THE ASIAN DEVELOPMENT BANK LOAN FOR KERALA (INDIA): THE ADVERSE IMPLICATIONS AND SEARCH FOR ALTERNATIVES
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THE ASIAN DEVELOPMENT
Institution
THE ASIAN DEVELOPMENT
THE ASIAN DEVELOPMENT BANK LOAN FOR KERALA (INDIA):
THE ADVERSE IMPLICATIONS AND SEARCH FOR
ALTERNATIVES
K. Ravi Raman
March 2004
An earlier version of this paper was presented at the International
Convention of Asia Scholars, Singapore 19 -22 August, 2003. The
author is grateful to...
THE ASIAN DEVELOPMENT BANK
LOAN FOR KERALA (INDIA):
THE ADVERSE IMPLICATIONS AND
SEARCH FOR ALTERNATIVES
K Ravi Raman
March 2004
,2
Working Papers published since August 1997 (WP 279 onwards)
can be downloaded from the Centre’s website (www.cds.edu)
, 3
THE ASIAN DEVELOPMENT BANK LOAN FOR KERALA (INDIA):
THE ADVERSE IMPLICATIONS AND SEARCH FOR
ALTERNATIVES
K. Ravi Raman
March 2004
An earlier version of this paper was presented at the International
Convention of Asia Scholars, Singapore 19 -22 August, 2003. The
author is grateful to K. K. Subrahmanian, K.P.Kannan, K. K. George,
K. T. Rajagopalan, Sudha Pillai, K. M. Abraham, V. Murukesh Kumar,
Jose Sebastian, M. A. Oommen, P. Mohanan Pillai, K. T. Rammohan,
K. N. Harilal, M. Suresh Babu, Roy Mathew and R. Mohan for their
valuable comments on an earlier draft of this paper; research assistance
was provided by P.B. Rakhe and Georgekutty.
, 4
ABSTRACT
The privileging of internal resources over external finance is not
only the most democratic but also the most politically desirable option.
The implications of the ADB loan for Kerala is situated against this
premise by employing an empirical political economy method. The paper
is divided into five sections. In section 1, along with the structure of the
loan, the current status of state finance is briefly outlined. Section 11
explores two hypotheses: the Resource Mobilisation Crisis Hypothesis
and the Debt Overhang Hypothesis. In section 111, the socio-political
implications of the ADB loan are discussed in the context of the
conditionalities imposed. In section IV, viable alternatives are analysed
with special emphasis on internal resource mobilisation and section V
summarises observations. It is pointed out that the debt sustainability in
Kerala was foreclosed by the late 90s with the state is in debt overhang.
The ADB loan would only be an attack on the fiscal health of the state.
Moreover, the class bias of the state blinds it to encrypted sources of funds
which in Kerala help foster social structures of accumulation, leading to
what could be called a state-‘augmented/patronised’ fiscal crisis. If the
Kerala government were to adhere to ADB-driven governance, it would
culminate in social de-investment, “commodification” of critical sectors
such as education and health and thereby a reversion of whatever remains
of the Kerala model of social development; vulnerable social sections
being the hardest hit. Although the state has accepted the first tranche, it
could just as well withdraw totally from the ADB package. What is required
is a concerted effort towards an internal resource mobilisation which would
liberate the state from its commitment to the high-conditionality ADB
loan. A mere 20 per cent or less of the locked up funds/arrears would save
the state from seeking the second tranche. The state would be well advised
to first stop further borrowing from the ADB and to dispense with the
ADB policy package, and, second, to renounce the path of externally-
driven neo-liberal reforms.
Key words: Asian Development Bank, Fiscal Deficit, Debt Overhang,
Resource Mobilisation, Social Structures of Accumulation,
Kerala, India
JEL Classification: G2, G38, H1, H2
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