs and priorities of the State have to be redrawn to harmonize them with the development context and development potential. It is necessary to tap centrally sponsored schemes to the maximum advantage of the State Government. Going beyond the formula based CSS, Project based CSS should be given priority. Wherever required, adequate plan resources have to be set apart to upgrade Centrally Sponsored Schemes to suit Kerala's development requirements. Special priority area would be to formulate viable programmes to access external assistance both bilateral and multi-lateral. Departmentalism has been the bane of Kerala resulting in a compartmentalised and distorted view of development often leading to duplication of efforts, proliferation of institutions and agencies and more important loosing possible synergies, which are critical to development. The Tenth Plan should aim at greater convergence and more joined up efforts. There is a big need to bring together departments, agencies and institutions for working in partnership. Even if they cannot be merged they can be networked. These integrated projects with clear and backward and forward linkages would take precedence over isolated sectoral programmes. Also long pending projects, which are in an advanced state have to be given priority for completion within a year or two. But wherever possible, if projects can be closed at the current stages without resulting any infructuous expenditure, that would be the better alternative, if the cost in terms of resources and time to complete it as per the original schedule is not justified economically or socially. With the advent of local governments multilevel planning has become a necessity. A conscious attempt has to be made to identify the responsibilities of each tier and to achieve organic linkages between tiers. The higher tiers need perform only the higher order functions and this applies to the State Government as well. The core objective of the plan must be reduction in unemployment and elimination of poverty. For reduction in unemployment a labour intensive growth strategy suited to the needs of the educated labour force of Kerala has to be followed. Diversifying agriculture into high value crops and value addition, tapping the potential of information technology and biotechnology, further strengthening tourism development appropriate to the needs of the State and promoting the new general small-scale industries and positioning the traditional industries in the proper place could form the basic elements of this strategy. As regards poverty, the first priority would be on the outliers like the tribals who have been denied the benefits of development and even pushed to the margins through the twin process of exploitation and dependence inducing welfarism. The concept of poverty is to be redefined and needs to be construed as the level of access to the agreed set of entitlements, which can be progressively enlarged. Using this logic various schemes of the poor can be identified so that different responses for different levels of poverty could be planned. Elimination of poverty requires both macro as well as micro strategies. At the micro level a convergence of programmes, resources and services is called for. This can be achieved only through a demand-led process, which means the poor have to be organized and empowered to participate in the development process through a strategy of self-help. There is need to evolve an anti-poverty sub-plan which could include setting up of micro enterprises for self-employment enabling people to achieve wage employment through a massive capacity building exercise to enhance the skills and capabilities of the poor. Providing wage employment while creating rural infrastructure, targeting basic services to the most needy and providing direct social security to the most vulnerable. In this anti poverty sub-plan the poorest groups like tribals, traditional fishermen and marginalized artisans have to be given special importance. As far as the tribals are concerned the focus should be on empowerment. It is necessary to be sensitive to the gender dimensions of development and incorporate them in the plan through a kind of gender budgeting, which promotes gender sensitive schemes in various sectors in a cross-cutting manner. Part B 1. Multi-sectoral issues.a) Poverty reduction. As mentioned earlier there is a need to get a clear picture of poverty in the State and grade it according to its severity. To avoid conflict and unfair competition for anti-poverty funds and schemes, it is necessary to evolve a transparent poverty index primarily related to access to a prescribed set of entitlements. Using the index different groups of the poor can be graded and this process supplemented with a participatory poverty assessment, which is already under way in the State. Based on this differential strategies can be worked out according to the characteristics of poverty which affects different groups. A five-fold approach to poverty reduction would be necessary, with components of pro-poor employment generation through macro strategies, direct alleviation through measures for economic and social development, provision of basic services and facilities and social security systems- for the most vulnerable - all implemented in an integrated, convergent manner. The strategies need to be different for different classes of the poor. Within the overall poverty reduction strategy there have to be separated component plans for the