Kerala’s Economy: Crouching Tiger, Sacred Cows

 

Kerala’s Economy: Crouching Tiger, Sacred Cows

Edited by Sunil Mani, Anjini Kochar and Arun M. Kumar

DC Books

Price: Rs. 195

 

This book contains articles which relate to the Economic development of Kerala. I have posted those facts and thoughts which I found interesting.

 

Statistics

 

The state has created 12% of all new non-farm jobs in India over the 1998-2005 period, no mean achievement for a state that is home to only 3.5% of the county’s population.

 

The state’s poverty ratio is now 12.72 per cent, down from 60 per cent in the early seventies. Its per capita income, at Rs 22,000, exceeds the national average. If remittance income is included, per capita income is 60 per cent above the national average.

 

The contribution of agriculture to the state’s GDP fell to about 20%. The major portion of the state’s GDP is driven by services. While the service sector grew by 13.8% in 2005-06, industry and power grew by a mere 1.3% and agriculture by 2.5%.

 

Contributions

 

An author, Arun M. Kumar calls for attention in the following five areas- nurturing a culture of entrepreneurship, making Kerala more attractive for non-Keralites, making it easy to do business in Kerala, creating a stimulating educational environment for the college going population and by involving expatriate Keralites so as to promote development.

 

Another author M N V Nair, talks about ‘patronage dispensation’ which he says is the philosophy of governance pursued by the elites, who consists of political functionaries, administrative bureaucracy, organized business, community and caste organizations and trade unions. He goes on to say that this ‘elite’ lives off the ‘influence peddling’.

 

K. Pushpangadan and M. Parameswaran talk about the ‘virtuous cycle of human development’ which facilitates rapid growth; as Kerala’s progress is in contrast to the accepted notion that ‘economic growth precedes human development’. ‘The authors suggest that the linkage is that human capital development resulted in migration that brought in remittances to the state which in turn facilitated economic growth.’ They posit that ‘dependence on remittances carries the risk of external shocks.’

 

Sunil Mani talks about the infocommunications sector in Kerala. He says that ‘Kerala has the highest teledensity (telephones per thousand people) among all Indian states.’ ‘Residential customers in Kerala get electricity at the cheapest rates in India’ writes V. Santhakumar.

 

My conclusions

The book portrays a growing picture of Kerala Economy. The authors suggest several measures to sustain this growth. It is a good read for those who want to get an in depth analysis of the economy of Kerala.

13 thoughts on “Kerala’s Economy: Crouching Tiger, Sacred Cows

  1. The state has created 12% of all new non-farm jobs in India over the 1998-2005 period, no mean achievement for a state that is home to only 3.5% of the county’s population.”

    Really?? Does this book backs up this data? do you know what is their source? I would like to know what sectors these non-farm jobs comming from.

  2. i’d like to ask the same question…the claim is very..suspicious. and if other south indian states start including remittances too.. wouldn’t that change the per capita gdp of those states too?

  3. The source of this data on non-farm employment is the provisional results of the fifth economic census (1998-2005). This report may be accessed at, http://mospi.nic.in/economics_census_press_note.pdf

    I would imagine that most of the non farm employment is created in the fast growing service sector of the economy.

    Regarding remittances our argument is as follows:

    Remittances or private transfers enter per capita disposable income and not the domestic product.It is therefore methodologically incorrect to adjust per capita SDP figures to account for remittances. Kerala has the highest per capita consumption expenditure among the Indian states (NSSO 58th round of household consumption expenditure, http://mospi.nic.in/nss_press_note_index.htm). This is because even now 50 per cent of private transfers that India is receiving originates from the Middle East (it used to be even higher before 1996-97). The RBI in its detailed BOP tables (Current Account-Invisibles-Net private transfers) does not, however, publish state-wise data on private transfers. So this has to be inferred from one of the important components of private transfers, namely data on withdrawals of NRI deposits during a specific year.Based on data on changes in NRI deposits (available at state level), one can reasonably conclude that the higher per capital consumption expenditure of the state is accounted for by inflow of remittances. Thus the influence of remittances on per capita disposable income is likely to be the highest in Kerala (followed by Punjab).

    We hope this helpful to you

    Sunil Mani
    For the Editorial Team

  4. “An author, Arun M. Kumar calls for attention in the following five areas- nurturing a culture of entrepreneurship, making Kerala more attractive for non-Keralites, making it easy to do business in Kerala, creating a stimulating educational environment for the college going population and by involving expatriate Keralites so as to promote development.”

    Even this article http://www.dnaindia.com/report.asp?NewsID=1077974 on DNA suggests that things in Kerala are improving. But Nurturing Culture of Entrepreneurship among Keralites/ Non Keralites who knows about the state of affairs , ‘patronage dispensation’ (as Dr M N V Nair has pointed out) and militant trade unionism in Kerala . It is easier to convince a Lion on the need to become a vegetarian.

