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Economic Growth in the Regime of Reforms

This article is a critical assessment of the claim of the end of â??lopsided development" and emergence of the "virtuous cycle of development" during the regime of economic reforms in Kerala. It reviews the growth trends in the macroeconomy after the implementation of reforms in the neoliberal policy perspective and recommends some pragmatic approaches to achieve accelerated growth.

Economic Growth in the Regime of Reforms

Kerala’s Experience

This article is a critical assessment of the claim of the end of “lopsided development” and emergence of the “virtuous cycle of development” during the regime of economic reforms in Kerala. It reviews the growth trends in the macroeconomy after the implementation of reforms in the neoliberal policy perspective and recommends some pragmatic approaches

to achieve accelerated growth.


enerally, Kerala’s experience gets an important place in academic discussions and policyprescriptions on development. The classical example is the prolonged phase of debate on the paradoxical phenomenon of “lopsided development” (in Human Development Report terminology) meaning thereby, high achievement of social development despite stagnancy in economic growth in Kerala. It is this paradox that led to the conceptualisation as well as critique of “Kerala model” of development. To the proponents of the model, progressive state policies and public action in health, education and other spheres of social sector can achieve high human development even in the absence of a rapid rate of growth of the economy. To some critics, however, Kerala model appeared as naïve romanticism as the low economic growth would constrain the progress in social development and lead to a “development crisis”. Whether such a prognostication did in fact take place or not, the “fact” of remarkable recovery in economic growth in the 1990s highlighted by some empirical studies1 has given a new twist to the debate on Kerala’s growth and development experience.

Interestingly, some scholars [e g Kannan 2005; Chakraborty 2005] have advanced the thesis of growth turnaround and interpreted it as the evidence of the emergence of, what Rannis et al (2000) call, “virtuous cycle of development” in Kerala, meaning thereby the take-off into a sustained growth path with human development under the influence of market-oriented reforms and migrants’ remittances. Without loss of time, some scholars [e g Oommen 2005; Pillai and Shanta 2005] have raised serious doubts and initiated a debate on the nature of growth turnaround in Kerala’s recent development experience. Perhaps, the new “fact” on recent growth trend and its interpretation mark the beginning of another important phase in the debate on Kerala’s economic growth and development experience.

In the above context, we look at a close range the relative growth performance of Kerala economy after the country made a paradigmatic shift in its basic economic policy towards liberalisation (internal as well as external) and introduced a number of market-oriented economic reforms. We also attempt a critical assessment of the claim of the end of lopsided development and emergence of the “virtuous cycle of development” during the regime of reforms in Kerala. If the claim is found lacking in clear empirical support, it is important to identify major constraints that the state faces for acceleration of economic growth matching with the achievement in human development. In doing so, the concept of lopsided development is defined not only in the sense of the riddle of high social development with low income growth, but also in some enigmatic structural sense (e g, concentrated sector-composition of output and growth) and the impact on sustainability of the growth momentum for the future. In specific terms, we review growth trends in the macroeconomy after the implementation of reforms in the neoliberal policy perspective, reflect upon some structural features of lopsided development, and recommend some pragmatic approaches to achieve accelerated growth in Kerala.

Growth Trajectories

We begin with an assertion that studies on long-term growth trends in Kerala’s macroeconomy are generally based on the analysis of net state domestic product (NSDP) and have put forward statistical evidence supporting the inference of different growth trajectories. One trajectory is marked by a phase of stagnation since the early 1970s, and the second one a phase of recovery in the late 1980s which continued in the 1990s and thereafter, and put the economy on a high growth path. Admittedly, the inferences drawn from the analysis of SDP have to be taken with a pinch of salt. In particular, the methodology of estimation is based on income generation (and not income accrual) within the geographical boundaries of the state. Hence, it is inadequate to reflect the real picture of the economic status as it ignores remittance from Keralites working in other states and more importantly, outside the country. Besides, there are differences in the estimation methods actually practised by the statistical offices of different states though they are required to follow uniform guidelines issued by the central statistical organisation. In the case of gross state domestic product (GSDP) the incidence of the data drawback is relatively less as compared to net state domestic product as values of depreciation are not required to be estimated. We therefore look closely at the growth rates in GSDP (instead of NSDP) recorded in the present phase of “high” growth trajectory, which coincides with the policy regime of ongoing economic reforms in Kerala.

