Kerala’s budget for 2024-25 was presented amidst the economic stress that the state grapples with. The finance minister, in the budget speech, criticised the hostile attitude of central government towards the state, he feels has contributed to its current financial crisis. Given the prevailing circumstances, expectations for the state budget centred around rational expenditure and revenue-generating targets, but it was more of a policy directive.

The budget emphasised on attracting investments and investors signalling a positive outlook for the business community, particularly in a state often seen as less favourable destination for business. Various sectors such as port-led development, tourism, higher education, robotics, Artificial Intelligence (AI), care economy, and medical equipment manufacturing were highlighted, these are potential sectors that pose as a great opportunity for the state’s growth. The finance minister even projected investments worth ₹3 lakh crore over the next three years. However, the key question remains whether the budget was able to translate the claims into numbers.

The budget lacked clear targets that could possibly rationalise state’s expenditure and maximise revenues. This require in-depth studies to identify areas with unnecessary expenses that could be streamlined with bold reformative decisions. Given the state’s clear policy to attracting more investment, it’s crucial to overhaul regulatory compliances that burden businesses.

Kerala, as a state, has consistently prioritised the welfare of its workers through various policy initiatives over time. With the current thrust for increased investments, it is imperative to thoroughly assess the state’s welfare agenda to determine whether it effectively maximises welfare or places undue strain on the state’s finances.

Kerala has established 16 welfare fund boards constituted under respective welfare fund acts. The primary objective of the welfare fund boards is to maximise the welfare of the employees. In order to achieve the objective, there is mandatory contributions from both employer and employees. The funds purview extends to provide aid to members and families in various ways such as disaster or any unprecedented natural calamity aid, healthcare support, maternal benefits, education, marriage support and unemployment benefits. Each fund offers different benefits depending on the nature of the work involved.

Among the 16 welfare fund boards, only five — namely, Abkari Workers, Headload Workers, Building & Other Construction Workers, and Toddy Workers’ welfare fund boards — are operating relatively well. The remaining boards rely on government assistance to cover their annual expenses, as they lack sufficient active members who regularly contribute to the funds. Some boards, such as the Kerala Beedi and Cigar Workers Welfare, have a limited number of members joining, raising questions about their viability. In such cases, where there is little to no active flow of funds, maintaining administrative costs within 10% of the board’s fund becomes challenging. Consequently, government support is often necessary to provide benefits to members and cover administrative expenses for these fund boards.

As evident from Table 1, there is a significant disparity between the number of registered members and the beneficiaries across various welfare fund boards, notably the Kerala Headload Workers Welfare Fund Board and Kerala Unorganised Workers Social Security Board reported zero beneficiaries in 2016-17(the most recent data available). The minimal number of beneficiaries prompts a consideration of whether the challenge lies in the difficulty of claiming benefits or a lack of awareness among potential recipients.

Source: Labour Statistics at a Glance Kerala-2017

The traditional method of managing funds and maintaining member details is clearly not optimising the welfare provided to them. Typically, funds are parked in scheduled banks without utilising financial derivatives or engaging professional fund managers, resulting in suboptimal benefits. Additionally, issues such as dual memberships in multiple boards have been identified.

Integrating technologies and efficient solutions, such as unique labour identification numbers, can facilitate labour mobility across sectors and address the issue of multiple board memberships. Consolidating boards with similar goals and benefits, and discontinuing those with insufficient membership, can streamline government spending. Implementing such reformative measures has the potential to alleviate the state’s current financial situation.

When the state aims for positive growth by having more investments it is important for the employers to have easy compliances and smooth operations within the state. The welfare acts carry imprisonment terms for not complying with the provisions in the act, which can create a negative perception among employers. For instance, under the Kerala Tailoring Workers’ Welfare Fund Act, 1994 failure to pay ₹5 per worker by the employer can attract a jail term of upto two months. A regulatory reform along with the policy changes like decriminalisation in many of the state acts including welfare fund acts is necessary in the state. The state should proactively engage with the stakeholders to identify sectors where active reformative changes are required, ultimately fostering improved financial health and increased investments.

This article is authored by Anu Anna Jo, senior associate, research, Centre for Public Policy Research.