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Chapter Ill
REVIEW OF THE KERALA ECONOMY
3.1 The State of Kerala
The State of Kerala is a small, narrow strip of land on the
extreme west coast of India. With a coastline of 590 Kms it does
not exceed 100 Kms at its widest point. It has a total area of about
39,000 sq krns. Constituted on November 1, 1956 it comprised of
the erstwhile Malabar district in the North, the whole of the former
Cochin, part of the former Travancore-Cochin State in the centre
and the major part of the then Travancore State in the South.
Among the three, Travancore was the largest accounting for more
than half of the area. While the first was directly administered
by the British in the pre-independence period, the last two had
been princely states and hence under indirect colonial rule.
The differential nature of colonial rule, for instance differences
in state policy regarding land regulations,' education and health2
had its impact on the subsequent development of the regions.
' K.N. Raj i.t ai. (1983). "Agrarian reform in Kerala and its impact on Rural Econom!-4 Prelim~nary Assessment," Ghose (ed.) Agrarian Reform in ('ontemporary i ) rve /op ing Cuuntries, St.Martin's Press, New York, p.68.
' M. Kabir c! a / . (1991). "Social Intermediation and Health Transition: Lessons from Kcrala." paper presented at a seminar on Health and Development in India. Ne\\ D e l h ~ . Jan 2-4.
48 \
Malabar inherited a relatively backward economy vis-a-vis the other
two at the time of the state's f ~ r m a t i o n . ~ However Malabar played
a critical role in Kerala's development through its numerous mass
movements against economic and social oppression. At present
the state is administratively divided into 14 districts, which in turn
are divided into 152 blocks, 1384 villages, 990 grama (Village)
panchayats. 54 Municipalities and 3 Corporations. Many
panchayats cover more than one revenue village.
In terms of its physical features, the land is divided into four
distinct types: ( i ) the highlands vouching the Western Ghats (ii) the
midlands (iii) the lowland plains and (iv) the coastal belt. Over 40
rivers feed it. The undulating topography of the state, the tropical
climate (high incidence of sunlight, rainfall and warm temperature)
as also the cool temperature of the hills generate variety of agro-
climatic conditions which lead to the growth of a range of crop
specie^.^ The State has a fairly high proportion of area under
spices, ginger, tea, coconut and rubber. Kerala with its 29 million
inhabitants in 1991, in a limited geographical area, has become
one of the most densely populated regions in India, particularly in
the lowland and midland regions.' The density of population as
' T N. Kr~shnan (1991). "Wages, Employment and Output in Interrelated Labour Markets In an Agrarian Economy-A study of Kerala," Economic and Political Weekly; 26 (26).
" I.; N . Shyarnsundaran Nair (1994). "Constraints to Kerala's Agricultural Development or What Ails Kerala's Agriculture," A.K.G. Centre for Research and Studies, lutemational Congress on Kerala Studies, Abstracts, Vo1.2.
I; C Zachariah et al. (1967). "Urbanization and Urban development," Asian Economic Hrvrcu. VolJ.no.2, November.
recorded in the census of 1991 (749 persons per square kilometre)
was nearly three times that of lndia. This had an impact on the size
of Kerala's villages; at the 1991 Census, the average size of a
village in the State was almost 16,000 persons compared to a little
over 1,800 persons for all lndia.
3.2 Economic Aspects in Larger Perspect ive
3.2.1 (a) The State Domestic Product
Kerala has performed rather poorly on the economic front
when v~ewed in aggregate terms. However its pattern of
development with strong government intervention in the social
sectors has been unique and has drawn considerable attention. Its
basic characteristic is the paradox of high social development such
as life expectancy, birth rates, infant mortality rates, sex ratio and
literacy levels especially of the female population, where its
performance is rated very high. It is not only high in comparison
with other states and developing economies but also in relation to
developed countries. However, its per capita income is low and
growth in State Domestic Product (SDP) has generally lagged
behind the all-India average.
Up to the mid-sixties the state failed to reflect the general
buoyancy of the Indian economy with growth rate of the State
Domestic product (SDP) lower than the all-India average. However,
in the post mid-sixties period when the national growth rate
stagnated, for Kerala it was significantly higher but per capita
income still remained lower than all lndia average due to the higher
population growth rate. Since the mid-seventies when the growth
rate of the National Domestic Product (NDP) picked up, there was
again a decline of the SDP growth rate, barely managing to grow
faster than the rate of growth of population, which had started
dec~ in ing .~ During the eighties 1980-81 to 1989-90, SDP growth
rate was hardly two per cent for Kerala compared to 5.2% at the
national level. In this period growth in per capita income would
have been negative but for the steep decline in the rate of growth
of population. The share of Kerala's SDP in NDP declined from
3.5% to 2.8% between 1981-91. The growth rate of SDP in Kerala
was marginally higher at 5% compared to 4% at the national level
in 1990-91 to 1994-95.
State income i.e. Net State Domestic Product at factor cost,
at current prices. registered a growth of 16.81% during 1999-2000
compared to 15.97% in 1998-99.
Contrary to the general belief that the economy of the state is
growing at a rate lower than that of other states, the publication of
the Reserve Bank of India, 'Handbook of Statistics on Indian
economy 2000,' shows that the Net Domestic Product of
Kerala registered a growth of 59.08% during the period 1989-90 to
" David Isaac er al . (1992). "Regional Terms of Trade for the State of Kerala." Work~ng paper no. 247, Centre for Development Studies, Thiruvananthapura~n
1997-98. This is higher than that of Tamil Nadu (58.64%) and a
good deal higher than that of Karnataka (51.26%) and several other
states. In fact Kerala ranks fifth among the major states with regard
to growth rate of state income during this period. State-wise
comparison is given in Table III.1
Table Ill. 1
State-wise Growth of Net State Domestic Product
(At Factor Cost: Constant Prices) (Percentage) (Base: 1980-81)
States
Maharashtra
3. Andhra Pradesh
4. West Bengal
5. Kerala
6. Madhya Pradesh
I 7. Tamil Nadu
1 8. Rajasthan
1 9. Karnataka I
Growth
1980-81 to 1989-90
63.14
71.81
57.61
43.16
27.96
38.69
58.88
77.51
61.91
Rate
1989-90 to 1997-98
72.58
64.80
72.82
65.76
59.08
51.65
58.64
52.08
51.26
70.78
65.54
52.02
1 1 3 Uttar pradesh 53.45 ! I 14 Bihar L
47.50.
