Economy of Kerala State | Kerala Economy Syllabus Wise Study Material for KAS Exam | Prelims & Mains | KAS Tutor

This article is all about economy of Kerala state explained based on the Kerala economy syllabus of Kerala Administrative Service (KAS) examination prelims and mains. Here we discuss the the Economy of Kerala from pre-independence era (before 1947) to recent Covid period (2020). Economy of Kerala State and Kerala Model Development is the two pillar that the KAS Kerala Economy Syllabus is aligned to. The article explain how the feudalistic and agrarian backward economy of Kerala during its formative years transformed in to egalitarian service sector dominant economy after Liberalisation, Privatisation & Globalisation (LPG) reforms in 1991 and then to a world class 'Kerala Model' in 2020. Because of the high social indicators and qualitative model of development, Kerala is world example by its 'Kerala Model of Development'. There is comparison done between Gujarat Model of Development. The video discusses the condition of the economy of Kerala state based on historic timelines, the performance of various sectors like agriculture, manufacturing and services. It also explains the trend of gulf boom in 1970s, pravasi and foreign remittance. The article ends with an analysis of the challenges faced by the economy of Kerala during pre-Covid period and post covid period. Let us move on to the article.

Kerala was emerged as a constituent state of the Indian Union by the States Reorganisation Act of 1956 by the integration of Malayalam speaking regions which include the princely states of Travancore-Kochi (Thiru-Kochi), Malabar along with some other minor territorial adjustments on 1 November 1956. At the time of formation of the state, the economic condition, health and educational status of Malabar (an administrative district of Madras Presidency) which were under the control of British colonial rule was very backward compared to the princely states of Travancore & Kochi which were ruled by native rulers & kings. 

The economic environment of Travancore and Cochin was much more favourable to an enhancement and well-being of the people, relative to British controlled Malabar. The policy of conferring ownership rights for land were exercised to some extend in Travancore & Kochi and benefits of commercialisation were extended to the tenants and land holders of the region but no serious legislative measures for land ownership and tenancy were taken in Malabar region until 1920s and the peasants were exploited by the landlords and middlemen. Thus the economy of the state was under developed and mostly agrarian until its formation. 

The economy of Kerala faced structural change after its formation. Structural transformation is a process by which the relative importance of different sectors and activities of an economy changes over time. The state of Kerala had changed from a backward agrarian (primary sector) rural economy in 1956 to a prominent service sector (tertiary sector) economy by 2020. 

The economic condition of the state during its formative years had the characteristics of a backward economy. It was not self-reliant on food supply, there was shortage in agricultural production, per capita income was below the national level, tenancy system was existing, problems of unemployment, vulnerable sections of society, massive poverty, poor standard of health, lack of infrastructure and so on. In this regard, economic policy of the successive governments of the state of Kerala during 1956-1990 phase was mainly characterised by excessive state intervention in the market, state development through economic planning & funding through public investment, promotion of PSUs (Public Sector Undertakings), expansion of social welfare measures, public investment in education and health etc.

 

It is obvious that market interventions by the government is essential to promote social goods and well-being; however, excessive state interventions in a way retarded the economic growth of Kerala. The basic drawbacks of the policy during this phase was that it concentrated more on public investment and ignored the vital role of private investment in accelerating the economic growth and development. The inward looking policies gave least priority to technological development. Mechanisation were considered as anti-labour and was backed by the support of trade unions. Introduction of computers in banking sector & government departments also invited opposition from the trade unions initially. The growth rate during 1956-1990 was below 5% (which is considered as a low rate of growth) except the period of second half of 1960s. 

The large scale emigration of Keralite to West Asia especially Gulf countries was a major demographic trend in Kerala starting from mid-1970s. It brought foreign remittance and has a significant contribution to the economic condition of the state. Tourism is another service sector industry which had significant contribution to the economy of Kerala since the last half of 1980s.

Liberalisation, Privatisation & Globalisation reforms (LPG reforms) of the central government in 1991 which marked the economic liberalisation in India had a positive impact on Kerala economy even though it was not initially welcomed by the then ruling government in Kerala. The state had a radical transition from a backward agrarian economy during the pre-liberalisation period (1956-1990) to a modern growing economy in post-liberalisation period (1991-2020). During this period, adequate priority was given to private investments which led to infrastructure development, rapid urbanisation of the state, technological advancements and reduction in poverty level of the state etc. 

