>Kerala’s development model is in focus yet again as the newly elected Left Democratic Front government is in the process of evolving a vision for the State’s economy.
On the one hand, Kerala has made spectacular achievements in land reforms, education, and health since its formation. Amartya Sen has attributed these results to public action, brought about by State governments and by the political, social and labour movements in the State. On the other hand, a serious cause of concern emerged by the 1980s: Kerala’s inability to kick-start economic growth despite its social progress. This thankfully changed by the early 2000s: while Kerala’s per capita income was 16 per cent less than the Indian average in the early 1980s, it was 34 per cent more than the Indian average by the end of the first decade of the 2000s.
Growth-related problems Unfortunately, growth brought along with it some problems. The main drivers of this growth have been the service and construction sectors, which have together contributed 81 per cent to Kerala’s Net State Domestic Product (2011-12). But the contributions of industry and agriculture to the State’s income growth have been marginal.
The biggest stimulus to Kerala’s economic growth comes from the remittances sent by its migrant workers, mostly skilled and working in West Asian countries. According to an estimate by the State government, 1.4 million Keralites were working outside the State in 2011. At the same time, a rising stream of migrant workers from other States, mainly Bihar, West Bengal and Odisha, meets the large demand for unskilled labour in Kerala. Estimates by the Gulati Institute of Finance and Taxation show that migrant labourers in Kerala from other States numbered approximately 2.5 million in 2011. This was close to 20 per cent of Kerala’s total workforce (12.7 million) at that time.
Clearly, a major drawback of economic growth in Kerala today is that it is not generating enough jobs to meet the expectations of >educated Keralites entering the labour market . There are worrying signals of growing inequalities. In 2011-12, per capita consumption expenditure of the richest 5 per cent was almost six times the per capita consumption expenditure of the poorest 5 per cent in the case of Kerala as compared to around five times for India as a whole. The increasing presence of the private sector in health and education is a threat to the gains made by the State in these areas during the earlier years.
The proportion of working women is low in Kerala (only 21.3 per cent in 2011-12). This poses a hurdle in the efforts to reduce gender inequality. Further, the strains caused by economic growth on the natural environment are now highly visible: paddy fields have been converted into commercial plots and waste is dumped in public places.
Kerala’s failure to build a diversified manufacturing sector has often been attributed to the activist role played by labour unions. However, my research has shown that the roots of Kerala’s industrial backwardness can be traced to investments to the State starting from the 1930s. Investments were mostly in chemical-producing industrial units. These industries have hardly built any linkages with the rest of the economy. Further, they have been constrained in growth in the State due to power shortage, unavailability of land, and environmental problems.
With rising wages and education levels of its workforce, industries relying exclusively on cheap labour shifted out of Kerala. When faced with a similar situation, East Asian countries like South Korea and Singapore consciously upgraded their economic structures, shifting to more advanced industries and services. Kerala too has to chart out new economic activities which make use of its unique strengths: an educated workforce, democratic institutions, and a favourable natural environment. Kerala’s cities cannot, and perhaps should not, compete with Bengaluru or Hyderabad as hubs for information technology or knowledge industries.
Creating an environment Knowledge-based and skill-intensive economic activities can be developed in a more diffused pattern across Kerala. For entrepreneurs, the State offers certain obvious advantages including the extensive reach of communication and other technologies and good infrastructure even in rural areas. The government should play the role of a facilitator, setting up research centres and encouraging cooperatives of skilled workers and entrepreneurs. An urgent requirement is to create public spaces such as libraries and parks where people can freely exchange ideas.
There are enormous possibilities in Kerala for the production, value addition and marketing of a range of agricultural and agro-based products. As of now, there is very little value creation within the State even of important crops such as coconut and rubber. A revival in agriculture, paddy cultivation in particular, will be extremely beneficial for maintaining an ecological balance.
Panchayats and other local bodies must find ways in which the growth of the agricultural and tourism sectors can enrich each other. They may also seek to convert many of the beautiful, but largely under-utilised, houses in rural areas into homestays for tourists.
Kerala has the potential to emerge as a key player in fields such as healthcare, biotechnology and biomedical sciences. It can also make a big impact is cultural industries, including media, advertising and animation. Ports and waterways can be another important source of income growth.
Kerala’s future growth requires large investments. Given that State governments have limited financial resources at their disposal, Kerala will have to be receptive to private investors, both domestic and foreign. At the same time, the State and local governments should be able to effectively regulate and discipline investments in a way that suits the State’s larger interests.
Middle-class Malayalis, migrants in particular, put their hard-earned savings mostly into constructing houses or purchasing gold. The State’s Finance Minister Dr. T.M. Thomas Isaac, a noted economist, has announced the government’s plans to float an investment vehicle which will channel such savings into more productive purposes. This will be an important experiment in mobilising local capital.
Kerala has achieved social progress without bowing to the dictates of the markets. It should now look for ways to channel its public action into economic progress that is socially and environmentally sustainable. For a world in search of alternative economic ideas, Kerala can become a model yet again.
Jayan Jose Thomas is an Associate Professor of Economics at IIT Delhi