We restrict the analysis to the period from 1993-94 to 2001-02 on the following grounds:

  • (1) There is rationale in considering periods for analysis based on the timing of shifts in policy-framework.
  • (2) Although the shift in India’s basic economic policy towards neoliberal approach was formally announced by the national government in June 1991, the states effectively started implementing market-oriented economic reforms by the middle of 1990s only.
  • (3) The choice of starting the period of analysis in 1993-94 is made on the consideration of the availability of new SDP data series with 1993-94 as the base and
  • Economic and Political Weekly March 11, 2006 ending it in 2001-02 is on the consideration that the data for subsequent two years are either provisional or quick-estimates and hence its inclusion in the time series is likely to give a biased picture of growth trend.

    Have reforms led to a growth turnaround and “virtuous cycle of development”?: In Table 1 we have recorded average annual growth rates of gross domestic product (GDP) of major states (including Kerala) and all-India for 1994-95 to 2001-02, which is taken to represent the post-reform policy regime in the states. The estimated values for Kerala broadly indicate a higher growth rate of the present growth trajectory as compared to the earlier ones. In other words, Kerala has achieved a higher growth performance in the post-reform period relative to the pre-reform era, though it does not appear as remarkable as it is generally asserted with rhetoric in the studies that claim a growth turnaround. To illustrate, what Kerala achieved during 1994-95 to 2001-02 is an average annual growth rate of 5 per cent as against 6 per cent at all-India. A comparative analysis of growth performance among the 17 major Indian states, which account for more than 90 per cent of Indian population, shows that Kerala is not one among the six states, which have annual average growth records higher than all-India. Among the 17 major states, Kerala is placed at 12th rank only. It is instructive to note that Kerala is laggard in growth performance relative to other south Indian states as its annual growth rate has been below Tamil Nadu, Karnataka and Andhra Pradesh. Further, the trend growth rate of GSDP in Kerala is 4.72 per cent as against the all-India average of

    6.01 per cent for the period under review. In terms of trend growth rate also, Kerala is ranked at 12th place among the 17 major Indian states.

    We also note that Kerala’s performance in terms of growth rate in real per capita SDP (at 1993-94 constant price) does not present a remarkable picture though the state has the distinction of having achieved a demographic transition marked by low birth rate. Average annual growth rate per capita SDP in Kerala (3.89 per cent) is marginally lower than all-India record

    (4.26 per cent) during the period under review (Table 2). As per the data shown in the Reserve Bank of India Report on Currency and Finance [RBI 2002], Kerala has recorded a trend growth rate of per capita SDP of 3.5 per cent only as against

    4.8 per cent at all-India and is at 9th place among the 15 major states for the period 1993-94 to 1999-2000.

    The point for emphasis is straight and simple. Kerala economy in the present growth trajectory is growing faster than its record in the earlier trajectories, but there is an element of exaggeration to read in the growth turnaround and the dawn of “virtuous cycle of development” with mutually reinforcing spiral of high human development and high economic growth. Kerala is not growing sufficiently high enough in income generation matching with its achievement of the high order of human development. We would, therefore argue that Kerala continues to present some characteristics of lopsided development due to inadequate economic growth, notwithstanding the implementation of reforms under the neoliberal policy perspective. We also hypothesise that the achievement of a growth rate lower than the potential in the present growth trajectory inter alia is due to Kerala’s lopsided development in a structural sense.

    Lopsided Structural Transformation

    Viewed in the conventional sense, the macro-level growth record in an economy is expected to bring about significant structural changes in terms of diversification in the composition of output and employment of economic activity sectors. This question needs to be addressed in the evaluation of growth process inasmuch as the prospect for a long-term growth as well as its sustainability depends significantly on the pattern of change in the economic structure defined as the sector composition of output, employment and labour productivity on the lines of Kuznets (1957). This implies that a lopsided structure with the dominance of a few economic activity sectors is not conducive for maximising and sustaining the overall growth of the macroeconomy. Does the sector growth pattern and structural changes witnessed in Kerala during the period under review fit into Kuznets’ conventional pattern?