Source Handbook of Statistics on Indian Economy
45.71
37.7 1
14.88
27.27
13.74
2000, Reserve bank of India
3.2.2 (b) Remittance Incomes and State Domestic Product
Since income estimates refer to incomes originating in the
region only and they do not take into account incomes accruing,
Kerala's SDP is underestimated due to the non-inclusion of
remittances received from Keralites working abroad. This inflow
started growing substantially since the mid-seventies in the wake
of large-scale migration of Kerala workers to the Gulf Countries.
That it made a quantum improvement to the standard of living in
Kerala is ev~dent from the anomalous situation of per capita
consumption being higher than per capita income in certain years
since the post-Gulf migration phase. For instance in 1986-87 while
per capita income was Rs. 2371 at current prices, per capita
consumption expenditure was Rs. 2436.
Attempts have been made to estimate the remittance
incomes indirectly since data on the actual inflows into Kerala are
non-existent. In a pioneering attempt to estimate income from a
consumption function, it was found that the flow of remittance
incomes varied between 15-22 per cent of SDP during 1972-73 to
1989-90, it peaked to 30% in 1978-79 and there was another high
of 26% in 1986.87.' These remittances made possible a moderate
increase in the rate of growth of per capita incomes in Kerala,
' T N Krislinan ( 1 9 9 4 ) "Social Intermediation and Human Development, Kcrnla State. India 4 Retrospective study, 1960-1993," World Summit on Social Dcvelovmcnt. 1lNICEF
from 0.45% to 0.90% between 1972-73 and 1989-90. Whatever be
the growth rate in per capita incomes, it is significant that Kerala
experienced a steady growth in per capita (real) consumption
during this period, at 1.8% per a n n ~ m . ~ A notable fact is that the
remittances did not result in a greater inequality of per capita
consumer expenditure within the State; rather its growth was
reasonably broad based.g Between 1977-78 and 1987-88 there was
an increase in the share of the bottom 30 per cent of the rural
population in the per capita consumption of all items, food, non-
food grains and industrial goods and services. In fact, the period
witnessed a significant decline in the incidence of poverty in Kerala
from its high level in the sixties.I0
However the relatively higher consumption expenditures in
the post-migration period did not seem to have had much impact on
the commodity producing sectors of the economy which continued
to grow much slower than the tertiary sector. The economy was
unable to take full advantage of the growth in consumption
expenditures despite a potential increase in productive capacity by
way of savings generated from the remittance inflows. Most of the
increase in investment that occurred was in housing. While this did
V.N. Krishnan (1994). "Social Intermediation and Human Development, Kerala Statc, India. A Retrospective study, 1960-1993," World Summit on Social Devclopment. UNICEF
I David Isaac ci al. (1997). Economic Consequences of Gulf Migration: Kerala's Uemogrnphrc Trunsifion, its Determinants and Consequences. Sage publications, Delh~. p 63.
111 T . N . Krlshnal. lbid.
open up a major avenue of non-agricultural employment in rural
areas in construction, it failed to generate adequate backward
linkages in terms of manufacture of building materials. This implied
a growth in import dependence of the regional economy, the
requirements being met almost entirely from other Indian states."
The major factors, which influenced Kerala's economy during
the 1990's, were economic policy reforms, increase in exports and
favourable climatic conditions. Though the State did not make
major changes in market intervention policies, policy changes at
the national level, especially the external sector policies, generated
favourable conditions for the promotion of foreign migration
and export^.'^
A major impact of economic reforms was the revival of
emigration to the Middle East, and the consequent increase in the
flow of foreign remittances to Kerala. The devaluation of the Indian
Rupee by 18.3 per cent in July 1991, partial convertibility of the
rupee in March 1992 and full convertibility in March 1993 helped
migrants to earn more Rupees in exchange of foreign currencies.
These measures helped the low wage categories of unskilled
Keralite migrants in the Middle East to remain there and face the
I ' Isaac et ui (1992) "Regional Terms of Trade for the State of Kerala," Working papcr no 247. Centre for Development Studies, Thiruvananthapuram.
" B A Prakash (1999) Econom~c Development-Issues and Problems, Sage publ~catioiis. Neu Delhl. p 53
5 5
competition of cheap labour from other Asian countries. It also
encouraged fresh migration. Evidence suggests that the total stock
of Keralite migrants in the Middle East increased from 8.25 lakhs in
1991 to 14 lakhs rn 1996. Worker remittances from the Middle East
also increased from Rs. 2,335 crore in 1991 to Rs. 5,539 crore in
199.5.'~ The spurt in emigration and flow of remittances resulted in
major changes in the economy. It led to a spurt in the price of land,
real estate and a boom in construction activity. The boom in
construction further resulted in increase in the demand for
construction workers, construction materials, hikes in wages of
workers and promoted emigration of Tamil construction workers to
Kerala. It also accelerated the growth of trade, commerce, transport
and other tertiary activities.
Economic reforms also helped exporters to earn more profits.
Kerala exports a number of agricultural and marine products to
foreign countries. Kerala accounted for nearly 40% of the export
earnings of spices, 94% of coir and coir products, 49% of
cashew kernels and 25% of marine products of the country during
1995-96.14 Almost the entire quantity of pepper and more than half
the cardamom exported from India are from Kerala. Other important
13 B A Prakash (1999) Economrc Development-Issues and Problems, Sage pi~bl icat lons Nen D e l h ~ . p 64
'"tatc P l a n n ~ n g Board. Economrc R e v ~ e w , 2000
56
agricultural exports from Kerala are tea and coffee. Commodity-
wise exports through Kochi Port show that there has been a steady
increase in the value of exports. The increase in exports gave a
boost to the production, processing and trading of these products
during the first half of the 1990s. Kerala also experienced favorable
climate during the first half of the 1990s.
3.2.3 Agricultural Performance in Kerala
A country without sound agricultural system may not be
capable of producing adequate food materials and other crops.
Agriculture is the backbone for the survival of any community. As in
the case elsewhere, the people of Kerala also had been depending
on agriculture for their livelihood and Kerala continues, to be a
predominantly agricultural State. Kerala was known in the past for
her agricultural produces like pepper, cardamom and other spices.