However, the negative impact of economic liberalisation to the economy of Kerala include fall in price of cash crops especially rubber due to liberalised import norms. It also led to marginalisation of certain section of the society who were dependent on agriculture and allied activities from the competition from the global market. Private investment in infrastructure through Public-Private Partnership (PPP) model was not pulled off as expected. But in a broader perspective, LPG reforms stimulated growth in primary, secondary and tertiary sector of the economy. The growth was interrupted during the Global Economic Crisis in 2008 and subsequent years. 

Analysing the sector wise growth rate post LPG reforms, the primary and secondary sectors remained as sluggish, the service sector achieved a high growth path. Kerala at present is a service sector (tertiary sector) dominant economy. 

Despite the sluggish economic growth over the years, Kerala has a unique developmental experience giving focus on social justice, economic equity and people-centered public policy and thus attaining high levels on “Physical Quality of life Indices” (PQLI) and human development interestingly at low per capita income. The state of Kerala has been able to achieve exemplary results in key social indicators such as health, literacy, standard of living and other demographic indices; featuring in it no urban-rural difference; utilising barely sufficient resources. All these factors made the economic experts to call the state’s economic development model as the ‘Kerala Model Development’ or the ‘social justice model’ or an exemplar of the ‘basic need approach’. However, this development model is characterized by low per-capita income and poor expansion of economic activities (especially till late 1980s) which fits the state to human development-lop sided category in the analysis of the relationship between economic performance and human development. 

There are arguments that the development model of the state is not sustainable and is resulting in mounting fiscal problems. Thus ‘Kerala model’ has been referred as a paradox of social development and economic backwardness. However, the model signifies that it is possible in less industrialised and urbanised societies to attain the third stage of demographic transition by means of such social development without the simultaneous rise in per capita income, urbanisation and industrialisation, unlike in the advance countries. Apparently, the economic situation is reviving since late 1980s in Kerala and we are striving to be in the new ‘virtuous’ phase of Kerala’s development: human development and economic growth which seem to have started reinforcing one another positively, in contrast to the earlier experience of ‘human development lop-sidedness’ (with weak economic growth). 

As we are in the year 2020, the economy of Kerala witnessed 2 consecutive landslides & flood years, extreme rainfall events, cyclone Ockhi, NIPA virus outbreak and the Covid 19 pandemic. The state resources were also inversely affected by the implementation of Goods & Service Tax regimes. Despite all these problems, a positive growth rate is recorded for 2018-19 financial year. Kerala economy grew at 7.5 per cent (at constant prices). The growth was 7.3 per cent in 2017-18. The growth in 2018-19 was mainly due to the growth in secondary sector, which recorded a growth of 8.8 per cent (at constant prices). The tertiary sector grew at 8.4 per cent in the same year. 

The national economic slowdown affected the state of Kerala badly. Growth rate in BRICS countries (except China) is lower than the preceding year. The estimated national growth in real GDP in 2019-20 is 5%, much lesser than the growth rate of 6.8% recorded in 2018-19. The demonetisation & implementation of GST regimes had a blow to country’s economy at least for the time being. India had also issues with banking sector and NBFCs. 

Recessionary trend in the global economy which is creating an economic trouble in the Gulf region and the country specific policies like ‘nitaqat’ is affecting the foreign remittance and is a serious setback to the economy of Kerala. The uncertain geopolitics, global trade barriers, fluctuating crude oil prices are intensifying the global slowdown to another level which will have its repercussions in the state’s economy as well. 

The global outbreak of Covid 19 pandemic will be posting a great threat to the economy of the state also as it may seriously affect the foreign remittance and service sectors or hospitality sector especially retail hotels & restaurants, travel & tourism etc which were the significant source of income for the state. The consumption pattern of the state will be seriously affected which in turn affects the State Domestic Product. However, the state is spending enough to public expenditure on health care and is recovering from the threat which is commendable and exemplary.
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