    The relative shares of different economic activity sectors and sub-sectors in the aggregate output (GSDP) of Kerala (Table 3) show tertiary (service) sector as the dominant component of GSDP in 1993-94 and it continued to be so, and in fact expanded its importance, over time. The relative share of the primary sector (especially agriculture) declined but that loss was not compensated by an adequate increase in the share of the secondary (especially, manufacture) sector. In fact, the share of manufacturing activity in GSDP declined from about 12 per cent in 1993-94 to 9 per cent in 2001-02. The process of such a lopsided structural transformation in output becomes clearer when we compare sector growth rates in Kerala with all-India averages during the postreform period under review (Table 4). Interestingly, the growth rates recorded in Kerala are lower than all-India averages both in agriculture and industry. In tertiary (service) sector, the growth rate was more or less same, but the initial share being relatively higher, Kerala’s tertiary sector enjoyed a share larger than all-India at the close of the period under review. Thus viewed, the tertiary (service)

    Table 1: GDP Annual Growth Rate of Major States for 1994-95 to 2001-02 (Post-Reform Period)

    (Per cent)

    State Annual Rank Trend Rank

    Average Growth


    Andhra Pradesh 5.46 9 5.57 9 Assam 2.71 17 2.29 17 Bihar* 6.49 6 5.07 10 Goa*$ 7.81 1 8.53 1 Gujarat* 7.11 2 5.66 7 Haryana 5.87 7 5.72 6 Himachal Pradesh*$ 6.53 5 6.51 4 Karnataka*$ 6.56 4 7.29 2 Kerala 5.01 12 4.72 12 Madhya Pradesh 3.43 16 4.56 13 Maharashtra 5.12 11 4.85 11 Orissa 3.73 15 3.79 16 Punjab 3.9 13 4.44 14 Rajasthan$ 5.63 8 6.26 5 Tamil Nadu 5.37 10 5.6 8 Uttar Pradesh 3.77 14 3.98 15 West Bengal*$ 7.03 3 6.81 3 All-India GDP 6 6.01

    Notes: Trend growth rates are calculated from semi-logarithmic function.

    * Indicates states with average annual growth rates higher than all-India. $ indicates states with trend growth rate higher than all-India.

    Source: Calculation based on data from CSO, National Accounts.

    Table 2: Average annual Growthin Per Capita GDP

    Kerala All-India
    1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 Average 6.93 3.22 2.43 1.74 6.11 6.24 3.84 0.58 3.89 5.13 5.26 5.79 2.8 4.51 4.45 2.21 3.95 4.26
    Source: As in Table 1.

    Economic and Political Weekly March 11, 2006

    is found leading the growth process in Kerala during the post-reform period.

    Within the tertiary (service) sector, the growth process is shared by a number of sub-sectors like (1) communication

  • (2) banking and insurance (2) storage
  • (3) transport by means other than railways
  • (4) transport by railways (5) trade, hotels and restaurants and (6) public administration. In a sense, the high growth in the service sector was marked by a diversified structure. Here one is tempted to make a quick observation on the public administration sub-sector which has not recorded higher growth rate relative to all-India record. This characteristic feature certainly devalues the rationale generally advanced for the withdrawing of the state government’s participation in favour of the private sector (meaning thereby, the commercialisation) in social services like health and education under the neoliberal policy perspective presently being pursued in Kerala.
  • Reverting to the issue of structural change in output composition, the manufacturing activity as such is seen to have recorded only a low growth rate (3 per cent) in Kerala as against a high rate (around 7 per cent) at all-India level during the reform period under review (Table 4). The share of manufacturing in GSDP of Kerala (9 per cent) at the close of the period under review is less than what it was (12 per cent) at the beginning of the period. It stands to reason that the implementation of ongoing economic reforms characterised by liberalisation, privatisation and globalisation (LPG) has resulted in putting the state more into a process of “de-industrialisation” than accelerated industrialisation. In no sense, ongoing economic reforms can be said to have put Kerala on the path of industrialisation. It also follows that the critical issue of concern in the recent development experience of Kerala is the paradox of lagging manufacturing industry in a growing macroeconomy with high levels of human development achievements.