These produces had enticed many foreigners to this land and this
led to many historical events culminating in the colonization of the
country and thereafter decades long struggle for freedom. Having
yoked the country under colonialism, the foreign forces plundered
the natural resources including the much-wanted agricultural
produces,
57
The post independence period witnessed the end of the
exploitation by foreign countries and beginning of a new phase
of planning and development in India. The fifty years witnessed
several developments in domestic, national and international
scenario.
3.2.4 Cropping Pattern
Both topographical and economic factors in terms of a
favorable export market encouraged the growth of commercial
crops in Kerala some of which were processed further, even when
the State was deficit in food. Demand for food was met through
imports. A study of the Travancore region showed that the area
under commercial crops among which coconut and rubber were the
more important ones, increased continually since at least the
1920 's . '~ There was a rapid expansion of the external trade of the
region that increased nearly ten fold between the latter half of the
lgih century and 1938-39. While the trend of a relative decline in
paddy acreage continued in the post-Independence period; and
absolute shift in its acreage had been halted between 1952-53 to
1974-75, a period which witnessed a sharp increase in paddy
'' P C i K Panikar er 01. (1977). "Population growth and Agricultural Dcvelopn~cnt A case study of Kerala," Centre for Development Studies, Thiruvatlanthapuram. p.42
5 8
prices and state policy emphasized the need for some degree of
self-sufficiency in food.I6 However since 1975-76 there was again
a sharp shift away from paddy, the latter losing acreage even in
absolute terms. While area under paddy grew at an annual rate of
0.8 per cent during 1962-63 to 1974-75, in the subsequent decade.
the rate of growth, 2.1 per cent per annum, was negative." Paddy
acreage continued to decline and by early nineties, almost 70 per
cent of the gross cropped area was under non-food crops in Kerala
compared to about 30 per cent for all India. The significance of
cash crops for Kerala gained momentum from the 1980's.
However, the fact that commercialisation is extensive in
Kerala, and the pace of it has accelerated since the mid-seventies
cannot be denied. What is rather unique in the spread of cash
crops is that historically such crops are grown even in very
smallholdings in Kerala; both poor and middle peasants are
engaged to a large extent in their cultivation. In fact over 80
percent of the rubber is grown on small holdings.''
I h Panikar er a / . (1977). "Population Growth and Agricultural Development: A case study of Kcrala." Centre for Development Studies, Thiruvananthapuram.
'' K P Kannan e t a/. (1988). "Agricultural Stagnation and Economic Growth in Kerala. An exploratory Analysis," working paper no. 227, Centre for Development Studies. Thiruvananthapuram.
" K T George et ul. (1992). "Rubber Based Industrialisation in Kerala-An Assessment of Missed Linkages," Economic and Political Weekly, Vo1.27, nos. 1 and 2. 4-1 1 J a n _ pp.47-56
3.2.5 Agricultural Income
The ten years from mid-seventies is considered as a period.
when the Kerala agricultural front was in stagnation. The nineties in
general showed positive signs of recovery. The trends in
agricultural income in Kerala are given in Table 111.2. The growth
rate during 2000-01 was 3.73 per cent.
Table 111. 2
Growth of Agricultural lncorne in Kerala
~ 0 0 - 0 ' * * I 7425 3.73
Source: D~rectorate of Economics and Statistics
*Provis~onal **quick estimate
(Base year 1993-94)
'I. No.
1
1.
2.
Rate of change over previous
year (%)
4
-
10.25
0.72
year
2
1993-94
1994-95
Percentage contribution to State income
5
26.23
26.62
25.78
Agricultural Income (Rs. in
I crore)
3
6256
6897
1995-96 6947
Table 111.3
Land Use Pattern in Kerala (Area in ha.)
SI. 1 No Classification of Land
1. 1 Total Geographical Area
2. / Forest
Land put to non agricultural
3. ~ uses
4. / Barren and uncultivated land
5. Permanent pastures & I Grazing land
7. 1 Cultivable waste I
6.
8 1 Fallow other than current
fallow
Land under miscellaneous
tree crops not included in net
area sown
9. 1 Current fallow
10. / Net area sown
11. i Area sown more than once
12. Total cropped area
Actual 1 % Actual
3
3885497
1081 509
333822
28341
682
%
4
-
27.80
8.6
0.70
0.02
13.
Source: Directorate of Economics & Statistics
Cropping intensities 129 134 - .
6 1
3.2.6 Land Use
Data on land use pattern for the year 1999-2000 is given in
Table 111.3. Out of a total geographical area of 38.85 lakh ha, forest
occupies around 28 per cent. In view of the high density of
population, the pressure for non-agricultural uses is increasing.
Land under non-agricultural uses was 8.6 per cent in 1998-99 and
has increased to 9.1 per cent in 1999-00. The net-cropped area has
marginally declined from 22.59 lakh to 22.39 lakh ha and the
cropping intensity has increased from 129 to 134. There was an
increase in the area under current fallow (4144ha) and fallow other
than current fallow (601 ha). But there was a decrease in the area
under cultivable wastes (-4431 ha).
I Forest
I rUT* a r e a w n " ?Ihers
I !
Figure 111.1 Source: Table 111.3
Land use pattern (1 999-2000)
3.3 Crop-wise Analys is
A review of the long-term performance of the crop sector,
over the last decade shows that the total output from the sector
has recorded an average annual growth of around 2.5 per cent.
There was a large scale shift from high volume, low value crops like
tapioca and rice to low volume, high value crops like pepper
and rubber.
