Kerala, long celebrated as god’s own country, is today grappling with an economic paradox that belies its natural beauty and human development achievements. While the state boasts of high literacy rates, robust healthcare systems, and a globally admired social model, its economic underpinnings are alarmingly fragile.
The state’s unemployment rate stood at 9.6 percent in 2022-23, significantly higher than the national average of 4.1 percent. The industrial sector remains stagnant, contributing only 23 percent to the gross state domestic product, compared to the national average of 29 percent. Meanwhile, Kerala’s public debt has surged to ₹3.57 lakh crore, exacerbated by declining central transfers and fiscal constraints. The state government spends more every year on debt servicing than on development—and it ends up borrowing more to pay off the interest on its past borrowings.
Kerala’s economy has long been buoyed by remittances from its diaspora, but this over-reliance on external inflows—which once accounted for nearly 30 percent of Kerala’s economy—has left the state vulnerable to global shocks. The pandemic-induced disruptions exposed the fragility of this model, with remittances declining and unemployment surging.
The unemployment rate remains stubbornly high, the industrial sector stagnant, and the fiscal health precarious, with mounting debt and dwindling revenues. Meanwhile, the state’s industrial sector remains woefully underdeveloped, hamstrung by bureaucratic red tape, outdated labour laws, and an aversion to private enterprise. The agricultural sector, once a cornerstone of Kerala’s economy, has also suffered from declining productivity and climate-related challenges.
If Kerala is to reclaim its place as a beacon of progress, it must confront these challenges with bold, pragmatic reforms that prioritise ease of doing business, investor confidence, and sustainable development. To extricate itself from this economic quagmire, Kerala must embrace a new paradigm that fosters entrepreneurship, attracts investment, and ensures equitable growth.
For instance, under the Kerala Shops and Commercial Establishments Act, 1960, women working night shifts must be grouped in teams of at least five, with a minimum of two female employees per group, for safety reasons. Employers are also required to provide safe transportation for female employees commuting during night hours. While these provisions aim to ensure safety, they also limit employment opportunities for women in sectors that require flexible work arrangements, such as IT and hospitality. Employment laws specify too many details, which can sometimes reduce Kerala’s competitiveness in attracting IT firms, especially when compared to states with more flexible labour laws. Many companies have argued in favour of a broad mandate—for example, a 45-hour work week—with the actual details left to the company to apply in accordance to its practices and operational requirements. By amending the law to balance worker rights with economic competitiveness, Kerala can unlock its full potential and position itself as a leading hub for innovation and investment.
On the ease of doing business, which has increasingly become an empty slogan, Kerala must shed its reputation as a bureaucratic labyrinth and create an environment where businesses can thrive without undue interference. This requires streamlining regulatory processes, digitising approvals, and ensuring time-bound clearances. Kerala is notorious for the number of hurdles any proposal must clear before it sees the light of day. While the state government claims to have streamlined clearances, investors and businesspeople tell me a different story. The state should slash regulations and establish single-window systems across the board (and not just in one or two favoured areas) for investors and entrepreneurs, reducing the procedural delays.
An additional safeguard I have long advocated is investor protection legislation. Confidence is the currency of investment, and Kerala must enact robust investor protection laws to attract both domestic and foreign capital. These laws should guarantee transparency, enforceable contracts, and swift dispute resolution mechanisms. They must also guarantee that no project, once approved, will be vulnerable to the political and bureaucratic interference that in the past has led to investor suicides, a uniquely Kerala phenomenon. Once the government has approved a project, investors must be guaranteed that their funds are invulnerable to regulatory extortion, political blackmail or frivolous litigation—that the state, not the investor, will assume the regulatory risk, and businesspeople will only have to bear business losses.
Additionally, Kerala’s strengths in education and healthcare can be harnessed to build a knowledge-driven economy. The state should invest in research and development hubs, foster public-private partnerships, and incentivise startups in emerging fields like biogenetics, biotechnology, artificial intelligence, renewable energy, and sustainable agriculture. As a highly-educated state with an openness to innovation, Kerala can actively court greenfield investments in these sectors. Tourism, a traditional strength, must be reimagined with a focus on eco-tourism and cultural heritage, ensuring that it remains a sustainable revenue stream. Given our long coastline, new avenues must be explored in shipbuilding, logistics, and marine research.
Economic revival is not merely a matter of policy, but of political will and visionary leadership. I have long argued that Kerala’s leaders must rise above partisan politics to forge a consensus-driven approach that prioritises the state’s long-term prosperity over short-term gains. People are tired of the constant back-and-forth negativism that characterises politics in the state. They want a focus on the future. Yes, the state’s reputation as a leftist bastion has held it back; but public awareness campaigns are essential to help dispel misconceptions about private enterprise, fostering a culture that values innovation and entrepreneurship.
The challenges are formidable, but not insurmountable. The state’s human capital, natural resources, and cultural riches provide a strong foundation for renewal. By embracing ease of doing business, investor protection, and technology-driven sectoral innovation, Kerala can chart a path toward inclusive and sustainable growth, ensuring that its economy is as vibrant as its landscapes.
The time for action is now. Assembly elections are just nine months away. Kerala must shed its inertia, embrace reform, and reclaim its rightful place as a model of progress and prosperity. In Tagore’s words, “Faith is the bird that feels the light and sings when the dawn is still dark.” For the economy, it is still dark in Kerala, but the glimmer of dawn is visible. We must find that faith—and act upon it.
Shashi Tharoor | Fourth-term Lok Sabha MP, Chairman of Standing Committee on External Affairs, and Sahitya Akademi-winning author of 24 books
(Views are personal)