    Weighted Contribution of Activity Sectors

    As the aggregate growth rate at macrolevel is a weighted summation of the growth rates of the constituent sectors, the identification of the sectors leading in the contribution to SDP growth assumes significance. Results of a simple growth accounting exercise2show a pattern (Table 5) of tertiary (service) sector contributing around 83 per cent to GSDP growth in Kerala as against a corresponding figure of around 61 per cent at all-India level. The relative contribution of the manufacturing sector has been marginal in Kerala. To put the process of the observed structural transformation in rhetoric, it is a process of “servicitisation” and not the conventional type of industrialisation that has led the growth momentum in Kerala under the neoliberal policy perspective. This pattern of sector-composition in the macro-output stands in variance with the received theories of structural change propounded by Kuznets (1957), Chenery (1960, 1968 and 1979) and the like-minded development economists. Here comes up the interesting

    Table 3: Share of Sectors and Sub-Sectors in GSDP Kerala

    Sectors and Sub-Sectors 1993-94 2001-02 1993-94 to 2001-02

    Agriculture Forestry and logging Fishing Mining and quarrying I Primary





    Electricity, gas and water supply II Secondary

    Transport, storage and communication


    Transport by other means


    Communication Trade, hotels and restaurants Banking and insurance Real estate and business services Public administration Other services III Tertiary

    Source: As in Table 1.

    24.79 14.84

    2.84 1.66

    2.7 2.2

    0.26 0.27

    30.58 18.96

    11.58 9.21

    6.1 5.44

    5.48 3.76

    7.85 10.08

    1.18 2.61

    20.62 21.9

    7.51 10.06

    0.37 0.31

    5.62 7.42

  • 0.02 0.02
  • 1.5 2.31
  • 17.44 21.63

    4.34 5.53

    6.76 7.08

    5.11 4.86

    7.63 9.99

    48.8 59.14 21.63






















    question of the sustainability of growth momentum propelled by the service sector. Before we take up this question, we have to note the observed relationship between growth and structural changes in the employment scene without which the story of structural transformation would remain incomplete.

    Growth and Structural Changes in Employment

    What, in fact, has been the pattern of change in the size and structure of employment that accompanied the growth performance during the post-reform era in Kerala? As the question has been under serious scrutiny in the earlier studies, we do not intent to make any new exploration. We only need to contextualise the major findings of earlier studies on the structural change in employment. When we do that we are led to draw the conclusion of some positive effect on the overall growth in employment during the post-reform era. However, the growth rate in employment was not adequate enough to make any significant impact on redressing the acute problem of unemployment especially of the educated men and women in the state. Further, some lopsided structural features biased against the interests of women and marginalised sections of the society marked the growth trend in employment.

    Structure and Growth of the Manufacturing Industry

    Reverting to the lopsided development we detail out the composition of the manufacturing industry and assess its degree of diversification. Here we are essentially concerned with an important question: has the relatively low growth rate in aggregate manufacturing output any association with the concentrated nature of the structural composition? The concentrated structure is scrutinised by analysing the relative shares of NIC-2 digit industries in the total value added by manufacture in Kerala’s Annual Survey of Industries (ASI) factory sector during 1980-81 to 1990-91 and 1991-92 to 2001 (Table 6). The analysis shows that three industries (viz, food products, chemicals and rubber products) together account for more than one-half of the total value added by manufacture in the pre-reform period and those very industries continued to be the dominant ones in the output structure in the post-reform period also and accounted for

    Economic and Political Weekly March 11, 2006 more than 63 per cent of the total output. Clearly, the regime of reform policy has not provided enough market incentives for structural diversification; contrarily, it has helped raising the level of concentration in the industrial structure. The industrial structure is found conspicuous of the absence of a balanced output composition. This characteristic of lopsided development in structure marked by the lack of technology-intensive and diversified modern industries must have been a major structural factor that accounts for the relatively low growth record of the manufacturing industry in Kerala.

    Incidentally, the question as to what led to the lack of growth dynamism in the manufacturing industry in Kerala has been widely discussed in terms of (1) regionspecific and (2) structural factors. The emphasis so far has been on factors like labour militancy resulting into high wage cost disadvantage, poor quality of physical infrastructure, inflexible environment standards, social rigidities, lack of credibility to the state’s offer of fiscal incentives and other “baits”, inefficient governance, political instability and host of other factors specific to Kerala that acted as disincentive to the entry and operation of capital investment from within and outside the state. Studies giving objective assessments of the region-specific constraints have shown that entrepreneurs’ perception of an unfavourable investment environment in Kerala is based on their “misconception” of ground realities relating to regionspecific factors. Nevertheless, the fact that the flow of fresh investment including foreign capital3 into manufacturing industry in Kerala at present is very small as compared to all-India average suggests that there is room for improving some region-specific conditions for attracting investment, including foreign capital and technology from multinational corporations into the manufacturing industry.

