Address by Shri A. K. Antony, Chief Minister, Kerala
49th N.D.C. Meeting, 1^st September 2001, Vigyan Bhavan, New Delhi.

Honourable Prime Minister, Deputy Chairman Planning Commission, Union Ministers and my colleagues from other States,

At the outset, let me convey heartiest 'Onam Greetings' from the people of Kerala to all of you present here.

I would like to thank the Government of India and the Planning Commission for convening this meeting of the National Development Council for discussing the Approach to the Tenth Plan. The NDC, an apex organisation reflecting the federalism of Indian polity, was set up nearly five decades ago with clear objectives and blazed many a new trail in the earlier years. The last meeting of the NDC was on 19^th February 1999, more than 30 months ago. There must be genuine interaction, participation and consensus building as we forge a new path of social and economic reforms. May I suggest that we should meet more often and that NDC Committee form of working should be reactivated on a number of vital issues which demand national attention.

This is the age of democracy and of decentralisation. Indian political pluralism is now at its most diversified and variegated form. This is the time for consultation, co-operation and consensus all of which call for changing old mindset and attitudes. There is need for a new kind of economic federalism in the country, with focus on mutual trust and understanding to be arrived at through dialogues, debates, and discussions. It goes beyond assignment of fiscal responsibilities and taking of investment decisions; it covers the whole gamut of policy decisions which have economic implications. When I make this general plea, I have in mind the terrible shock, which Kerala suffered when rather casual decisions regarding import of coconut oil/palm oil and certain forms of rubber were taken. At one fell blow, the State's farmers lost a whopping Rs.4000 crores, as the price of both the products fell by half. Some other States have also experienced similar difficulties. Let not this painful experience be repeated. Let today's meeting make a new beginning by resolving to have frequent interaction and discussions before decisions having implications for the States are taken.

I compliment the Planning Commission on the candid Approach Paper, which admits failures and makes some bold suggestions. I share its optimism for the future. But one cannot help wishing that it were more holistic and put forth a vision for the next twenty years. The many individual strategies and solutions should form part of a coherent vision of the nation's development to inspire and guide us all. In its attempt to strike a new path the approach also tends to swing to the other end by relying almost entirely on market-based solutions. For various sectors and issues the prescriptions given are simplistic without any hint of the range of options that could be considered to tackle the complexities involved.

The Planning Commission has done well in putting across the idea of a reform plan that should go along with the resource plan. This marks a needed change in approach to planning with focus on policies, institutions, systems and procedures. But reform has various dimensions and the approach paper seems to address itself only to some of them. For example, it is self-evident that without political reform in the form of democratic decentralisation, electoral reform and enhanced accountability of all political institutions, reforms in governance would be ineffective. Similarly without social reforms to bridge irrational caste and communal divides, economic reforms could turn out to be counter-productive.

Again, while the changed role of government has been clearly stated at the outset, the differing roles of the Central, State and Local Governments in bringing about development have been ignored. We strongly feel that in the new context, the Central Government would have to mainly play the role of an enabler and monitor rather than a direct implementer of programmes and schemes. The Central Government should therefore focus on building the capabilities of the States to reap the gains of reforms. It should be a disseminator of new technologies and best development practices and it should be a proactive proponent of reforms in all spheres including itself.

It is disheartening that the Approach Paper has only certain cursory remarks on the role of local governments. The experience of Kerala shows that local governments have a clear role in development, particularly in providing the minimum needs and basic services and in mobilizing local initiatives. Subsidiarity is a basic principle in functional efficiency and I am afraid that any reform agenda which ignores this principle cannot succeed. It is not enough that local governments are given more responsibilities and put in charge of institutions like schools and hospitals. They have to be given a substantial part of the plan resources with freedom to prepare locally relevant plans for meeting the responsibilities given to them. It is surprising and sad that decentralised planning which is also a constitutional mandate, has been totally ignored in the approach paper. I would urge that this anomaly be corrected.

