The Indian economy seems to be on the path of revival after the devastating Covid-19 pandemic slackened its grip. Among the states, Kerala continues to be in the throes of the pandemic. In this context, the question of whether the state can also hope for an early revival as the rest of India becomes very relevant. It assumes added significance because the economy of Kerala exhibits certain unique characteristics distinct from other parts of India.
In Kerala, private transfer payments—the earnings of Keralites working in foreign lands—play a key role in the economy. According to the World Bank, India was the recipient of well over $83 billion as remittances from foreign lands in 2018-19. Out of this, Kerala’s share was stated to be 19%. If so, it would be more than Rs 1,15,000 crore. In addition, a large amount of money reaches Kerala through illegal channels. The amount it receives through such means in a year exceeds its revenue receipts. The remittances go mainly for meeting consumption needs and not for any productive activity. Consequently, the state has become a consumer state with conspicuous consumption as the hallmark. With the presence of palatial buildings all around combined with ultra-modern vehicles, sophisticated consumer durables and posh living, “the age of high mass consumption” in Walt Whitman Rostow’s five stages of development seems to have become a fait accompli in Kerala, with the other stages bypassed.
The share of Kerala in the GDP of the country was only 2.89% in 1990-91, when remittances were in the offing. Since then, it started to increase steadily and by 2018-19, it had reached 4.11%.
Strangely, the growth stems primarily from the utilisation of the remittances for consumer needs. In turn, more number of workers, with higher rates of remuneration invariably met from the remittances, emerged in the state for serving the expansionary sets of wants of the consuming public. There were, in 2006 itself, well over 15 lakh construction workers, 2.73 lakh transport workers, 3 lakh headload workers and 3.03 lakh auto drivers besides an army of traders, all getting higher wages. Needless to say, their remuneration constitutes an important component of GSDP. The share of GSDP rendered by sectors like construction, trade and transport, in which these workers are employed, accounted for only 26% of the GSDP in 1990-91. It went up to 39% by 2018-19.
The state was exhibiting such characteristics when the economy-crippling pandemic appeared. With the pandemic all over the world, the inflow remittances to Kerala seemed to have fallen to the extent of Rs 25,000 crore or more, according to the reports of the World Bank. Needless to say, the GSDP of Kerala would also have declined significantly.
Stimulus packages for reviving the economy: Various stimulus packages introduced both by the Central and state governments that provided cheap credit to the consumers to stimulate consumption and thereby promote growth seem to be unsuitable for Kerala as it depends heavily on remittances and not production. Moreover, the state is not in a position to provide sufficient volume of stimulus packages to match the remittances. Furthermore, even if demand is stimulated, it will not be able to propel any economic growth in the state as most of the needs are met from imported goods.
Constraints to the speedy recovery of the state economy: The unique characteristics of the economy render its speedy revival somewhat difficult. As mentioned earlier, Kerala has emerged as a consumer state for which the remittances provide the means. Needless to say, the steep fall in remittances has been squarely responsible for the setback in the economy. An increase in the remittances is as much important as any other factor in reviving the economy. Chances for an increase in the flow of remittances are not bright, at least in the immediate future. The countries where the remittances originate are also in the grip of the pandemic. Already more than six lakh migrant workers have returned to Kerala on account of Covid-19. Out of them, four lakh have lost their jobs. It is doubtful whether they will be re-employed once the virus disappears.
At the same time, the Gulf countries from where more than 60% of the remittances come are facing economic crises on account of the fall in oil prices. They seem to favour a policy of promoting sons of the soil as well. Hitherto, the Gulf countries were employing a large number of unskilled hands. Chances for such hands getting employed now have also diminished. The inevitable consequence is the decelerating trend in the flow of remittances from the Gulf region.
In sum, an early revival seems to be out of sight in the case of Kerala. In turn, the posh living style of the pre-pandemic days may not reappear in the immediate future. In the meantime, what is urgently needed is the rejuvenation of the productive sectors like agriculture and industry that were sidelined in the wake of the remittance boom.
Joseph K V
Former Member of the Kerala Public Expenditure Committee
(The author is the Director, Institute of International Migration and Development)
(drkvjoseph@gmail.com)