Hitting 70 is considered old as far as a person is concerned, but for a nation it’s very young. For a state formed in 1956, Kerala is in her ‘sweet sixties’. Looking back at our economy’s journey since Independence, Keralites can be justifiably proud of the state’s achievement in several areas, even while acknowledging many failures.
The Kerala Model of Development, more appropriately described as ‘Kerala’s development experience’ by Amartya Sen, has been widely discussed and debated. This unique experience of ‘high social development with low economic growth’ is indeed an enviable achievement though critics justifiably dub it as ‘economic stagnation despite social development’. Controversy apart, there is no denying the fact Kerala has consistently remained the number one state in India in the terms of the Quality of Life Index. In demographic features such as life expectancy, population growth rate, female-male ratio, infant mortality, maternal mortality and literacy, the state is an outlier in India.
The state’s record in economic growth and development, particularly in creating jobs for the educated labour force has been poor. Migration, therefore, has been the only option for most Keralites to earn a decent income. As India turns 70, the state is emerging as the fastest growing economy in the World. But paradoxically, the state is at the cross roads of growth. During the last 20 years, the economic growth rate has been higher than the national average and the per capita domestic product (Rs 1,72,268 in 2015-16) is 60 per cent higher. If we factor-in the remittances from abroad, the per capita income would be almost double the national average.
This is the reason why Kerala leads other states in per capita expenditure. But during this 20-year period, when the state’s economy did very well, our public finances have deteriorated. Presently, the state is one of the most indebted states of India with very high levels of debt and an unsustainable revenue deficit. For 2017-18, the state is likely to end up with a revenue deficit of over Rs 17,000 crore. Simply put, the state is borrowing almost Rs 50 crore a day to meet revenue expenditure. Since the state has crossed all limits of fiscal prudence, it cannot borrow more for developmental activities. That’s why it has opted for the unconventional method of borrowing outside the budget and has come out with the KIFBI alternative, which is a risky gamble.
NRK remittances contributed substantially towards Kerala’s development. But now, the declining trend in remittances is turning out to be the state’s Achilles heel. With crude prices capped at $55 a barrel by the cheap Shale oil, the Gulf countries are in economic distress. Kerala’s ‘money order economy’ driven by remittances, is vulnerable to the distress in the Gulf much more than any other state.The right path for the state would be to focus on growth driven by private capital with the government focusing on infrastructure and public goods.
Chief Investment Strategist, Geojit Financial Services