3.3.1 Rice
Rice, which is the principal food crop of Kerala, has been
subject to persistent pressure for replacement by more
remunerative crops during the last two decades. The production of
rice touched its peak of around 14 lakh tonnes in the mid-
seventies. However this was not sufficient to meet 50 per cent of
the state's requ~rements. Area under paddy has declined from its
peak coverage of 8.81 lakh ha in mid-seventies to 4.31 lakh ha in
1996-97. This was mainly due to the enormous pressure exerted by
high-value crops like coconut, banana, pineapple etc. The average
annual decl~ne in area under rice during the eighth-Five year
Plan was around 22,000 ha, whereas it has come down during
the last three years. The annual production of rice, which was 7.27
lakh tonnes in 1998-99, improved slightly to 7.51 lakh tonnes
dur~ng 2000-01
Table 111.4
Area, Production and Productivi ty of Rice in Kerala and lndia
Year
- --
Area ('000 ha) I Production ('OOOt) 4
Productivity (kglha)
Kerala 7 India
2000-01. , 347 I
i
Kerala 1 lndia
I
* Provisional
Kerala
Source: Directorate of Economic and Statistics, CMlE
NA
lndia
751 N A
/ . Area Production Productivity 1
. . 1 , . , , , '.,\ ... , - - . . . . . . -- - . . . . . . . . . . . : . . : . . . ' r.:,,.' , . . ,,v : . - 1 . , ; . i.: ',*
. , _ . . 1 : 8 . . . , p i : ? ':. '., :..... 2. Fig. 111.2 " . . . \ 1 . . ~ 2 --
<..>A, $: **,, - ':.:!;.. &&;' ~ r o d d ~ t i o n and Productiv~ty of Ric&#k . . Kerala
3.3.2 Coconut
In vlew of coconut's multifarious contribution to income and
employment, coconut is regarded as the mainstay of Kerala's rural
economy. Coconut is widely regarded as the principal competitive
crop of paddy and as the two crops show opposite growth trends in
area, it IS the conversion of paddy lands to coconut that is often
mentioned in the Kerala context. With coverage of nearly 9 lakh
ha, coconut occupies 42 per cent of the net-cropped area and
provides livelihood for over 3.5 million families in Kerala.
Table 111.5
Area, Production and Productivity of Coconut in Kerala and lndia
Area ('000 ha) Production Productivity (million units) (nutslha)
India Kerala India Kerala India
1 2000-01' 936 N A 5496 N A
Source: Directorate of Economic and Statistics, CMIE 5870 1 NA
Provisional
Area Production g Productiity
r I.. 92 93- 94 95 96 97 98 99 00 01 . - - . . .
.. . ' . . - , .
I . . - t -
' > . ,. . . , . - , . . , . , - ' . I " . < . y . a - :.;-:;>.,:<.,' , , , , ' A , : ' - - ., . . - ! .v.u.... ..-. %+. . .. i . . . . . - . ; . 7
Fig.lll. 3 . Area, Production and Productivity of Coconut in Kerala
Source: Table 111.5
68
During 2000-01 coconut cultivators faced a very severe crisis
in view of the sharp decline in prices. The price of coconut, which
was normally in the range of Rs. 4.50 to 5, a nut during 1999
sharply fell to Rs. 2.80 a nut during 2000-01. This sharp fall in the
price of coconut combined with a wide-spread attack of coconut
mite thereby depressing the yield considerably, affected the
livelihood of a large number of small and marginal farmers in
the state.
3.3.3 Pepper
Pepper IS basically a mixed crop grown in garden lands
consisting of coconut and / or other tree crops such as arecanut.
Pepper is one of the major export oriented commodities in which
the state has certain inherent and established strengths over other
producing regions. Kerala has almost near monopoly in area and
production of pepper, accounting for 97 per cent in the country. The
crop product~vity achieved its peak level of 376 kg per ha during
1998-99. Pepper produced in Kerala fetches a premium price in
international market because of its intrinsic quality.
Table 111.6
The pattern of global demand for the crop is undergoing
changes. The consumer preference is for value-added forms of
pepper such as white pepper, pepper in brine, oleoresin etc. Kerala
could take advantage of the emerging opportunities by enhancing
its processing facilities to process the commodity for export in
the desired form
Area, Production and Productivity o f Pepper in Kerala and lndia
3.3.4 Cashew
Cashew is by and large, not a cultivated crop although efforts
to expand area under cash crop for export has been initiated since
1 Area ('000 ha) I [ ; - ~ ~
lndia
3
184
189
191
193
198
190
182
240
Production ('000 t )
~ ~
; Year Kerala
i 1999-00 1 198 1 192
2000-OI* 199 i
N A
Source: Directorate of Economics
Kerala
4
50.31
49.67
49.55
59.26
68.57
56.55
46.04
68.51
47.5
47.48
and Statistics,
Productivity (kg/ha)
c- ----- . ...
1 1991 -92
1 1992-93
lndia
5
52.0
50.8
51.3
60.7
61.6
55.6
57.3
75.7
58.3
N A CMlE
Kerala
6
282
271
269
31 7
357
309
255
376
240
238
. .- -. . . .
2
178
183
lndia
7
282
268
269
31 0
31 0
31 0
320
31 6
303
N A -
Provisional
1993-94 1 184
1994-95 1 187
1995-96 192
1996-97 183
1997-98 1 I80 i 1998-99 182
the mid-seventies. Since it does not allow for mix cropping and the
income generated per unit of land is considerably less than most
other crops, the area under cashew is characterised by soils that
are not generally suitable for other crops. This probably explains
why there has been a declining growth in area. During the last
two decades the decline in area has been to the tune of around
30,000 ha. Productivity of the crop, which was lingering at around
800 kg per ha has also started declining from 1995-96 onwards.
The State's share in All-India production is 13%. The cashew
processing industry is finding it extremely difficult even to maintain
the present level of capacity utilization because of the lower
availability of local raw material
Table 111.7
Area, Production and Productivity of Cashew in Kerala and lndia
Area J000 ha) ( Production ('000 t) Kerala India Kerala 1 India
1 1216 5274 81.5 1 260.3
1 2000-OI* 1 86.2 1 N A
Productivity (kglha) Kerala I India 670
J Source: Directorate of Economics and Statistics, Directorate of Cashew.
62.1
494
N A 720 N A
Source: Table IiI.7
Figure 111.4 Area under cashew in ~ e i a l a and India
3.3.5 Plantation Crops
Kerala has a substantial share in the four plantation crops of
rubber, tea coffee and cardamom. Plantation crops in general are
either export oriented or import substituting and therefore assume
special significance from the national point of view. It is estimated
that nearly 14 lakh families are dependent on the plantation
sector for livelihood.
3.3.6 Rubber
Among the plantation crops, rubber is the dominant crop. The
production of natural rubber in Kerala during the year 2000-01 was
5.80 lakh tonnes against all lndia production of 6.30 lakh tonnes.