Yet another factor to be looked into is the propensity of Central Ministries to sponsor creation of parallel power structures like DRDAs, Health Societies and so on. These bodies would severely undermine the nascent local government institutions and we have to take a clear view on this matter.

The growth target is no doubt ambitious but we feel that it is necessary to retain it and intensify our efforts to achieve it. As regards monitorable targets I would suggest the inclusion of the following targets as well:

1. Providing gainful employment to at least 50% of the existing unemployed labour force besides covering additions to the labour force.
2. Enhancing computer literacy rates to at least 25% of the population.
3. While reducing poverty there should be specific and higher targets for vulnerable groups - Scheduled Castes, Scheduled Tribes; agriculture labour, village artisans and traditional fishermen. Their poverty should be brought down to one-third of the present levels.
4. To introduce integrated water shed management practices in at least half of the nation's rain fed areas.
5. At least one-third of the development spending should be earmarked and allotted through local governments.
6. Number of un-electrified houses to be brought down by 50%.
7. All habitations having a population 01 more than 500 to be connected with all weather roads.

I am glad to inform you that Kerala has already achieved a good number of the targets mentioned in the Approach Paper; but may I reiterate that it is unfair to penalize the State for its achievements as has been happening for some years now. These were reached at considerable resource commitment and at great opportunity cost. Now the State is faced with a four-fold problem - of sustaining its achievements, of tackling the remaining problems, which are the hardest and most intractable, facing second-generation problems particularly in the fields of health and education and giving emphasis to productive sectors and infrastructure. Kerala is willing to experiment and find solutions and we would urge the Government of India to support us fully in this endeavour. The pioneer and the path breaker has to be supported for other States can learn from that experience.

The core objective of the plan must be reduction in unemployment and elimination of poverty. At this juncture there is need to redefine our concept of poverty. It is futile to debate merely on the strength of statistics and studies about the levels of poverty. It is clearly evident to all of us that at least a third of India's population does not enjoy the basic standards of good life. Poverty has to be construed as the level of access to an agreed set of entitlements, which needs to be progressively enlarged as the nation moves forward. Using this logic we have to construct a poverty index rather than a poverty line and use it to identify various segments from among the poor. Different levels of poverty demand different responses.

Elimination of poverty requires both macro as well as micro strategies. At the macro level a conscious choice has to be made to achieve pro-poor growth. This would mean that the attention should be on development of agriculture especially in unirrigated areas and in encouraging labour absorbing industries, particularly small and village industries. Also a massive capacity building exercise needs to be taken up to enhance the capabilities of the poor. 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 that the poor have to be organized and empowered to participate in the development process. In concrete terms it means setting up of micro enterprises, providing wage employment while creating rural infrastructure, targeting basic services and providing direct social security measures to the most vulnerable. Only such a concerted approach can tackle the multiple dimensions of poverty and their ratchet effect on the poor. This cannot be achieved without some subsidy. I agree that a good portion of the subsidy must be spent on skill development, technology upgradation and other support services to help the poor participate in economic development. Just as we have Tribal Sub Plan and Special Component Plan, it is necessary to have an Anti-poverty Sub Plan. Among the poorest groups in India the traditional fishermen would definitely find a place. It is necessary to have an area development programme for the coastal belt, which focuses on providing the basic infrastructure and services to the traditional fishermen, on the basis of locally prepared plans. I warmly endorse the suggestion for a National Policy on Empowering Tribals. For long they have been exploited and even after a quarter century of implementation of Tribal Sub-Plan, the intended benefits have not reached them. A strong proactive policy and programme support is needed and the basis should be empowerment.

The contribution of women to the formal and informal economy needs to be adequately recognised in the Approach to the Tenth Plan. The gender dimension of development is critical both in the social and economic sectors. To start with, I would suggest introduction of gender budgeting, progressively leading to a Gender Sub Plan. This, we are already doing to a significant extent in our local government plans, where 10% of resources are earmarked for women development projects.

I welcome the identification of Tourism and IT as sectors to be encouraged for employment generation. We expect the Planning Commission and Government of India to play an active facilitating role in these sectors as well as in Bio Technology.