    This inference obviously has implications on modifying current policies of the state government on industrial investment with respect to the role of the private sector vis-à-vis the public sector and domestic vis-à-vis foreign capital. Perhaps, it is high time that the practice of treating industrial investment in a dichotomous way is given up in favour of a policy-framework that encourages integrated and reinforcing behaviour for attracting investment from domestic as well as foreign sources both in the private and public sector. There is room for modifying existing rules and regulations governing region-specific factors including labour market conditions that actually constrain the entry and operation of profitseeking private sector into the manufacturing industry in Kerala. How best such policy changes relating to region-specific factors can be brought about without causing damages to the local interests is a politically complicated but an important question.

    However, the priority in the discussion here is on policies that would resolve the constraints to growth-acceleration in manufacturing arising from the lopsided structural change. Indeed, our finding that structural diversification did not take place and help raise industrial growth in Kerala during the pre-reform period poses some disquieting questions on the irrelevance of inward-oriented and state-regulated policies on industrialising the state. But that cannot be the alibi for the design and implementation of reforms based on the neoliberal policy perspective. For, markets do fail to provide necessary incentives for the type of structural diversification that ensures a balanced growth. And the state stands justified for its intervention and correcting the structural distortion effect of the market forces even in a capitalist development perspective. However, the state policies and practices have to be designed and practised with transparency and without distorting the investors’ incentives to make profit, which is a key determinant of investment, output expansion and growth in the industrial sector.

    Sustainability of the Growth Momentum

    We now turn to the question raised earlier on the sustainability of growth momentum without developing a dynamic manufacturing industry in Kerala. Is the growth performance influencing a pattern of structural transformation marked by the slow growing manufacturing-based industrial sector with a low share in GSDP and the domination of the service sector witnessed during the 1990s sustainable in the longrun? To some extent the answer depends upon the income-elasticity of the services and the prospects of a continuous rise in the purchasing power (disposable income level) of the people. It must be noted that service sector covers a broad spectrum of activities, some conducive to production, some for consumer satisfaction or an amalgam of the two. The basic question is whether or not the sub-sectors having large shares in the service sector consist of services linked to commodity production. If it is promoting interlinkages, the sustainability of the growth pace in the aggregate service sector and thereby the sustainability of the growth momentum of the overall economy is not at risk. If not, the sustainability of the growth momentum in the long-run would be doubtful.

    An empirical analysis of the sustainability of the growth momentum for the future in the macroeconomy of Kerala, which at present is propelled by the service (tertiary) sector, is an interesting exercise and can leave useful lessons for designing a growth accelerating development strategy. The task, however, is difficult due to nonavailability of detailed data on the nature of use to which the services are rendered. Some of the activities in the service sector are multidimensional in the sense that a service can be linked to commodity production or to final consumption in varying degrees across the states. The use of transport service or communication service can generally be conceived to have more

    Table 4: Average Annual Growth Rate(1994-95 to 2001-02) of GSDP

    Sector/Sub-Sectors Kerala All-India

    Agriculture -1.44 3.01

    Forestry and logging 1.87 1.85

    Fishing 0.94 4.5

    Mining and quarrying 6.99 4.56

    I Primary -0.9 3.11 Manufacturing 3.1 6.97 Registered 5.14 7.12 Unregistered 0.61 6.74

    Construction 5.34 6.12 Electricity, gas and water supply 18.24 6.21 II Secondary 4.93 6.68 Transport, storage and

    communication 13.16 9.73 Railways 7 4.88 Transport by other means 10.04 6.99 Storage 10.07 1.72 Communication 22.56 19.39 Trade, hotels and

    restaurants 6.76 8.51 Banking and insurance 13.99 8.92 Real estate and business

    services 3.79 5.81 Public Administration 5.38 6.93 Other Services 6.6 8.45

    III Tertiary 8.04 8.15

    Source: As in Table 1.

    Table 5: Weighted Contribution of Sectorsto GSDP Growth (1994-95 to 2001-02)

    (Per cent)

    Sectors Kerala All-India

    I Primary –4.77 13.34 II Secondary 21.32 25.82 III Tertiary 83.45 60.84

    Source: As in Table 1.

