Welfare and banana leaf thalis – a foreign student’s take on Kerala, Part 1

My name is Olof Blomqvist, and I’m originally from Sweden but have spent the last three years at the University of London, where I’ve just graduated from a BA in Journalism and Contemporary History. This August I visited Kerala on a scholarship from my university to carry out a project about what the future of the state might look like, and I especially wanted see if the ‘Kerala Model’ could lead to economic growth, something it in a lot of people’s opinion has failed to do. While researching the project I came across this blog, and after mailing back and forth with Mind Curry for a while, he asked me if I wanted to post something about my experiences, which I was more than happy to do. So, here it is – I’ve tried to sum up my project and my conclusions briefly, and also write something about my personal experiences in Kerala (apologies for all the numbers and stats in this part, but I need them to prove my point - the next part will be more about my personal experiences and opinions).

I arrived in Trivandrum in early August and stayed for about two weeks, and then moved north through Kollam, Kochi, and Calicut, until I flew home from Mumbai. I had done most of my research in advance, so while on site I spent my time doing interviews with everyone from politicians like Oommen Chandy, to V.J. Jayakumar, the CEO of Technopark, to academics, or just everyday Keralites; and visiting key places, like government institutions, the Centre for Development Studies in Trivandrum, or the Malayala Manorama’s headquarters. I had an excellent time in Kerala, both because it's very hard to not like God's Own Country (how can you not love a place where you can have a beer by the Arabian Sea?), and because I was able to reach the conclusions I had hoped to, which I will try to present below. If you have any comments or criticism I'd love to hear it - it would be great to get some feedback from actual Keralites!

God’s Own Country rising – remittances, welfare and economic growth

Basically, the standard narrative about Kerala’s development process over the past decade and a half has been that even if the ‘Kerala Model’ has made some remarkable achievements in terms of human development, it is ultimately ‘unsustainable’ since it has not been able to stimulate enough economic growth. This has been dubbed as Kerala’s ‘lopsided development’, and has its roots in the fiscal crisis of the late 1980s, and the barren years in the 1970s-‘80s, and even into the ‘90s, when Kerala’s economy had stagnated and the state’s growth rate significantly lagged behind the rest of India’s. The first thing I realised when I started talking to people in Kerala was that this narrative had to be turned on its head – Kerala’s economy has since the mid-1990s not only caught up with the average growth rate in India, but even surpassed it, with the growth rate of 2005 being as high as 9.2 per cent. I’m sure this won’t come as news to any of you, you probably heard it repeated an endless number of times during the election campaign last May, but what was interesting to discover was what the actual causes for Kerala’s growth spurt had been.

While political leaders from both the LDF and the UDF have been quick to take credit – Chandy certainly did so when I interviewed him, claiming that the UDF’s pro-investment policies were to thank – the fact is that Kerala’s turnaround dates back much further than whatever short-term agenda any state government has been able to push through. As one of the people I talked to, Dr K.P. Kannan from the Centre for Development Studies in Trivandrum, has shown in this EPW article, the upswing actually started as far back as 1987, even if it has mainly made itself felt from the mid-1990s. Some of it can be explained by the economic reforms Rajiv Gandhi pushed through over the whole of India, but in a state with an industrial sector as weak as Kerala’s this does not tell the full story. Instead, what new research points to is that what for years was thought to hold Kerala back – the peculiar economic model of ‘lopsided development’ – has actually been the spark for Kerala’s growth spurt. Kerala’s economy is growing because of – not in spite – the money that for decades has been spent building up India’s best welfare system. As Dr Kannan told me: “Kerala’s high levels of human development have become the state’s greatest asset. The old song about high levels of human development but no economic growth needs to change.”

How has this happened? A large part of the answer lies in how remittances have affected Kerala. The great exodus of Keralites to the Gulf Countries during the 1970s oil boom was to a large extent possible because of the benefits these workers had gained from growing up in Kerala (better health and education, and more awareness of opportunities beyond their state). The money they send back today makes up 25% of the state budget, and one third of all remittances to India. It has not only helped to stimulate consumption levels in Kerala, which are among the highest in country, but it has also kick-started the boom in the tertiary (or service) sector of industry –IT, tourism, banking, private health care, etc. – that has been the driving force behind Kerala’s economic growth spurt. While neither the manufacturing industry nor agriculture has experienced any significant growth over the past decade, the service sector now makes up something like 65% of the state economy, and has since 1986 until today gone from a growth rate of 3.25% to 7.5%. The remittances also probably served to underestimate Kerala’s economy throughout the financial dark ages, since they do not count directly towards the GDP.

There are also other, more indirect ways that the welfare system has contributed to the turnaround. There are many studies that show a direct link between a developed welfare system and economic growth – well-educated and healthy people are able to work harder, are more creative, and generally more productive members of society. Especially in an economy as dependent on the modern service sector of industry as Kerala’s is, well educated workers are indispensable. The ‘Kerala Model’ has also provided an excellent base for the future, with low birth rates, increasing per capita incomes, and easy access to health care and education meaning that the new generation of Keralites growing up now will be of better quality than any before. Thanks to the low rate of population growth, there has also been a demographic shift that has bumped up the working population’s (15 to 59 years) share of the population to 60% - meaning that Kerala has an abundance of human resources in terms of educated workers. In short, Kerala has entered into what in development economics is called a ‘virtuous circle’, where the earlier investments in welfare is leading to economic growth, which in its turn is leading to more money spent on human development, and so on. (If you’re interested in more details about how the welfare system has led to economic growth, I really recommend the 2005 Kerala Human Development Report, which outlines the state’s whole development experience, or this article by Achin Chakraborty).

I’ll post the second part (on the challenges Kerala faces in the future, and some of my personal experiences/thoughts) during the week, thanks for reading this far!