The Approach Paper calls for substantial reduction of fiscal deficit and this is no doubt an essential precondition for fiscal stability. But it has to be noted that in the context of State Governments what should be advocated and supported is reduction of revenue deficit, as the States would have to borrow to fund capital expenditure. Also the suggestion to hold the non-plan expenditure constant in real terms is not practicable, as it would affect maintenance of the assets created. In many States the critical issue is not one of creating new assets but proper upkeep of those already created. In the alternative, a percentage of Plan funds could be allowed for maintenance as has been discussed in this forum itself earlier.

As regards expenditure control by reducing subsidy, it has to be pointed out that rather than blanket removal of subsidies a careful assessment of their present effects and possible consequences of withdrawal needs to be made. There are certain areas of the economy and certain vulnerable sections of the society who have to be subsidized. Innovative pattern of subsidy and effective targeting is what is really called for.

The idea of making the better off people pay for certain services is a welcome one but the governmental system needs to ensure that such amounts are ploughed back to those particular services for improved management. People would not pay if their money is sucked into the receipt system of government to meet commitments which the payer is not concerned about or thinks that the money is being wasted.

The idea of delinking Externally Aided Projects from the gross budgetary support is a positive move. However, Government of India should play only the role of an honest broker and should not check flow of assistance in the name of preconceived norms. Efficiency is what should ultimately decide the flow of such assistance. Of course the Government of India and the Planning Commission must assist weak States to increase their level of efficiency as well as in preparing viable projects. But penalizing efficient States is something that would harm the proper utilization of tills scarce resource.

Reserving SLR borrowing to provide counterpart funding to Externally Aided Projects and to allot the remaining based on projects is something, which would affect the freedom of use, which is now there. It will tie up SLR funds and bring it under central control which cannot be exercised properly or efficiently. It would be a great blow to the fiscal autonomy of the States. However I agree that SLR funds should go to finance only Plan capital expenditure.

Project specific assistance like AIBP and innovative component in Rural Development Schemes are conceptually good but in practice they suffer from the exercise of discretion and patronage. These schemes add to the debt burden of the State because of their high interest rates. Since clear and transparent criteria for project assistance do not exist, there is much room for manipulation by interested parties, whether they belong to the State or Central Government. Unless these issues are addressed, giving of central assistance in the form of project specific assistance would not serve the purpose. It will undermine what may be called the sacred covenant of Indian fiscal federalism, namely, the Gadgil formula. The formula needs to be improved but abandoning it might lead to a situation of near anarchy. The same doubt holds good for the proposal to set apart a Fund for States, which adopt agreed reform measures. Past experience does not inspire much confidence. These decisions have to be taken by representative NDC Committees and periodically reviewed to prevent abuse.

The Government of Kerala does not agree with the sweeping recommendation to completely privatize all 'non-strategic' public enterprises. There is indeed no need to expand them or waste precious funds on loss making units, which cannot be revived. But it is not clear what the catch - all word * non-strategic' encompasses. Are Airlines and Railways same as Hotels? What is important now is to use the opportunities provided by the policy environment to bring about basic reforms in public sector like improved management, greater autonomy, greater competitiveness, enhanced accountability to the public and so on. Well performing public sector units should be allowed to grow on their own. However, I agree that precious budgetary resources should not be wasted on non-viable PSUs.

As regards the private sector, the Government has no doubt to act as a proactive facilitator. But unfortunately the problems discussed in the approach paper are not the critical ones and only some general statements have been made. The Government's responsibility to put in place through legislation, effective regulatory institutions has not been mentioned. In the context of a growing private sector, what is required is stable policy, absolute clarity on the rules of the game, which affect both government and the private sector and above all effective and impartial implementation of the law and firm action against violators of the rule of law. While tackling the question of rigidities of the labour laws it has to be borne in mind that severe action should be directed against both unfair labour practices and unfair management practices and unfair trade practices. These have to be identified and suitable measures laid out to control them and even punish them. Also, in the garb of removing rigidities in the labour market it is not proper to meddle with internationally recognized labour rights. A disgruntled and suspicious labour is not conducive to sound economic development and successful reforms. As I had indicated earlier, there is need for dialogue and discussion to take the reform process further.