    Economic and Political Weekly March 11, 2006

    linkages with production than consumption. However, the communication subsector renders mainly the consumer services and does not have strong linkage with the commodity production in Kerala. Notwithstanding such analytical problems, we categorise on the lines of RBI’s Report on Currency and Finance [RBI 2002] “subsectors including trade, transport and communication, financing, insurance, real estates and business services, as producer services with hotels and restaurants and other services as consumer service” (pp III-39). Onthe line of RBI we may also have a third category called, government service comprising of public administration, which provides intermediary services. The shares accounted by these three categories of services, viz (1) producer services;

    (2) consumer services; and (3) government services in the total GSDP of a state tell us their relative importance in shaping that GSDP.

    It can be derived from the Table 3 that the average share of producer service category (19 per cent) is smaller than that of the consumers’ service category (28 per cent) in the total GSDP of Kerala during the post-reform period under review (1993-94 to 2001-02). In other words, the largest part of the service sector in Kerala is accounted by the consumers’ services category. The fact that the share of producers’ service category is lower than that of the consumer services in GSDP is suggestive of the limited interlinkages between services and commodity producing sectors in Kerala. The situation in Kerala stands in contrast with that at all-India, where according to the RBI’s Report on Currency and Finance, “The high share of producer services reflects the strong interlinkages between services and goods producing sectors of the economy” [RBI 2002: III-39] at all-India level. As regards Kerala we may say that it is the consumer service category that has been exercising more influence than the other two service categories in shaping the GSDP. Pending deeper analysis, therefore, it can be said that the sustainability of growth in Kerala, in which consumer services category has relatively larger share, is rather doubtful.

    It must be noted that the service sector can be the driver of overall economic growth only if it is dominated by highly skill-intensive and high value added services based on information technology, R&D, and knowledge-based “new” economy activities. For, it not only raises its own output, but also contributes to the overall productivity rise in the general economy. If the service sector is dominated by low-skilled service activities, its effect on the overall economic growth and sustainability in the long-run is doubtful. The point for emphasis is this: detailed studies on the demand characteristics of the specific “products” of service subsectors are needed to comment upon the long-term growth implication of the service sector-led growth observed in Kerala during the post-reform era. This is beyond the scope of the empirical analysis contemplated in our discussion here. It may also be stressed that analysis of the constraints to the growth of a service sector industry like software, which uses intensively information and communication technology, in terms of its growth, product structure, skill composition and linkage with commodity producing sectors, deserves special attention. This would imply confronting some embarrassing questions like: why has Kerala been a slow starter in software industry.4 The point for emphasis is the caution needed in suggesting service sector development as the key strategy for accelerating the growth of Kerala’s general economy.

    It must also be stated that the tendency to dismiss industrialisation as a development strategy for Kerala is cynical. There are some compulsive reasons for Kerala to speed up its manufacture-based industrialisation. First, the Gulf remittance has been sustaining high consumption level and supporting the growth of service sector in Kerala, which ranked first in terms of per capita consumption expenditure in the recent 60th round of NSSO survey on household expenditure in India. The Gulf remittance has the risk of being a transient phenomenon and it may taper off in the future. Second, being a food-deficit region, Kerala is likely to face worsening of the barter terms of trade, which needs to be neutralised by achieving higher income growth from industries. Third, the alarming size and fast growth of unemployment of educated men and women in Kerala warrant accelerated expansion of diversified activities. All these mean the need for fast-growing diversified manufacturing industry in Kerala. Therefore, there is a case for exploring industrialisation as an essential strategy for achieving accelerated growth of the general economy in Kerala. Indeed, there may be logic in re-reading the old paradigm of industrialisation and exploring a new pattern of manufacture-based modern industrialisation as an effective and feasible strategy.

    Concluding Observations

    In the light of the findings of our foregoing analysis we close our discussion by suggesting some pragmatic approaches for accelerating the growth rate in Kerala.