The price of rubber which was as high as Rs. 51 per kg in 1995
drastically fell to about Rs. 39 in 1997. It further declined to Rs. 30
in 2001. lndia is the fourth largest producer as well as consumer of
natural rubber in the world. In spite of domestic prices of natural
rubber being at par with international prices, the industrial sector
still resorts to imports in bulk quantities since the import duty is
only 25% which is lower than the additional transport cost which
they have to incur for procurement and transport.
Table 111.8
Price trend of Rubber During 2000-01
May 2000
June 2000
July 2000
August 2000
September 2000
October 2000
November 2000
December 2000
January 2001
February 2001
March 2001
Average (2000-01 )
Source Rubber Bc
F M i n t h - ~ . I
April 2000
3356
3253
3253
31 98
31 22
3061
2909
2867
2853
2694
2667
3036
'd, Kottayam
i
India (Rs. per 100 kg. of RSS 4)
31 99
World (Rs. per 100 kg. of RSS 3 (Kualalumpur)
3073
Year I Figure 111.5
Price movement of natural rubber (RSS 4) in Kerala
Source: Rubber Board, Kottayam
3.3.7 Coffee
As against the all lndia area of 3.5 lakh ha of coffee in
2000-01, Kerala's share was 0.85 lakh ha. (24%). Production of
coffee during the year 2000-01 was only 0.60 lakh tonnes against
2.92 lakh tonnes for the country. The major variety grown in Kerala
is robusta, which accounts for 95 per cent of the area.
The average price of coffee, which was in the range of Rs. 65
to Rs. 75 kg during 1993-1998,came down to Rs. 59 per kg
75
during 1999. There was no recovery in the prices during the year
2000 and 2001. The international trends were fully reflected in the
domestic auction prices also. The main reason attributed is the
spurt in production compared to the increase in demand.
Consumpt~on of coffee has remained more or less unchanged at
around 55,000 tonnes for the past one and a half decades in spite
of the growth in incomes as well as population.
3.3.8 Tea
Tea plantations owned by big companies employ a labour
force of over 84,000 in the organised sector. Small plantations of
tea have also started emerging in ldukki and Wayanad districts.
The price of tea was buoyant during 1998 but started
declining thereafter. Tea is a traditional item of export and the most
commonly consumed beverage.
3.4 Current Problems of Agr icu l ture in Kerala
Declining profitability of crops, shortage of farm labourers,
abnormal increases in land prices and high rate of conversion of
agricultural land for other uses are the major problems in the
state's agricultural sector.
3.4.1 Low Profitability
Labour and fertiliser costs together account for more than 75
per cent of the paid out cost of cultivation for all major crops
cultivated in the state. Within a period of five years from 1990-91 to
1995-96, average daily wages of male and female farm labourers in
the state increased by 115.74 per cent and 142.40 per cent.
Aggregate increase in farm prices of the major crops paddy,
coconut, rubber, tapioca and cashewnut was 82.33 per cent, 9.97
per cent, 144.43 per cent, 67.55 per cent and 95.65 per cent
respectively. Rapid increase in the daily wages of farm labourers
and fertiliser prices, along with relatively lower growth rates in the
farm prices of agricultural products in the absence of any major
improvement in farm technology have adversely affected the
profitability of crops. As can be observed from Table 111.9 within
the last 15 years from 1986, indices of the cost of cultivation of crops
and prices paid by farmers in the state have increased. The index of
prices received by farmers show a relatively lower growth rate.
Table 111.9
Index Number o f pr ices Received and Prices pa id b y farmers
I Pr~ces Year rece~ved by
farmers
Price paid by farmers
I 2907 2246 1999
2000* 1 2619 1 2368
Parity as col.
Farm Cultivation
cost
5556
61 11
3.4.2 Shortage of Farm Labourers
Domestic expenditure
Source. Department o f Economics and Statistics
*Average from January to August
In spite of the substantial increase in wage rates, the gap
between demand and supply in the agricultural labour market has
been widening in recent years. Growing deficiency in the supply of
farm labourers can be attributed to many factors. First the
widespread implementation of various poverty alleviation
programmes like IRDP, JRY, TRYSEM and DWCRA in the state
has rendered substantial employment opportunities to the rural
people outside the farm sector. Secondly many small scale and
auxiliary industrial units are sprouting in rural and semi-urban areas
throughout the state and the rural people largely meet their labour
requirements. Thlrdly the hectic construction work going on in and
around rural areas and the fast growing tertiary sector absorb a
major portion of the new generation of rural labourers. Fourthly, the
large-scale m~gration of rural youth to foreign countries and to other
states has also reduced the supply of farm labourers within the
state. Finally the slow pace of mechanisation in the farm sector and
the growing dislike of rural youth to take up farm labour as their
full-time occupation have worsened the labour shortage problem in
the agricultural sector.lg
3.4.3 Conversion of Agricultural Land for other uses
Compared to the 1980s annual rate of increase in the
proportion of land put to non-agricultural uses has been relatively
T.A. Thomas (1994). "Changing Agricultural Practices, Structural Changes and Labour Supply A study with special reference to Kuttanad," M.Phil Dissertat~on. Univcrs~ty of Kerala, Thiruvananthapuran~.
79
higher since the beginning of the 1990s. Within a period of four
years from 1990-91 to 1994-95, absolute land area used for non-
agricultural purposes increased from 2,97,000 ha to 3,23,000 ha
and this increase was primarily responsible for the decline in net
area sown in the state during this period. With the growing pressure
of population and development of the secondary and tertiary
sectors, agricultural land throughout the state is being converted
for the construction of residential buildings, commercial
establishments, roads, health and educational institutions etc. and
that in turn reduces the total area under cultivation. The poor
achievements in agricultural research, drawbacks in the formulation
and implementation of agricultural development programmes,
environmental degradation, poor social management, inadequate
plant protection measures etc have played their own roles in
bringing down the pace of agricultural development in the state.
Shortage of farm labourers and the rapid increase in their daily
wages have also induced farmers to convert their lands from the
c~lltivation of highly labour intensive food crops to commercial
crops. Again in Kerala prices of land under food crops like paddy
and tapioca are found to be relatively lower than the prices of land
under cash crops. Thus the mere conversion of land from the
cultivation of food crops to cash crops in itself enhances the
property value. The comparatively lower prices of land under food
crops leads to its widespread conversion for non-agricultural uses.