Liberalisation of imports is something, which cannot be done for its own sake. Recent experience in liberalisation of imports show that critical decisions have been taken without full appreciation and examination of the facts resulting in massive shocks to the economy. The case of coconut and rubber has already been mentioned. There are similar examples in the case of other States. Mutual trust and frequent consultations with the State Governments are necessary to avoid this in future. As India is going for further negotiations in WTO it has to be done with the consent of one and all and after probing every aspect of each issue in question.

I agree with the point that Banks have to be kept out of forced lending, but they cannot be absolved of responsibility to fund projects, which are viable, especially for poverty reduction and local level development. A relationship has to be forged between the local governments and the banks so that they can direct credit for development projects taken up by them.

Subsidized interest rates can be objected to only if there is distortion induced through cross-subsidization. There are sections of people who are willing to borrow and repay at affordable interest rates. If need arises, subsidies could flow from the concerned programme departments. But they cannot be removed altogether. A typical case in point is housing for the weaker sections where the interest rates have gone up from 8% to 11% within a couple of years.

I strongly feel that it is time to have a re-look at the financing pattern of Central Assistance. It is suggested that the grant and loan portion should be equal with the loan portion carrying reduced interest of 9%. Similarly, the interest rates for project linked assistance like AIBP and RIDF may also be brought down to 9%. Loans taken to finance the plan from institutions like LIC, GIC, and HUDCO now carry a high interest rate. This is not justified, as these loans are guaranteed by Government and the risk factor is zero. Therefore the interest rate should be equal to the cost of funds in such cases.

It is disheartening to note that in spite of three decades of discussion and debate, the question of Centrally Sponsored Schemes is still hanging fire and their number has increased. The Committee set up by the last NDC 30 months ago has not been able to make any headway. It is a telling commentary on the attitude of the Central Ministries that ever since the Gadgil Formula was introduced to curtail discretion and arbitrariness in passing down Central Plan Fund to States, there has been an explosive growth of Centrally Sponsored Schemes. It is ironical that the birthday of Mahatma Gandhi, the great apostle of decentralisation is used as the occasion to launch centrally sponsored programmes. Now, centrally sponsored programmes have been launched indirectly by even encroaching upon Additional Central Assistance, a good portion of which is a costly loan to the State. The ACA for basic minimum services has now been converted into de facto centrally sponsored schemes under PMGY for which sanction has to be obtained from the Central Ministries. Isn't it odd that even for rural housing and rural roads, approvals have to be taken from Delhi when the Constitution has assigned these responsibilities to local governments? May I say, in all humility and with all the earnestness that I can command that it is most unfortunate that when every section of society is asked to reform, an entirely internal reform of the Central Government, which is long over due, is not implemented

The Approach Paper makes it very clear that Centrally Sponsored Programmes have been by and large failures. Uniform schemes with rigid guidelines are not appropriate in the context of diversity of development problems. Often the compulsory State component ranging from 25 to 50% has forced the States to commit their precious resources to schemes not exactly suited to their needs. Many a State has fallen prey to the tempting offers by the Centrally Sponsored Schemes to provide for staff component, which later becomes the State's responsibility adding to the non-Plan burden. This is particularly true of the health and rural development sectors.

This NDC could go down in history as the one which took the bold decision once and for all regarding Centrally Sponsored Schemes. I would suggest that in key areas, particularly in the social sectors there could be a basket of major schemes with flexible allocation for each scheme while the total kitty could be fixed at not more than one-third of the Central Plan. The States could send proposals according to their priorities, which could be done once in five years. Based on the State's needs the total allocation of individual schemes could be finalized by the Planning Commission. Of course the entitlements of each State should be as a percentage of the total kitty based on clear objective criteria. Thus a demand responsive approach can be introduced in the Centrally Sponsored Schemes. In a sense, it is a necessary corollary to the State-wise break down of National targets and State-specific development plans so rightly emphasized in the Approach Paper.