Scheduled Castes, Scheduled Tribes and the disabled. In the case of these groups the aim must be to prepare family specific plans for improving quality of life and removing barriers to development. In the case of Scheduled Castes and disabled, the prime focus must be on human resource development with the object of equipping them to tap the job market. In the case of Scheduled Tribes protecting and upgrading the land resources, value addition to the non-timber forest produce and high quality education could be the main strategies accompanied by proper health care and social security support. In remote tribal areas the use of animators from among the tribals to function as bare-foot development and service agents may have to be resorted to. Non-conventional institutional options may be tried out in the case of education, health, and economic development and so on where NGOs with fluent track record could play a positive role. To make good the loss of land, joint forest management with higher returns to the participating families could be adopted. Preservation of tribal culture and fostering of their traditional knowledge have to be essential ingredients for the empowerment of tribals. In conceptualising the plan for reduction of poverty and its implementation the active participation of the stakeholders is absolutely essential and the government has to place a proactive role. In order to identify the opportunities of the poor in the formal and informal economies and to equip them to use the opportunities it may be necessary to use the best expertise available in the country both in the public and private sectors. A close monitoring and a concurrent evaluation through third-party agencies would be required, in addition to social audit. b) Environment A broad cross-sectoral approach is suggested to tackle environmental issues. Protection of good quality forests, upgradation of degraded forests and re-emphasizing extractory forestry and dispersed social forestry through local governments would constitute the elements of forestry development. An integrated view of land, water and biomass translating itself into watershed management with building blocks at the local government level built up to river basin level, management plans would be required. For this to become a reality there is need for change of attitudes and infusion of technical skills of a multi-disciplinary nature. Departmental boundaries would have to merge and concerted multi-level action required from the irrigation, water supply, agriculture, animal husbandry and fisheries departments with the active support of institutions like Kerala Agricultural University, CWRDM and CESS. In the case of water resources for biomass development large irrigations are no longer relevant. The appropriate micro level water harvesting, water conservation and water management have to be adopted. To start with, probably the old minor irrigation structures have to be rehabilitated through farmer groups and handed over to them. Even in the case of larger schemes farmer management at the distribution level has to be tried out. In the case of drinking water supply community based approaches are required in the rural areas both for running the old schemes and for managing the new schemes. Only where small schemes are unviable should larger schemes be attempted. Here again unbundling of distribution systems may become necessary. For upgradation of the quality of environment solid and liquid waste management, again on a decentralized scale with focus on management, right from the source is required. A total plan for solid and liquid waste management is required where the components at the cutting edge level are prepared and implemented by urban local governments and village Panchayats or groups of village Panchayats. Air pollution is another area, which requires attention. c) Capacity building For reform measures to be successful the existing staff has to be given massive training. For this a networking of institutions set up by the State government is necessary. In some cases mergers would be advisable. Tie-ups with centres of excellence in and around the State would help enhance the quality of training. 2. Sectoral Approach(a) Agriculture and Allied Sectors. In these sectors there is a natural limit to expansion but intensification and quality improvement and optimisation of relative strength need to be the areas of concentration. The departments of agriculture, animal husbandry and dairy development have to give greater emphasis to extension, transfer of technology, arrangement of inputs and facilitation of farmer led activities. In order to achieve economies of scale, grouping of farmers on the lines of self-help groups could prove useful. These sectors would have to be seen as part of the watershed oriented approach. The bulk of the investment in common infrastructure and in preparation of locality specific action plans should be from local governments with the State Departments co-financing area specific projects and taking up pilots. Rather than spreading resources thinly, efforts must be made to concentrate on selected geographical areas with maximum potential for returns. In the case of agriculture, high value crops including horticulture and organic farming deserve special attention. Development of internal markets through farmer controlled storage systems and outlets could be of special priority. In the case of fisheries, development of inland fisheries needs to be explored. The