  5. @Sunil, thanks for your reply. The link you provided is very helpful. I was presently surprised by the number of jobs created by enterprises in kerala. Power of small businesses in kerala is unfortunately under reported.
    As for reasons for job growth, I would assume a lot of new jobs are created in the tourism sector in recent years. Also, considering state’s GDP grew by more than 10% last year, job growth can increase higher in future. Anyhow, kearla’s economy is very mysterious! Eventhough, economic indicators are telling us there is above average growth both in GDP and job market, it is not in line with what I am hearing from my friends looking for jobs in kerala.

    As a question, did you guys explored the impact of kerala’s Kudumbasree programs and its enterprises in kerala’s new economy? I would like to know if there is any study conducted on this matter. pls see my article at http://savekerala.blogspot.com/2006/02/kerala-empowerment-through.html

  6. alex/sunil,

    ‘So this has to be inferred from one of the important components of private transfers, namely data on withdrawals of NRI deposits during a specific year.Based on data on changes in NRI deposits (available at state level), one can reasonably conclude that the higher per capital consumption expenditure of the state is accounted for by inflow of remittances. Thus the influence of remittances on per capita disposable income is likely to be the highest in Kerala (followed by Punjab).’

    no, this doesn’t answer my question fully i think. some other states have as large number of expats working outside india. one can draw a conclusion on this only after a comparative analysis is done.. as for the claim of creation of 12% of all non-farm jobs is concerned – what can one say? govt and every other kind of data in india seems so very hazy.

  7. Babin:

    On employment growth: Yes indeed tourism is an important source of growth along with retail trade, hotels and restaurants;

    Difficulty in securing employment even in times of faster employment growth can be to do with the quality of the job seekers. It is not uncommon to hear the expression, “what is required by the industry and trade is not what is supplied by the higher education system in the state”

    Kuffir:

    In the absence of state-level data on private transfers it is only possible to make enlightened guesses about the relative importance of various states in total private transfers.

    Number of expats is not a very useful criteria. It depends on whether these expats have dependents back home to whom they send money. Withdrawls from NRI deposits is this an important component of private transfers. I must add that this is not my invention, but is contained in RBI’s BOP Manual.

    Of course the importance of Kerala in total receipts may have come down since 1996-97 with 50 per cent of the private transfers to India emanating from the USA. No one is even suggesting that Keralites make up a substantial portion of the Indians in the US.

    I do not think we should spend too much time to find out about the relative importance of various states in total private transfers. A more useful issue to discuss would be to analyse the role of Indians abroad to the development of the respective states from where they originated. If this criterion is employed, Kerala may not rank high. Andhra Pradesh, on the contrary, have been more successful. Look at the way the city of Hyderabad has developed over the last ten years or so!The contribution of non resident Andhras to this process is fairly well recognised now.

    Despite all the talk, Kerala still has not managed much real investments (apart from NRI deposits) from its residents abroad or even from other states on a substantial scale. The investment climate in the state, in a relative sense, has not improved.

    Sunil Mani

  8. sunil,

    thanks for the response.. my motives in asking you about the extent of remittances in other states was not to question its size in kerala but to point out, as you’ve done now, the pointlessness of focussing on remittances. do they translate into real progress in the home state? that should be the question.

    the increase in non-farm jobs on the other hand interests me more. is it connected to the remittances in some way? the facts you quote support the idea that there has been an increase in consumption over the years. what role did this increase in consumption play in this increase in jobs?

    as brahma points out in his comment – i think kerala has its basics right and andhra pradesh until now hasn’t got its basics, as far as focusssing on education, health etc.,is concerned, completely right, in my view. but kerala’s failure to leverage its substantial human potential in attracting greater investment and in creating real employment has been a great disappointment until now..

    for instance, the farm sector contributed only 13% to andhra pradesh’s gdp in 2002-03.. as compared to 26% ten years earlier – has there been a proportionate increase in non-farm employment? what one does know is that the number of those dependent on agriculture hasn’t come down to that extent.

    the degree might differ, but both kerala and andhra pradesh have witnessed great rural distress in the past one decade. seen against this background, one would definitely like to know more about how kerala managed to create such a substantial increase in non-farm jobs, and about what kind of jobs were these.

  9. Militant trade unionism has changed its character in Kerala. Now trade unionism has become integrated with ‘patronage dispensation’. The problem now is not militant workers, but union leaders who demand their cut from the investor and officials who willingly join the dispensation.

  10. Kerala is a bit of a paradox. The perceptions about the State are that it is not favourable for business and industry. Yet the papers in the book bring out facts that are generally not known. This means we need to study the data more closely in order to understand the development dynamics operating in this State. A surprisingly high HDI status cannot come out of nothing. And its power to propel the development dynamic in directions that other States will not be able to emulate is also great. How far has Kerala been able to take advantage of these favourable factors?

    I have run a business in Kerala manufacturing high tech medical products for over 20 years. The factory employs over 500 skilled people, and the products are exported to many countries. The business is profitable and growing. We have expanded in the State, and have found the ROI very good. How good is Kerala for manufacturing industry? I guess the answer will depend on the sector we speak about. Based on my experience, Kerala is a good location for high tech manufacturing that does not require large tracts of land, that does not pollute, and that requires skilled labour available locally.

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