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Kerala needs a new development ‘model’

By Javad K. Hassan

Ever since the Center for Development Studies in Thiruvananthapuram came out with a study highlighting Kerala’s accomplishments in the areas of its material quality of living, health and education some four decades ago, the phrase “Kerala model” has had a life of its own.

An array of eminent academics and public intellectuals — most notably, Nobel laureate Amartya Sen — have relentlessly sung praise to the “Kerala model,” and encouraged others to adopt it.

“Kerala demonstrates that a low-level economy can create a decent life, abundant in the things — health, education, community — that are most necessary for us all,” American environmentalist Bill McKibben wrote in the 1990s after visiting the state. “Kerala stands out as the Mount Everest of social development; there’s truly no place like it.”

It is true that the state’s achievements in raising the living standard of its people by investing in health and education have been extraordinary. As McKibben pointed out, the human life index in Kerala is comparable to the United States even though there is a wide chasm in per capita income between the two. In 2010, Kerala’s per capita GDP was roughly $1,400 as compared to $50,000 for America.

However, over the years, the state’s obsession with the “Kerala model” has hampered new thinking and emergence of fresh ideas on the policy front. Kerala’s intelligentsia and politicians have repeatedly used the model’s success as a justification for not creating wealth and jobs, not investing in infrastructure, and not crafting and implementing any new development policies.

What has also been conveniently ignored by many is the fact that the state’s much touted standard of living is being subsidized by remittances that its hard-working men and women make from abroad, mainly the Gulf.
These remittances, which may be to the tune of anywhere from $5 billion to $10 billion, or between 10 per cent and 20 per cent of the state’s economy, are the biggest economic strength of the state.

However, successive governments have failed to make proper use of these resources to create permanent jobs and spur the state’s economy. The result: the fundamentals of Kerala’s economy remain weak.

Much of the remittance money is primarily spent in retail businesses, including gold, and consumer goods such as clothing and electronic appliances, and in land and housing construction.

Zealous spending in retail goods is the reason all major consumer-oriented companies deem the state as the biggest concentrated market for their products. However, since many of these manufacturers are based outside of the state, Keralites’ ravenous consumption doesn’t result in very many in-state jobs.

With few big companies and manufacturers operating in the state, most of the private sector employment is provided by financial institutions, liquor distribution firms and consumer retail stores.

The state government is the leading employment provider. However, state-sponsored industrial institutions, which are managed by inexperienced bureaucrats and political appointees, are costing about 1 lakh rupee per industrial employee to the state exchequer, even though they show nominal profits on paper.

A major source of the state government’s income is the sales and excise tax revenue. Most of this revenue is used to pay salaries and pension benefits to state employees, meaning there is no real money left for the economic development of the state.

For decades, Kerala has been dangerously dependent on remittance. One doesn’t have to be an economist to know that an economy that relies on money orders to such a large degree risks long-term instability. Once the income flow slows down, the state’s revenue will be greatly impacted. Already, the trend in the Arab oil-producing countries is to gradually replace them with their own nationals.

Kerala’s external dependence is limited to just money. Because of socio-cultural reasons, there is an overwhelming preference on the part of its population to do service sector jobs.With few willing to do physical and manual labor within the state, Kerala has been importing a large number of workers from other parts
of the country for agricultural and construction works. Over-reliance on the migrant workforce is sure to create social as well as economic problems in the long run.

Fortunately, in spite of all its economic woes, the state has immense potential. It has two great assets, which, if tapped properly, can work wonders for the state: the seemingly endless reservoir of human capital and the rich and diverse eco-system.

While the Kerala model was, to some degree, responsible for the development of the human capital —and had in turn benefited from it in the form of remittances—the latter has not figured on the state policymakers’ priority list.

Even as its bureaucrats and politicians touted various human development statistics, Kerala’s God-given environment — its clean air, rivers and mountain ranges, which boast great plant eco-diversity — were being eroded systematically, with quick, careless, profit-driven industrial initiatives and land development schemes.

It is time for Kerala to look at its economic situation with a fresh pair of eyes, and come up with a comprehensive and sustainable growth model, centered around its real assets.

It should chart a new developmental path — a sustainable growth-oriented economic development model, which will also tap the entrepreneurial spirit of the hard-working, educated and skilled people of Kerala.

It is imperative that the state stays away from the consumption-driven development model championed by the West. Blindly following that model is not an option for Kerala because that will ensure the destruction of the state’s precious eco system.

(As a matter of fact, if India’s 1.2 billion people were to consume at the rate 312 million Americans do — they swallow 30 percent of global resources — the 5.8 billion living in rest of the planet will have nothing left!)

What Kerala requires is a development model, which will, while retaining and sustaining the state’s eco-system — its air, water and land— also build and improve infrastructure in areas such as modern communication, public transportation, education, healthcare and water and sewerage.

Policies and plans for infrastructure creation should be the top priority of the state government. Prepare it and sell it to the people of Kerala — they deserve it. (Global India Newswire)

(The writer is the Chairman of NeST Group, one of the largest independent electronics manufacturing services groups in India.)

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