Direct foreign investment a setback for Kerala
Introductory Memo: Kerala is facing serious challenges in attracting foreign direct investment (FDI), with its share falling to 0.64% of India’s total investment in 2025–26, amounting to 3,281 crore and placing it 11th among Indian states. While Karnataka and Tamil Nadu have recorded significant growth, experts attribute Kerala’s poor performance to the lack of a clear investment policy, inefficient governance, political polarization, and trade union interference, despite its skilled workforce, clean environment, and high living standards. They stress the need for a sustainable investment strategy and faster implementation of stalled projects such as those at Technopark and Infopark. Meanwhile, Gulf Malayalis have deposited around 3.75 lakh crore in banks under a special Reserve Bank scheme, with Federal Bank receiving the largest share. Separately, Impact Kerala Limited, established to implement major local development projects, faces allegations of inefficiency, stalled projects, questionable temporary appointments, and excessive salary expenditure, raising concerns about its effectiveness and the use of public funds.
Analytical view/ Analysis: Foreign direct investment in Kerala declines substantially among South Indian states. While Karnataka and Tamilnadu gained sustentative progress Kerala retarded. But in resurgent India bonds investments in Kerala banks increased substantially.
While other South Indian states are vying for direct foreign investment, Kerala has fallen significantly behind. Economic experts view the decline in foreign investment, which is crucial for the state’s development and growth, as a serious crisis. Despite repeated efforts by changing state governments and industry ministers to attract foreign investment, there has been little tangible benefit, as indicated by the data released by the central government after reviewing the last six years. According to figures released by the Department for Promotion of Industry and Internal Trade under the central government, Kerala’s direct foreign investment is below one percent of the total foreign investment in the country. The direct foreign investment received in Kerala for 2025-26 is 32.81 billion rupees. Kerala, which had maintained a share of one percent of national investment over the last six years, has seen this drop to 0.64 percent this year. Kerala ranks eleventh nationally. It has failed to maintain the 333.03 billion rupees it had last fiscal year.
In Karnataka, the direct foreign investment nearly doubled last fiscal year to 1,12,869.88 crore rupees. Tamil Nadu experienced a growth of 32%. The investment received by Tamil Nadu is 41,197.97 crore rupees. Andhra Pradesh surpassed Kerala last year, with direct foreign investment of 5,354.4 crore rupees compared to 1,957.05 crore rupees the previous year. Economic experts suggest that the state government needs to have a sustainable system to attract direct foreign investment. Dr. C. Veeramani, director of CDS, points out that Kerala has favorable factors compared to other states, if not more. All favorable factors that high-tech companies look for are present in Kerala. Although the state has all the systems in place to attract businesses, such as a clean environment, skilled labor, and high living standards, it lacks a clear and policy-driven regulatory framework and agile governance, he states.
Despite a reduction in Telangana’s investment to 1,930 crore rupees, they are still far ahead of Kerala in terms of attraction. Over the last six years, Kerala’s share has not even reached one percent. The total foreign investment that came to India last fiscal year was 516,935.85 crore rupees. The highest investment was in the computer software and hardware sector, amounting to 122,279 crore rupees, followed by 87,873 crore rupees in the service sector and 35,234 crore rupees in the marketing sector. Maharashtra continues to hold the top position in attracting the most investment among states, with its share decreasing from 39.16% in previous years to 31.3%. Karnataka, maintaining its second position, saw its share rise sharply from 13.23% to 21.9%.
Experts say that a thorough study of the reasons for high-tech industries and foreign companies abandoning Kerala is essential. Governments coming to power during that period have conducted foreign trips to attract industries, but Kerala has yet to establish a structured policy or system for this purpose. Excessive political polarization and interventions from trade unions, particularly from component parties in the governing coalition, have also contributed to the decline in foreign investment by hampering the establishment of infrastructure. Even after signing a contract with Tea Com, nothing has progressed for years, and the next phase of development for both the Technopark and Infopark remains stalled; unless action is taken on these matters, Kerala will struggle to attract investment.
The surge in investments from Gulf Malayalis into the Reserve Bank’s special scheme, the Re-Sergeant India Bond, aims to boost foreign exchange reserves. Once again, the presence of Malayalis is becoming a hot topic in the central government’s special scheme for foreign exchange reserves. The Reserve Bank has accepted direct foreign exchange investments by providing special benefits and interest rates. According to figures up to March 31, 3.75 lakh crore has been deposited in banks by foreign Malayalis. The Federal Bank has received the highest investment, totalling 92,326 crore. The State Bank of India is in second place with 84,967 crore. South Indian Bank has gathered? 36,947 crore, Canara bank 2,352 crore, and Catholic Syrian Bank 5,432 crore in deposits. Banking experts say that the lifting of interest rate limits and the provision of more benefits for foreign investments under the Reserve Bank’s special scheme are reasons for the increase in investments. The exemption from income tax for these foreign currency deposits is also said to be a reason that allows foreign Malayalis to remit large sums of money for a long time.
Meanwhile, allegations have emerged that the company Impact Kerala Limited, formed by the previous left-front government to implement large-scale projects for local self-governance institutions in Kerala, has become a mere shell. It is claimed that only three projects have been completed in five years and that other assigned projects are stalled. Allegations suggest that relatives and family members of leftist leaders have been collectively appointed in a company that was started with the goal of implementing large-scale projects to enhance the assets of institutions under local governance. Around thirty employees have been temporarily hired at Impact Kerala without legally notifying or going through the employment exchange or PSC. These employees earn salaries ranging from 25,000 to 60,000. It is alleged that all temporary appointments were made through the backdoor for the leaders’ relatives. Over the past five years, more than 7 crore has been spent on their salaries.
Impact Kerala Limited was formed as a special company to transparently and swiftly carry out modern crematoriums, gas-based crematoriums, waste processing plants, new municipal buildings, and urban beautification projects. The aim was to bring in large-scale projects that local institutions could not undertake on their own. The construction activities were intended to use funds from projects like Rebuild Kerala and the Cleanliness Mission. Initially, out of 170 crore worth of projects assigned, only the crematorium in Kannur’s Ezhome Panchayat, the Ramanattukara municipal office, and the Cherthala sewage treatment project have been completed. The building for the Kannur Corporation office is a 31 crore project. The construction of this project, which was supposed to be completed this year, has not progressed anywhere. The local self-government department aimed to assign a project worth around 500 crore to Impact Kerala. There are also allegations that Impact Kerala was formed merely to divert KIFB funds. Economic experts suggest that if the UDF government revisits KIFB projects, Impact Kerala will cease to exist.
Reference
- The New Indian Express https://share.google/Ky1bb2gTcDfTrjsTR
- Kerala Kaumudi https://share.google/1hAWIJrwJTonUJr36
- https://share.google/0U2tK6lCk8PRTPIDD
- Magzter https://share.google/MvajM7IBrvAYqBzwh
- YouTube https://share.google/CCH5lfdHckKo0Eqwe
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Article by: G K Suresh Babu