KOCHI: It is in no small measure a high-wire act. Perched well above other states on human-development indicators, Keralam finds itself positioned precariously between an ageing population and fiscal constraints that leave little room for capital spending.
This structural economic trap stands to throw up two scenarios. One that gives rise to a high-income society that exports skills and services while providing dignity and care to its increasingly elderly residents. The other of a debt-burdened welfare state, shorn of a youthful workforce and increasingly dependent on remittances and nostalgia.
Both futures are plausible. The choices Keralam makes over the next decade will determine the outcome.
Ticking ‘time’ bomb?
The state offers an early glimpse of the demographic challenges that much of India could face in the coming decades. With fertility remaining below replacement levels for years and senior citizens set to account for roughly one in four of the population by the mid-2030s, Keralam’s healthcare, welfare and family support systems are increasingly feeling the pressure. The paradox is all too evident: the demographic transition is, in many ways, a consequence of its success.
Lekha Chakraborty, senior economist at the National Institute of Public Finance and Policy (NIPFP), says ageing intensifies fiscal pressures by increasing dependency ratios and long-term pension and healthcare liabilities. Continued migration of educated youth, she adds, was also eroding the tax base.
But, there is opportunity in this transition, points out M Suresh Babu, director of the Madras Institute of Development Studies (MIDS). While ageing will increase the cost of healthcare and social protection, he explains, it could also create opportunities in the care economy, geriatric services and health tourism.
Keralam needs a comprehensive ageing policy, with investments in assisted-living facilities, home-based palliative care and age-friendly cities. A state-supported labour bank to meet the care needs of the elderly could generate employment while helping families cope with the growing burden.
The state must also recognise migrant workers as partners in its economy. Better housing, healthcare and schooling for their children are not merely social obligations but investments in workforce that keeps its construction, hospitality and other sectors running.
The fiscal cliff
The biggest obstacle to state’s ambitions remains its public finances. Salaries, pensions and interest payments absorb a substantial share of revenue, leaving limited funding space for roads, transport, power infrastructure, research and other growth-enhancing investments. Sustained investment in people has delivered high literacy, low infant mortality, high life expectancy and balanced sex ratios, stresses Lekha.
Yet, fiscal rigidity associated with sustaining these achievements leaves little room for productive public investment. A coherent fiscal strategy to enhance a sense of belonging is therefore essential, she adds.
Suresh argues that fiscal reform must go beyond controlling expenditure. Strengthening tax administration, improving non-tax revenue mobilisation, enhancing local government finances and prioritising capital projects with demonstrable economic and social returns are essential to creating more room for development.
Fiscal consolidation, however, should not weaken the social infrastructure underpinning Keralam’s achievements. The objective must be to improve expenditure efficiency and generate resources for productive investment, rather than simply cut spending.
Beyond the remit
For decades, overseas remittances have powered Keralam’s consumption, housing and services sectors. But the model faces uncertainty as Gulf economies localise employment and the diaspora ages. The state needs a stronger domestic economic engine to complement money sent home.
Vizhinjam’s deep-water port offers an opportunity to develop a logistics and transshipment hub, provided it is supported by rail and road connectivity, warehousing and manufacturing. IT parks and startups, apart from sectors such as medical devices, marine products, spices, wellness, and film and animation could generate new jobs.
Information technology, artificial intelligence and biotechnology could provide further avenues for growth. But realising this potential requires stronger university-industry collaboration, greater investment in research and development, and wider adoption of technology by micro, small and medium enterprises. An innovation ecosystem that helps businesses emerge and expand is equally important.
The bigger challenge lies in bridging the gap between educational attainment and employment. Aligning skills with labour-market needs and strengthening education governance are critical to retaining talent and sustaining the revenue base, says Lekha.
Keralam must also address the gap between women’s educational achievements and their participation in employment. Creating more opportunities for women would widen the workforce, improve household incomes and make growth more inclusive.
Businesses, meanwhile, need predictable regulations, faster permitting, accessible land and a supportive industrial climate. Reducing labour-related disruptions and ensuring that single-window clearance systems work in practice are essential to attracting investments.
The environmental bill
Keralam’s coastline, rivers, backwaters and Western Ghats underpin its appeal as a tourism destination. They also make it vulnerable to climate change. The 2018 floods and the 2024 Wayanad landslides are reminders of the risks posed by extreme rainfall, fragile slopes and unplanned development.
Environmental sustainability must become integral to the development strategy, clarifies Suresh. Climate-resilient infrastructure, scientific land-use planning, watershed management and ecosystem restoration should guide public investment decisions.
Waste management remains another unfinished task. Decentralised systems must work consistently on the ground to prevent plastic and sewage from polluting rivers and backwaters.
The health of care
The healthcare system must respond to the changing disease burden. Diabetes, hypertension, cancer, kidney disease and mental health conditions are becoming more prominent, alongside recurring infectious disease threats and climate-linked illnesses. Stronger primary care, functional family health centres, screening programmes and a larger geriatric and palliative-care workforce will be essential.
Future-proofing
Keralam’s greatest achievement has been its investment in people. The next phase must build on that legacy by making public finances sustainable, creating productive jobs, retaining talent and preparing for an older population.
Suresh wants to see the state translating its social achievements into productive capabilities. That means combining social protection with technological advancement, employment generation, productive investment and ecological sustainability.
The crystal ball offers no certainty. The human-development achievements provide a strong foundation, but the state must act before it is too late to ensure that its legacy becomes the launchpad for its future, rather than a reminder of opportunities missed.