80
Changes in land use pattern can also be attributed to the
growing number of absentee landowners in the state. Since the
food crops need more care and personal supervision than cash
crops, these absentee landowners are more inclined to cultivate the
latter which tends to the decline of area under food crops.
3.4.4 Abnormal Increase in Land Prices
Agricultural land prices are so high in Kerala that if interest
on land value is added to the paid out costs of cultivation, none of
the major crops cultivated in the state is economically viable. Thus
land is not always treated as a means of production in the state but
is often regarded as an asset that can be used for speculative
exchange.'' Therefore many speculative investors without any
genuine interest in farming have already entered the land market
as buyers. This observation is vindicated by the fact that
immediately after the crash of the share market in the early 1990s
land prices in the State skyrocketed. Again as land is a safe asset
with fair liquidity, a considerable portion of foreign remittances
coming ~ n t o the state every year is used for the purchase of land,
which leads to a sustained increase in its prices.
~ . .. . -
" M A Oo~nlllcn (1994). "Kerala and the New World Order: Some Tentative Hypothesc~." paper presented at the First International Congress on Kerala Studies, Thiruvananthapurarn. Aug. 27-29.
Thus it can be seen that agricultural lands have been converted
into real estate investments because of the following reasons.
Agricultural land is the most popular of tax planning devices used for
laundering black money since agricultural income is exempted from
income tax. However, under the Kerala Agricultural Income Tax Act,
agricultural income is taxable.
Value of agricultural land has been continuously rising in
most parts of Kerala as has been the case in other states of India
also. In certain places they have recorded a ten fold or even
twenty fold increase over a period of about 10 years. In the case of
sale of agricultural land, the transferor is not liable to pay tax on
capital gains, if any, as certain types of agricultural land are not
capital assets for the purpose of capital gains tax.
Agricultural land is also exempt from wealth tax. It is widely
known that only a fraction of the actual value of the investment is
recorded at the time of registration of the deed. This is done with
an intention to evade stamp dutylregistration charges etc, which
come to be about 15% of the value recorded and also to cover up
black money.
Because of the various tax advantages and also due to the
prospects of capital appreciation, agricultural land has become an
important investment area. Over the years cost of agricultural
inputs like seeds, fertilisers, pesticides, labour, tractors etc. have
gone up considerably. Unremunerative market prices coupled with
the high cost of inputs make farming an uneconomic proposition in
many cases.
3.5 Kerala's Industrial Backwardness
The sluggish growth of the manufacturing sector in Kerala in
the post-independence period when the country was embarked on
a path of rapid industrialisation and the state was under severe
pressure to generate productive employment opportunities, has
drawn considerable attention in academic and official c i r c~es .~ '
While the explanation in terms of lack of minerals like coal and iron
is recognised as inadequate," a number of other substantive
explanations have been put forward. These are:
t The gross neglect of Kerala in the country's heavy
industrialisation strategy in terms of allocation of central
resources.""
Certain infrastructure bottlenecks such as railway transport
and power and the absence of a concerted attempt to
implement an attractive state industrial
~
' l; K . Subrahmanian er a1 (1986). .'Kerala's Industrial Backwardness: Exploration of Alternative Hypotheses," Economic and Political Weekly. April, 1 5 .
" .4 Rudra (1961). .'Industrial Backwardness of Kerala: Planning for Prosper~ty In Kerala." Malayalee Association, Delhi.
*. -' E.M.S. Narnboodiripad (1964). "Third Plan For Kerala," Pillai (ed.),
I'ionning irir I ' rus /~rr i /~ i in Kerala, Malayalee Association, Delhi. P S . Loknnathan (1961). "Industrialisat~on, Kerala's Need Greater,"
P~ l l a i (ed.) . Piunningf ir Prusperrfy in Kerala, Malayalee Association, De1hi.p. 46.
4 The lack of an industrial entrepreneurship both due to the
scale of capital required as also existence of other more
attractive projects promising quick and easy returns.''
4 The widely held notion of the absence of industrial peace in
Kerala, with an active trade union movement tending to push
up wage costs in organised industry;26 and
4 The industrial structure hypothesis.
It is argued that the industrial backwardness of Kerala is
related to its industrial structure characterised by a concentration of
agro-based and processing industries with weak inter-industry
linkages. It results in a process of 'cumulative causation' that tends
to keep the economy industrially backward." The same study also
persuas~vely demonstrates the inefficacy of the hypothesis
regarding militant unionism and high wage cost. It was found to be
empirically unsubstantiated for the organised sector. However, that
the relatively higher degree of political awareness and working
class consciousness among the workers in Kerala has impacted
adversely on the small sector and more importantly created
a feeling among entrepreneurs of labour being difficult to
~~ ~ p - ~ ~ -
-< - li N Ral (1961) .'Approach to Planning of Kerala's Economy," Pillai
( c d . ) . J'ic~nning / i ~ r l ' r o i p e r i i , ~ in Keraln, Malayalee Association, De1hi.p. 67 . "' V K R V Rno (1961) .'Industrialisation: Crux of Kerala's Economic
S n l v a t ~ o n . P I I I ~ I (cd.) . Planningfor Prosperity in Kerala, Malayalee Association; D c l h ~ p 0 8
' li li Subrahniantan e l a/. (1986). .'Kerala's Industrial Backwardness: Esplorat~on of Alternr~t~ve Hypotheses," Econum~c a n d Pulirtcnl Weekly, April 5 .
84
manage cannot be denied." Hence the "psychic" cost of industrial
location would be high in era la."
As is true of most social processes there is very rarely a
simple component explaining a phenomenon; rather "the answer
lies in the cumulative interaction of a number of factors which
acquire a collective force much greater than the mere sum of each
taken separately."30 The same is true of the various hypotheses put
forward to explain Kerala's industrial backwardness.
Studies have also tried to trace the historical roots of the
industrial structure in the state and its relation to the size and
nature of capital.