I do not wish to speak at length on the sectoral issues and take your time. I would like to raise the following points:

In the new context a different approach to agriculture is called for. While food security should be the basic objective, productivity of the land as a whole, should assume significance. This would mean appropriate support to non-food agriculture also. Kerala had diversified, and in a sense liberalised agriculture by encouraging Cash Crops. Such crops have to be given policy and programme support, a good example of which would be an Agricultural Insurance Scheme covering Cash Crops also. Intensive local resource development appropriate to agro-climatic conditions is necessary throughout the country and not only in some regions as indicated in the Approach. Since agriculture markets all over the world are not really free and are heavily propped up with subsidies, both direct and indirect, the interest of indigenous producers have to be protected within the over all framework of national food security.

Freeing of movement of food grains within the country is long overdue. Even so, in food grain deficit States like Kerala, the need for central support will remain. The States do not have the wherewithal or the market information to procure food grains from surplus States on their own. What is needed is not decentralizing of all procurement but more viable pricing policy and improving the efficiency of FCI operations where some sort of unbundling could take place and some of the components entrusted with the private sector. Removing sugar from PDS also is not acceptable to us.

The Exim policy vis-a-vis food items has to be a gradualist one. Self-sufficiency in food should never be compromised, even while a careful balancing of the needs of the consumer and the producer is attempted.

Small-scale industries are of special importance to a country like India. A policy package has to be evolved which consists of more than fiscal incentives. The idea of geographical clusters, which are mutually linked for procurement, marketing and collateral, enterprise incubators, innovation centres and common facility points have to find a place in this package.

As regards social infrastructure I am disappointed at the weak treatment of the issue in the Approach paper. The development of the country depends on how we perform in these sectors, which now is generally agreed to be the core of governmental responsibility. Investment required in these sectors both in terms of cash and manpower has to be assessed and should be the first charge on Plan expenditure along with anti-poverty programmes. In the case of the health sector, encouraging Indigenous System of Medicine, especially Ayurveda is both a necessity and an opportunity. More investment in R and D and in setting up centres of excellence is called for. Health insurance, especially for the poor, should be introduced in a phased manner.

While I agree with the concept of unbundling and reforming State Electricity Boards. However as regards the suggestion to privatize them, I would urge a study of the experience of Stales which have attempted privatization and appropriate lessons drawn before giving a general prescription.

It is very crucial to have an optimum energy mix. In a State like Kerala, which has a locational disadvantage, thermal power would be costly. Here a fast track single window mechanism needs be set up to clear hydel power projects.

In the case of Railways, in the name of economy, certain un-served areas are being neglected or are being passed down to the States as their responsibility. This is not a healthy tendency. Railways have been assigned a definite task and this they should perform.

The State welcomes the importance given to proper rural connectivity. But unfortunately through faulty definition of Villages the State has been penalized under the Prime Minister's 'Gram Sadak Yojana'. The State has Village Panchayats with an average population of about 30,000 and achieving connectivity at one point does not lead to any significant gain. It is the concept of habitation rather than artificial definition of Village that has to be accepted. If this is done the State should get at least 4 to 5 per cent of the total allocation. The Government of India must rectify this anomaly.

The spirit behind governance reforms is well taken. Governance reforms require massive efforts at capacity building. Non-specialist staff have to be trained in modem management methods and use of information technology; and the skills of the specialist staff have to be upgraded considerably. This calls for special support from Central Government to States, which are willing to take up such capacity building exercises.

Let me conclude by saying that well begun is half done. The spirit of today's discussions needs to be incorporated when the Approach Paper is finalised. The implementation of the Tenth Plan should be through partnership of all concerned and may this NDC meeting go down in history as the one, which initiated and implemented such a partnership.

Thank you,

Jai Hind.