livelihood issues of traditional fishermen need to be taken up on a holistic basis akin to the strategy suggested for poverty reduction. The co-operatives have to route more credit to the primary sector. Legislative changes enabling creation of co-operatives without Government control have to be brought about. (b) Health In the case of health, difficult decisions have to be taken on resource allocation - between primary health care and secondary and tertiary health care; between first generation and second generation health problems; between needs of the younger population and the aging population. It is necessary to identify a basket of medical services that are cost effective and benefit the most. The levels at which these services are provided also needs to be identified. Beyond this assured level of services payments in a graded manner may have to be thought of except in the case of poor for whom special arrangements are required. While encouraging the growth of the private sector in providing health services a transparent system of regulation and grading have to be introduced probably through independent professional institutions. The link between various streams of medicine has to be established preferably at the level of the PHC itself. Some of the reforms in the sector relate to greater autonomy to the tertiary institutions, development of diagnostic treatment and referral protocols and introduction of generic drugs to bring down the cost of medicine. (c) Education In this sector the accent should be on improving quality. In higher education the available infrastructure has to be optimally used through new job oriented courses. The 'Sarva Siksha Abhayan' of Government of India is to be properly integrated with local government plan and education. Institutions like Polytechnics and ITIs have to move on to modern courses. This calls for retraining of the teachers. (d) Infrastructure Top priority should be given to rehabilitation and upgradation of existing infrastructure on a planned basis with the State Government and Local Governments adhering to a commonly agreed priority in the infrastructure sector. As far as possible private sector participation on BOT basis has to be encouraged. Cost reduction techniques and technologies need to be integrated into the government standards related to infrastructure creation. Reforms like transparency, providing of technical designs by the contractors, performance contracts and third party quality assurance systems could be thought of. The development of ports, harbours and inland water-ways is to be given special thrust fully utilizing the possibilities of private sector participation. (e) Power In the case of power a proper energy mix with due share to hydro power has to be identified with special priority for tapping small hydel power potential. Stand alone projects servicing remote areas could be taken up by local governments with the operation and maintenance being entrusted to the local community. Power sector reforms should focus on improving efficiency of the Electricity Board in all the three functions of generation, transmission and distribution. Non-conventional energy should continue to be encouraged both to service remote areas and to supplement conventional power in areas where there is scope. (f) Industries The accent should be on facilitating private investment especially those which have maximum employment potential. For this to happen procedural delays have to be avoided and attitudinal changes brought about in the labour force accompanied by strict enforcement of provisions against unfair labour practice as well as management practice. Kerala enjoys comparative advantage in sectors related to information technology, biotechnology and tourism. The gains of the past have to be consolidated and new methods of facilitation especially in development of infrastructure and creation of qualified manpower adopted. The cluster based approach to small-scale industries needs to be concretized. The traditional industries like coir, handloom and other village industries need to be re-positioned according to the national and international demand for the products. Upgradation of technology and techniques is critical in the sector. Public sector reforms should be based on viable revival packages as well as expansion ventures. As a general rule the Consolidated Fund should not be used to bolster loss-making PSUs. A greater autonomy for PSUs with governmental control limited to monitoring performance contract would be advisable. 3.Local Governments Local governments are expected to plan and implement programmes covering a third of the State's Plan size. Based on the lessons of the past, the gains have to be consolidated and the failures made good. Some of the important areas which demand attention are - Developing a long range Plan with focus on productive infrastructure rather than distribution of beneficiary oriented assistance. Focus on renewal and upgradation of assets so that they are put to optimum use. Improving the running of institutions and delivery of services, which have been brought under the local governments. Enhancing the quality of planning through proper techniques and scientific ordering of priority especially in infrastructure creation. Integration of plans across tiers of local governments and between local governments and State Government. Improving efficiency in spending and ensuring greater accountability. Reassessing the devolution norms and sectoral priorities