3.5.1 The Evolving Industrial Structure i n Kerala, Historical
Perspective
The unique cropping pattern in Kerala and its impact on the
occupational structure through intense commercialisation of the
economy had been noted as far back as the beginning of the
twentieth century.3' About 65 per cent of the male work force in
'W.M. Thampy (1990). "Wage, Cost and Kerala's Industrial Stagnation, stud>. of organised small scale sector," Economic and Political Weekly, 25(37).
'k K Subrahmanian (1990). "Development Paradox in Kerala: Analysis of Industrial Stagnation,'' Economic and Political Weekly, 25(37).
"' W. Thomas et a1 (1959). "Barriers to Economic Development in Traditional Socicties Malabar, A Case Study," .Journal of Economic History, 19(4)_ Dccembcr
" V Nagan cr nl (1906). The Travancore Stale Manual, Vol. 3, Govt. press, Th~mvananthapurarn, p.48.
1911 in Travancore-Cochin was recorded as engaged in
agriculture, l~vestock, fishing etc compared to over 70 per cent for
India. Similar was the case in Malabar where the significance of
commercial crops in particular pepper and its links with the external
markets is of even older origin.32 In the beginning of the twentieth
century only about 62 per cent of the population in Malabar was
supported by agriculture.33 This, it was pointed out, was not due to
the infertility of the soil but due to the exploitation of other natural
resource endowments of the region. Such economic activity was
primarily for export purposes given the channelisation of private
foreign (colonial) capital into plantations and agro-processing
industries like coir. The share of manufacturing in the male work
force increased in Kerala from abut 11.6 per cent to over 15 per
cent in the period 1911 to 1951 while for India i t remained constant
at around 9.5 per cent during the entire period.34
In terms of total invested capital too, the plantation sector
accounted for more than half, until the mid-forties. It is only since
then there occurred a significant change in the industrial structure
as reflected in the composition of invested capital. By 1946-47,
for the first time, the share of manufacturing in the total invested
'' Dtllp M . Menon el al. (1994). Caste, Nationalism and Communism in South India Maiahar, 1900-1948. Cambridge University Press, p. 112.
33 C A. Innes ( I 45 1). F.B. Evans (ed.), Malabar, Madras, p. 37. '' JKrishnamurthy (1971). "The Industrial Distribution of the working force in
India: 1901- 196 1 : A study of Selected aspects," Ph.D Thesis, University of Delhi.
capital exceeded that of the plantation sector due to the setting up
of three relatively capital intensive modern industrial units. Since
then there was an increase in investment in modern industries,
most of which came to be promoted by immigrant capital as also a
spurt in the plantat~on sector with the growing importance of rubber.
Investment by local and other Indian capital was growing in the
plantation sector particularly in rubber. Travancore emerged as the
princely state with the highest total corporate paid-up capital by
1947-48. However the average capital of a company was the
smallest suggestive to some extend of the relatively small size of
capital in the region.35 A number of traditional industries, like coir,
oil milling, tile making and cashew were being organised on a joint-
stock basis displaying considerable dynamism.
3.5.2 The Nature of Industrial Entrepreneurship
The Travancore government under British paramountcy by
the end of the eighteenth century initiated a series of reforms in
relation to land holdings to augment revenue. These measures
created the necessary environment for investment in agriculture,
enabling communities outside the Hindu Caste hierarchy to acquire
land and accumulate wealth. This opened up opportunities for an
" K Mahnde\an (1988). "Some Aspects of Pattern of Industrial Investment and Entrcprencursh~p In Travancore During the 1930s and 1940s," G.N. Rao el al. (ed ) The .South indinn Economy, Oxford University Press, p. 17.
indigenous entrepreneurial class to emerge by the 1920s. The
communities were the Syrian Christians and backward castes like
the Ezhavas in the South. However given the fact that most cash
crops like coconuts, pepper, ginger, arecanut and cardamom unlike
those grown largely on plantations like tea and coffee under
European dominance, were to a significant extent raised on small
holdings, the surpluses generated tended to be Hence
growth of indigenous capital was restrained. For instance, the
capital structure of the early coir firms was rather small ranging
from Rs. 20,000 to 70,000 in the 1920s and 30s. Compared to
Rs. 2,00,000 to 5,00,000 on average in industrial firms in
neighbouring Madras, around the same period, firms in Travancore
were indeed sma11.~' With the introduction of natural rubber, locat
capital entered more actively into the plantation sector and over a
time managed to consolidate its position. Most of these cash crops
were exported and hence external trade expanded very rapidly
while food and also other manufactured goods were imported into
Travancore and Malabar. To facilitate trade, the infrastructure in
terms of port facilities and roads were developed, connecting the
highland to midlands and the coast. However trade in plantations
were moving into agro-processing with surpluses earned in
'%. Mahadevan (1959). "Some Aspects of Pattern of Industrial Investment and Entrcpreneurship In Travancore During the 1930s and 1940s," G.N. Rao el al. (ed.) The .South lndiirn Economy, Oxford University Press, p.21
" Dilip M Rilenon rr a/ . (1994). Caste, Nationalism and Communism in South India Mrrlohnr. 1400- 1 948. Cambridge University Press, p. 12 1
88
commercial agriculture - coir and coconut oil mills in the south and
handloom weaving and coconut mills in the north (of Kerala). Two
leading Syrian Christian business houses consolidated their gains
from commercial agriculture by diversifying into banking and were
able to make large profits which formed the basis of further
diversification into insurance. Centres of commercial agriculture
became centres of banking which expanded rapidly as a result of
sharp increase in prices of commercial crops and the consequent
increase in farmers' incomes.
The rapid growth of commercial agriculture and a boom in the
demand for its processed products was an incentive for the growth
of a number of agro-processing industries, the first phase of
industrial development. The most important were tea and coir, tile
and brick-making. However machinery, equipments and fuel
required for these industries were imported. The tea industry was in
the nature of enclave development, inputs were mostly imported
and output almost entirely exported. Copra making, oil milling and
coir industry were dispersed through the coastal and midland
regions.
