Kerala looks to shed investor-unfriendly tag, plans lease model for investors

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Updated: Feb 12, 2019 7:05 AM

While vertical structures would be preferred given the state’s acute scarcity of surplus lands, to make the land costs affordable to investors, a deferred payment system would also be introduced, senior state government officials said.

Chief minister Pinarayi Vijayan

Keen to ward off the lingering perception of the state’s ‘investor-unfriendliness,’ the Kerala government has embarked on a plan to remove a key irritant for private investors – the very high and skyrocketing costs of land and hurdles in acquiring it. Under a land leasing policy on the cards, the state’s assorted agencies will acquire land parcels from private persons by paying handsome compensation, undertake their development up to a stage and hand these out to private investors under long-term leases at attractive rates.

While vertical structures would be preferred given the state’s acute scarcity of surplus lands, to make the land costs affordable to investors, a deferred payment system would also be introduced, senior state government officials said. While land pooling by the state has so far been restricted to industrial estates (the occupancy of the developed land is pretty high), the new policy will proactively identify land outside these areas, without causing any big damage to the environment. To start with, some 5,000 acre would be acquired in the vicinity of the new Kannur airport by the Kerala Industrial Development Corporation (Kinfra), at an estimated cost of around Rs 35,000 crore, chief minister Pinarayi Vijayan said on Monday.

As the state government’s Budget funds are limited (budgetary capital expenditure is just about 8% of the total annual Budget size which is a little over Rs 1.25 lakh crore, much less than the national average, primarily due to high revenue expenditure on salaries and pensions and subdued tax buoyancy), land purchases would be enabled by sovereign-backed off-Budget borrowings — via the Kerala Infrastructure Investment Fund Board (KIIFB), a special purpose vehicle for infrastructure development and capital investments and other alternative sources.

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Addressing a group of journalists here on the sidelines of Ascend 2019, an event to highlight and hard sell to investors a raft of legal and procedural reforms already undertaken by the state government to improve the ease of doing business in Kerala, Vijayan said the land development efforts would over time have a multiplier effect on the state’s revenue base, thanks to economic activities it would help generate.

“There isn’t much of land parcels with us that are free. So, we will have to make optimum use of the land,” the chief minister said. Stating that the state’s trade unions were willing to have a participatory role in development, Vijayan said Nokkukooli (wage for looking), an odd practice where the unions would demand a fee without actually doing any work, was done away without a murmur of dissent from the unions. He added that many investors, including those from overseas, have evinced interest in the state of late. Separately, non-resident Keralites have made proposals to the tune of Rs 10,000 crore.

The chief minister also highlighted a unique private partnership (PPP) model – as for the Cochin Indian Airport (CIAL) — where the government remains the dominant investor as well as operator while firms, HNIs and other investors pitch in — and said this was worth emulating in various other sectors.

Asked whether Kerala’s high wages (minimum wage is Rs 600/day, much higher than national average) would be a dampener for corporates, Vijayan told FE the state’s high labour productivity and standard of living would more than compensate for that.

K Ellangovan, principal secretary — industries, listed out the steps taken to boost investor confidence: an omnibus KIPF Act that amended seven other Acts, an investor promotion cell and K-Swift, an online, time-bound, single-window clearance mechanism that includes a uniform payment platform.

Stating that SMEs were thriving and proliferating in the state, Biju K, director – industries and commerce, said the cluster model being promoted would help them handle land acquisition issues.

Last year, Kerala scored 44.82% and was ranked 21st among 36 states and Union Territories that were ranked by the World Bank on ease of doing business. Elangovan said it was rather unfair to compare Kerala with large states and cited a recent NCAER Investment Protection Index where Kerala was ranked sixth after the large industrialised states.

He also felt that the World Bank yardstick of feedback from investors was less than foolproof. “Apart from being at the top on social development, Kerala also fares well on road and teledensity as well rail and air (only state with four international airports) connectivity,” Elangovan said.  The proposed semi-high speed railway and coastal highway would make the state’s infrastructure truly world-class, he said.

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