The Kerala model of development

By K. V. Joseph

THE KERALA model of development is characterised by achievements in social indicators such as literacy, life expectancy, infant mortality and birth rate and by ``striking performance in raising living standards and in providing access to basic facilities''. The achievements of Kerala in social indicators are comparable even to those of the advanced countries.

The exponents of the model maintain that the improvement in living standards is not primarily due to the results of a few enlightened policymakers, but because of the redistribution of wealth brought about by the organised strength and militant activity of the poor people. According to them, redistribution of wealth and improvement in living standards constitute an alternative development strategy, ``without having to wait for large scale economic growth.''

The per capita income in Kerala was much below the all-India level when those development processes were under way. Only in 1998-99, that too on the basis of a revised procedure, did the per capita income of Kerala rise above the national average. This was mainly due to the growth of the tertiary sector which accounted for 51.9 per cent of the State Domestic Product (SDP). At the same time, the increase was in no way due to a better performance of the two basic sectors of the economy - agriculture and industry - which showed signs of stagnation.

The question is, how could an improvement in the standard of living take place when the economy was stagnating overall? Indications of prosperity were discernible in various quarters in Kerala since the 1980s. The percentage of Keralites living below the poverty line was stated to be 18 in 1987-88 against the all- India level of 29. Significantly, nearly half the people in Kerala were living below the poverty line in 1977-78. Similarly, wages of agricultural labourers in Kerala were higher than those in other States since 1983. Volume of bank deposits is another indicator of prosperity. Since 1980 there has been a steady increase in the volume of bank deposits in Kerala. Now, the per capita bank deposits in Kerala are lower than only Maharashtra and Punjab. Spurt in building construction is another indicator of affluence. Construction of buildings has become the second most important activity in Kerala reckoned in terms of the volume of income generated. It contributes roughly 10 per cent of the SDP against hardly 6 per cent in the country as a whole. Furthermore, the proportion of pucca houses is higher in Kerala than in any other State.

It can be inferred from the aforesaid facts that Kerala was not so poor even during the Eighties. A fall in the incidence of poverty or an increase in the wages can to some extent be the result of militant agitations or the benevolent State policy. But a significant increase in the volume of bank deposits can in no way be attributed to enlightened State policies or to the militancy of the weaker sections. Bank deposits cannot increase without an appreciable increase in the flow of income. Similarly, the spurt in construction activities cannot be attributed to any redistribution policy. There has to be sufficient material means with the people for undertaking any construction activity. All these point to conditions of prosperity and affluence in the State.

The question is, how can this be if the State is poor in terms of per capita income. Though Kerala was poor in terms of per capita income, it was getting remittances from the migrants outside the State. The volume of remittances became fairly large since the mid-Seventies when large numbers of workers started to migrate to the Persian Gulf. No accurate data on the quantum of remittances is available. According to a recent study, the volume of remittances was Rs. 3,530 crores in 1998. If so it would be about 10 per cent of the SDP. The figure is much more according to some other estimates. Some scholars estimate the remittances at about 25 per cent of the SDP. Needless to say, the per capita income accruing in the State would have been higher than that of the country as a whole since the onset of the Gulf migration.

It is the remittances which make Kerala an affluent state. As a class, the migrants are motivated by expansive wants. Naturally, purchase of sophisticated consumer durables, construction of posh houses etc., have become the main pattern of expenditure. Many of the migrants purchase land as a form of permanent investment. A portion of the money thus being spent, very often in a lavish manner, trickles down to different sections of society.

The fall in the incidence of poverty, rise in agricultural wages are concomitant to this spending pattern. Significantly, Kerala society began to display signs of affluence such as increases in wages, rise in bank deposits, brisk construction activities, fall in the incidence of poverty etc., only since 1980, when migration and remittances became brisk. Remittances provide the means without which such redistribution and improvement in the standard of living would have been well-nigh impossible. Militant agitation and redistribution policies have helped to trickle down the remittances among the weaker sections smoothly and quickly, and thereby helped to improve their living standards.

The main drawback of the Kerala model of development, which relies on remittances for its apparent prosperity, is its failure to strengthen the base of the economy, particularly industry. The registered sector of the manufacturing industry hardly accounts for seven per cent of the SDP even in 2000, against 13 per cent in the country as a whole. The key factor retarding the industrial development appears to be labour militancy, which was acclaimed as the determining factor in the redistribution process. On the other hand, insofar as industrial development is concerned some sort of a reverse working of the ``circular causation'' seems to be evident, in which militancy retards the other factors from moving forward.

The findings of a research study pinpoint labour unrest as the major impediment to the diversification of the industrial base during the Fifties and Sixties. The situation did not improve even during the Eighties and the Nineties when huge bank deposits which could be used for investment were available. In the face of the militancy of organised labour, entrepreneurs seem to be reluctant to invest in industrial ventures in Kerala. In fact, instances of entrepreneurial migration on account of labour militancy were reported. Not surprisingly, the average volume of fixed capital formation in the factory sector of Kerala was only 1.48 per cent of the total in India even during the beginning of the Nineties. Though militancy as such has been declining in recent years, the legacy hangs on - ``the evil that men do lives after them''.

The Kerala model of development which relies on the remittances instead of a strong economic base for the apparent prosperity is like a castle built in sand. The whole process of redistribution and social progress will be jeopardised once the remittances are discontinued. There is no certainty that the remittances will continue for ever. Timely action should be taken to make use of the remittances to strengthen the economic base. The political leaders and policy-makers should strive to evolve suitable strategies for using the remittances for this purpose instead of pursuing populist policies and stage-managed development programmes. Otherwise, the better future which the model projects may turn out to be a bitter one.

(The writer is Senior Fellow, ICHR).

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