  • Given the inevitability of a neoliberal policy perspective in the context of presentday strides in technological revolution and global integration, there is a logic in seeking a pragmatic approach of developing a new vision on the choice-mix of patterns and partners for development based on modern manufacturing led industrialisation.
  • The new vision, however, should not ignore in its strategy the potential for development of employment-intensive and knowledge-using service sector. What is
  • Table 6: Composition in ASI Factory Sector in Kerala (Share of Different Industries in Manufacturing Value Added)


    NIC Code Industries 1980-81 to 1991-92 to
    1990-91 2001-02
    20+21 Food products 23.95 27.59
    2 2 Beverages and tobacco 3.1 3.32
    23+24+25 Textiles 4.99 5.66
    2 6 Textile products (ready-made garments) 2.81 0.99
    2 7 Wood and wood products 1.92 1.02
    2 8 Paper and paper products 4.46 6.48
    2 9 Leather and leather products 0.01 0.6
    3 0 Chemical and chemical products 17.85 19.07
    3 1 Rubber, plastic and petroleum products 18.03 15.93
    3 2 Non-metallic minerals 3.47 3.82
    3 3 Basic metals and alloys 2.68 3.77
    3 4 Metal products 1.13 0.74
    35+36 Machinery and machine tools 7.59 3.25
    3 7 Transport equipment 1.69 2.34
    3 8 Other manufacturing 1.16 1.13
    All manufacturing 100 100

    Source: Calculation based on data from CSO, Annual Survey of Industries.

    Economic and Political Weekly March 11, 2006 stressed is the risk in relying upon an unbalanced growth strategy based on service sector. The strategy to transform Kerala as mere service provider without building up on its dynamic comparative advantage in skill- and technology-driven commodity production, as is currently being done, is to miss an opportunity to grow in a balanced way by removing the lopsided structural features of present-day development.

  • It is not that the state but it is the private sector that can take more efficiently the initiative for a balanced growth in a competitive environment and take Kerala deep into the new economy guided by increased investment and modular production of “sun-rise” industries and manufacturing based on biotechnology, genetic engineering and the like science-based value addition.
  • In the product structure envisaged in the new pattern of manufacture-based industrialisation, there is a systemic advantage in terms of organisation structure. That pattern of industrialisation is amenable to small- and medium-scale production with large scope for flexible specialisation and opening up space for the emergence of a new class of entrepreneurs and new dimension to competition in the market-structure.
  • In short, Kerala society has to modify its mindset on treating private capitalist including foreign capital as a labour exploiting class alone. Instead, it has to adopt a proactive approach towards foreign capital and private sector investors to risk with increased investment in new industrial activities to the mutual advantage of capital and labour as integrated components of a new society.
  • In the development strategy the initiative and dynamism of private capital including multinational corporations should get the right focus. However, the state still has to play a major role. The pragmatic approach is to transform the state government not as an active participant entrepreneur but as a monitor and regulator to correct the market-failures so that the lopsided development is corrected, and as a facilitator strive to ensure economic growth on a sustained basis through manufacturebased industrialisation. The basic approach has to match the process of human development with economic growth in a reenforcing manner and achieve “development” in its wider connotation of capability building with distributive justice to serve the best interest of the society.
  • We conclude with the hope that our discussion here has the power to persuade meaningful debates to come up with pragmatic approaches in a development strategy that helps nullifying the ill-effects of the current forms of liberalisation, privatisation and globalisation and promoting accelerated growth by remaining within the regime of reforms.


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    [This is revised version of a presentation in a symposium on Kerala’s Development Experience at the International Congress on Kerala Studies, December 9-11 organised by the AKG Centre at Trivandrum. The help received from K S Hari and T K Subramanian in data collection and statistical work is gratefully acknowledged. Usual disclaimer applies.]

    1 Illustrative examples of such studies include Subrahmanian and Azeez (2000); Ahluwalia (2000); Harilal and Joseph (2003); Pushpangadhan (2003); Jeromi (2003); Subrahmanian (2003); Kannan (2005); and Chakraborty (2005).

    2 The exercise uses the formula, gv = ∑ pi gvi, where gvi and gv are growth rates of Vi (sector output) and V (total output), respectively and the weights are sector-output shares.

    3 To illustrate, Kerala’s share in the total FDI inflow into the country in 2003-04 is only 0.37 per cent whereas the corresponding figures are much higher for other southern states (Tamil Nadu 5 per cent, Karnataka 7.6 per cent and Andhra 3 per cent).

    4 For an interesting discussion on the constraints in the growth of software industry in Kerala see Dayasindhu and Pradeep (2005).


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    Chakraborty, Achin (2005): ‘Kerala’s Changing Development Narratives’, Economic and Political Weekly, February 5.

    Chenery, H B and L Taylor (1968): ‘Development Patterns among Countries over Time’, Review

    of Economics and Statistics, Vol 50, November.

    Chenery, H B (1960): ‘Pattern of Industrial Growth’, American Economic Review, Vol 50, September.

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