Thiruvananthapuram: The overall cost of production in Kerala is lower than that of other south Indian states, says a study conducted by the Centre for Development Studies (CDS) here.
 The study, on the competitiveness and industrial climate in the three south Indian states of Karnataka, Kerala and Tamil Nadu, contradicts the popular perception on the cost of production in Kerala.
Nevertheless, the state ranks third after Karnataka and Tamil Nadu in terms of competitiveness, according to the study, the results of which were released by the Confederation of Indian Industry (CII) here recently.
The study, conducted by Suresh Babu and K N Harilal, noted that though the state fares moderately with respect to general economic environment and infrastructure, performance with regard to investment activities and finances for investment is poor. The lack of the so-called cutting edge for the manufacturing sector is without advantages in certain areas like general economic environment, infrastructure and costs.
Kerala has not been able to enhance its share in national output over the period 1981-97. While the state accounted for 4 per cent in 1981, it was only 3.3 per cent in 1997, implying slow erosion in the states competitive position. Kerala has an advantage in industries like food-processing, wood and wood products, paper and paper products, chemical products, rubber, petroleum and plastic products. These industries account for 76 per cent of the total value of output in 1997-98.
In order to identify the industries in which Kerala has a comparative advantage, the revealed comparative advantage (RCA) indices, indicating the market share, are utilised. The RCA index pertains to a countrys share in the world exports of a given commodity or rather it gives a measure of the competitive strength of a particular commodity in a countrys export basket.
The study was based on five broad indices - general economic environment, investment environment, availability of finances, extent of infrastructural facilities and costs of production conditions.
The process of economic liberalisation has assigned a significant role to the market forces in the decision on products, capacities, investment, choice of location and other related matters, including the more open trade with a view to raising competitive efficiency and growth of the industry.
The process of liberalisation has changed the product-structure in the sense of addition of new sets of sunrise industries depending more on knowledge or skill than the conventional inputs. The rivalry for higher shares in the market and profits has led to a departure from the conventional forms of price competition to encompass new instruments of competition.
Abolition of industrial licensing and other regulations to give way for the play of market forces in resource allocation and industrial location by the private sector has necessitated the states to compete with each other for attracting investible funds and resources into the respective state regions. For, the concept of competitiveness means different things when discussed at different levels. To a firm or an industry, the concept when translated into action results in higher market shares and profits.
Trade flows across states are hard to discern for want of comprehensive data. Besides, the role of state governments in the realm of policy changes too is constrained as important policy variables regarding domestic prices, and exchange rates are decided at the national level.
In analysing the state-level competitiveness, the ability of the state to generate and sustain productive activity needs to be emphasised. This in turn points out the need to examine the growth dynamics in the industrial sector along with the ability to attract new investments as indicators of the states competitiveness.
Growth, fuelled by technological change and modernisation, needs to be supplemented with linkages in the economy. The availability of surplus and investments in the crucial sectors in order to create conditions for growth could become a source of competitiveness of the state.
The study pointed out that the state is characterised by the existence of a dual industrial sector with a small sector of the modern sector and a predominant traditional sector with low investment and productivity.
Technological upgradation becomes necessary, as industrial products no longer have the luxury of long lifecycles. The emergence of a new class of consumers makes the introduction of new brands and new products imperative.
This often demands continuous technological upgradation and innovation. Hence the firms will have to indulge in collaborative efforts. To expect everything to come from the state government is unrealistic.
New forms of organisation of production centred on certain locations within the state might be of help in the process with the formation of clusters. Induced clustering in the form of provision of sites for manufacturing and basic amenities becomes the response of the government in this direction. However, locating production by the firms themselves in specific locations, too, help to reap the benefits from networking.
Infrastructure plays a crucial role in determining the competitive advantage, as competitiveness originates from three sources: cost advantage, quality of the products and reliability of delivery. Cost advantage can arise from improved productivity growth due to the exploitation of better facilities, enabling the firms to raise the output. Social infrastructure, on the other hand, helps to improve the quality of the products by providing high-skilled labour. Information and communication network and better transportation facilities complement the process.
Non-economic factors, too, assume importance in the competitiveness of states. A corruption-free stable political regime becomes a prerequisite for this. Also important are suitable labour laws and dispute-settlement mechanisms that warrant political will.
If these are implemented effectively, it can reduce the man-days lost and contribute to the profitability of investments, the study concluded.
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