Business Today

God's own challenges

Despite a boom in commodity prices, tourism and remittances, Kerala faces grave problems. The future of the economy lies in the creation of infrastructure like the ICTT and roadways.

T.V. Mahalingam        Print Edition: April 3, 2011

At 5.45 in the morning, the only sounds at the beach in Fort Cochin are the cawing of crows. They swirl around the gigantic Chinese fishing nets spread out on the sand. A South Korean tourist, Kim (she refuses to give any other name) takes pictures.

In the photo-friendly light of dawn, her otherwise perfect pictures are marred by one little detail - a rash of bright lights on the horizon from the International Container Transshipment Terminal, or ICTT, inaugurated in February by Prime Minister Manmohan Singh.

Even as Kerala prepares for assembly polls in April, the setting - the fishing nets, the tourist and the terminal - perfectly represents its economy's past, present and future. The fishing nets (along with agriculture) point to its traditional economy focused on its natural resources like fertile land and abundant water. The second element, tourism, is its present, powering job creation and currently contributing about eight per cent to the state's gross domestic product, or GDP.


  • Kerala's economy grew at 9.89% in 2009/10, faster than the national average
  • Tourism accounts for 8% of the state's GDP
  • 77% of the state's resources are being spent on revenue expenditure as salaries and pensions
  • In terms of per capita income, the state is fourth nationwide
  • A serious shortage of white collared labour and militant unionism are crippling manufacturing in the state
  • Agriculture employs below 30% of the state's workforce and contributes just about 12% of the state's GDP

Revenues from tourism have almost doubled since 2005. And the future of the economy lies in the creation of infrastructure like the ICTT and roadways. Yet each of these sectors faces its own sets of challenges.

Ostensibly, Kerala's economy is breezing along. Soaring commodity prices, growth in remittances from non-resident Keralites - which according to some estimates account for nearly a fourth of the state's GDP - and a construction boom have fired the state's growth rate to 9.89 per cent in 2009/10, which is above the national average. "A boom in the prices of commodities like rubber, cardamom and coconut lead the growth that we are witnessing," says Deepak Aswani, Chairman of the Kerala Chamber of Commerce and Industry. Rubber prices have nearly quadrupled in the last two years, Kerala has witnessed a tax revenue jump of 20 per cent in 2009/10. Its per capita income is the fourth highest in the country.

"The so-called Kerala model of development, characterised by high human development parameters but low per capita income, no longer applies to Kerala," says K.P. Kannan, Professor at the Thiruvananthapuram-based Centre for Development Studies, or CDS. Now, per capita income is high as well, while the success in delivering universal primary education, a high level of health care and combating hunger continues.

Yet the growth story faces challenges - some intrinsic and some external. In the traditional economy, agricultural growth has slipped. "Agriculture is going through a phase of stagnation," says Kannan, pointing out that the share of agriculture and related activities in the state's income has fallen from 22 per cent in 2004/05 to about 12 per cent last year. Employment in agriculture has fallen from about 57 per cent to less than 30 per cent. The reason: the state's educated workforce is unwilling to work at manual jobs, resulting in a decline in the gross cropped area.

Observers say that because of employment guarantee programmes like the Mahatma Gandhi National Rural Employment Guarantee Scheme, or MGNREGS, farm wages have shot up significantly. A cashew farm labourer can charge up to Rs 350 a day and a skilled carpenter close to Rs 450. "Today, the bulk of the farm labourers are from the eastern states of India," says Kannan.

The situation is worse in some other sectors, too. Keralites complain that many waiters in their hotels now hail from the North-east, and being unfamiliar with local cuisine, often mix up their orders. The third phase of Technopark - Kerala's oldest and largest information technology, or IT, park - is being constructed by migrant labour.

"You would probably pay Rs 300 to unload a truck in Raipur. To do the same thing in Kerala you would have to pay Rs 1,000. Thanks to the militant unionism in the state, the wages for manual labour are unrealistic," says Aswani. Even today, no news broadcast on any of the state's TV channels ends without the word samaram - Malayalam for strike - being used at least once. Over the past year, truck drivers, bus owners, port workers, postgraduate medical students, autorickshaw drivers, taxi drivers, teachers, bankers, surgeons, and public broadcasting employers have all been on strike at some point.

When the Communist Party of India (Marxist), or CPM-affiliated trade union CITU prevented goods brought in by electrical equipment manufacturer V-Guard from being unloaded at a warehouse near Kochi, the 60-year-old Managing Director of V-Guard, Kochouseph Chittilappilly, personally unloaded the cartons. Industry watchers also point out that the multiplicity of unions in the state, each one backed by a political party, makes resolution of industrial disputes very tough.

Will Kerala ever be successful at manufacturing? CDS's Kannan asks a counter question: "Should an ecologically-sensitive, densely-populated, land-scarce state like Kerala focus on manufacturing at all?" Maybe not.

Mithun Chittilappilly Executive Director, V-Guard

Kerala faces the handicap of geographical location when it comes to manufacturing
Mithun Chittilappilly Executive Director, V-Guard
"Kerala faces the handicap of geographical location when it comes to manufacturing," says Mithun Chittilappilly, Executive Director of V-Guard. "It lies on the southernmost tip of India and almost every raw material has to pass through several states to get here." V-Guard has manufacturing hubs in Uttarakhand, Himachal Pradesh and Tamil Nadu even though nearly 30 per cent of its revenues come from Kerala.

If manufacturing is not the way forward, how does the state create jobs for its largely educated workforce? The answer lies in investing in knowledge sectors like IT and tourism. Technopark's CEO Mervin Alexander sees bright prospects for the IT sector in the state. "At Technopark, there are over 240 companies, employing 28,000 people.

In the next five years, we will look at doubling that number," says Alexander. Technopark is also promoting a fully-integrated 450-acre township called Technocity near Thiruvananthapuram. It has already signed on Tata Consultancy Services, or TCS, to set up its Global Learning Centre at Technocity. TCS is expected to invest Rs 1,500 crore. Kerala also deserves credit for the way it has tapped into the tourism market. However, there is some concern that interest in Kerala tourism - especially among foreigners - is waning. The number of foreign tourists visiting the state fell to 557,258 in 2009/10 - a seven per cent drop from the previous year. Kerala Tourism Development Corporation Chairman Cherian Philip feels the recession in the West has affected tourist arrivals. "But we are now focusing on newer markets like the Gulf and Russia. Tourists from the Gulf usually come during the monsoon or the off season," says Philip.

Tourists are welcome, but other arrivals from the Gulf may not be good news. According to CDS's Kannan, nearly 220,000 Keralites, or nearly 17 per cent of its 1.3 million strong workforce, work outside the country, mostly in the Gulf countries. If the revolutionary cold that Egypt and Libya have caught spreads to the Gulf countries, Kerala will experience much more than a sneeze. Already, there are sniffles in Bahrain. "That's a nightmare scenario for the state. The bulk of the workers who will come back will not be the skilled workers but cab drivers and manual labourers. Their rehabilitation will be the biggest challenge the state has ever faced," says a Kochi political observer.

In the last two months, the ruling Left Democratic Front, or LDF, which has been accused of being investor-unfriendly by its critics, has been trying to speed up work on some long pending projects like the next phase of the ICTT in Kochi, the Vizhinjam Port near Thiruvananthapuram and the Smart City project in Kochi. Given the state's record of voting out every incumbent government since 1977, it is unlikely that the voting public of Kerala will view these last-ditch make-up attempts favourably.

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