With the increase in international demand for the commercial
crops, local entrepreneurs invested further in cultivation. Even the
cultivation of rice was highly commercialised. Two sectors of
commercial agriculture required high capital investment - large scale
paddy cultivation on land reclaimed from the backwaters and
plantation agriculture primarily in rubber in which indigenous capital
got a foothold. By the early 40s some of the indigenous
entrepreneurs were acquiring the holding, which were being
abandoned by British capital. While rubber cultivation had its start
on a plantation scale by British planters, the greater part of the
increase in area is attributable to Indian capital, predominantly
small holders who came into the field later. Spinning was dispersed
but coir weaving was more concentrated and primarily due to the
large numbers employed in the former this industry employed the
bulk of the manufacturing work force, mostly women. Cashew
appeared as a major industry only around the 1920s and grew
rapidly in the forties. These industries involved elementary
processing and had a low technological basis, which meant very
little linkage for the development of engineering industries; nor was
there much interdependence between these industries.
The government also played a limited role in industrial
development till about the mid 30s and in fact appeared to be
apathetic towards the setting up of large-scale industries in
Travancore, perhaps because some early experiments had failed.
Only since the mid 30s was there a change in government policy
in terms of active encouragement and incentives being given.
The government made direct investments too in industries in which
private capital was not forthcoming or was inadequate. This change
90
in policy did have an impact in terms of the emergence of a modern
industrial sector, chemicals, rayon, aluminium and cement. There
was a spurt of joint stock company activity in Travancore and its
composttion also changed. While the early phase of industrial
development was characterised by a dominance of plantation and
banking companies, the recent one was more in favour of
manufacturing companies. Hence not only did the corporate sector
expand rapidly in Travancore it also diversified towards modern
industries by the late 40s. Moreover indigenous capital did not play
much of a role in the development of modern industry; most of it
was initiated by capital from other states. While the plantation
"boom" in the forties enabled considerable accretion of surplus with
the indigenous Syrian Christian community, it is generally argued
that its potential investment into industry was thwarted due to
political reasons.38 However, this has been refuted on the basis of
evidence which shows the rapid growth of profitability of investment
in rubber plantations, with increase in its prices since the mid
1930s. The amount invested in rubber planting companies between
1941-42 to 1946-47 increased more than four fold since the latter
half of the 1930s.
. i s Dn\~d Isaac e t a1 (19x6). "An Enquiry Into the Historical Roots of
Industrial Backwardness of Kerala- A study of the Travancore Region," working paper no 2 15. Ccntrc for Development Studies, Thiruvananthapuram.
9 1
However, in the post-independence period, there was another
boom in plantation cultivation especially rubber during the Korean
War. Rubber plantations absorbed considerable investment funds
of indigenous capitalists. There was also the entry of indigenous
capital into trade, opportunities for which opened up after the exit of
foreign companies. During the second plan period of the state no
significant emphasis was given to modern industries due to the
emphasis on traditional industries in Kerala. The possibility of state
government's involvement in industrial development was severely
constrained due to the loss of the elastic customs and excise
revenue sources with its integration to the Indian union. The inflow
of imm~grant capital also appeared to stop in the post-
independence period.
Hence the following factors could possibly explain the tardy
investment by indigenous capital into modern manufacturing.
Given the peculiar geographical location of the state, the response
of indigenous capital to concentrate on plantations was in fact a
rational one.39
There was some local capital investment in modern
enterprises, primarily in the textile sector but the units were not
very successful. However, the traditional industries showed
"' Mahadevan (1988). "Some Aspects of Pattern of Industrial Investment and Entrepreneurship In Travancore During the 1930s and 1940s," G.N. Rao el al. (ed.) The .Yuir/h Indton Iiconomy, Oxford University Press, p.28.
92
considerable dynamism with substantial growth in their numbers
and capital invested. The cashew industry which began modestly in
1925 witnessed a spectacular growth in the 1940s; the later period
saw the entry of a number of middlemen traders. However a few
firms controlled the industry through a chain of factories. What is
of significance in Travancore's modern industrial history is the role
of immigrant capital during and after the second world war with the
entry of Gujarati and particularly Tamil capital. The latter had
already been associated with some industries in Travancore
like paper and sugar which however had not met with much
success. Some of the investments during the war were in rubber,
plywood and glass.
3.5.3 Structure of Manufacturing
The growth of modern manufacturing in the forties was
inadequate to alter the structure of manufacturing, despite an
increasing share of manufacturing in the male work force. Kerala's
industrial structure in terms of product group since the beginning of
the century was nearly constant. Even up to the early 40s almost
75-77 per cent of the male work force in manufacturing was in
plantation industries, primarily tea and in coir. Other industries
were cashewnut processing, tobacco, textiles, (primarily handloom
weaving and products) and non-metalic mineral products,
(primarily tileibrick making). The most phenomenal growth was in
93
the coir industry in which the number of workers quadrupled in the
decade of the thirties. The impact of large investments in modern
industries since the mid-forties did not alter the dominance of
natural resource based industries, except for a marginal increase
in the share of chemical and petroleum based industries.
Hence Kerala's large work force in manufacturing was
engaged mainly in labour intensive industries, closely related to
natural resource endowment. A significant proportion of this
production was linked to export demand. It is interesting to note
that while in another state, west Bengal, the period of expansion of
its most important agro-processing industry, jute was over by 191 1,
in Kerala many of the processing industries underwent an
expansion between 191 1-51 .40
The value of out put per capita of the manufacturing sector
in 1950 in Tranvancore was Rs.48 against an all India average of
Rs. 37 and the state ranked top among the princely states in
industrial d e v e ~ o ~ m e n t . ~ ' However in the following decade itself
that is, the fifties, the situation changed to one of industrial
stagnation for the state. While the proportion of the male work
force in manufacturing declined in Kerala from almost 16 per cent
10 J Krishnamurty (1971). "The Industrial Distribution of the working force in India: 1901-1961: A study of Selected aspects," Ph.D Thesis, University of Delhi, p.52.
41 David Isaac e / al. (1986). "An Enquiry into the Historical Roots of Industrial Backwardness of Kerala- A study of the Travancore Region," Working paper no. 2 1.5. Ccntre for Development Studies, Thiruvananthapuram.
94
in 1951 to about 14.6 per cent in 1961, for all India, the proportion
increased. albeit marginally from 9.7 per cent to 10.1 per cent.
The contribution of the manufacturing sector to the states SDP was
lower than its share in the work force. It is interesting to note that
in this period, 1951-61, the share of agriculture in the state's
income was higher than its share in the work force.
This situation was reversed to some extent in the seventies
with the growth rate in State Domestic product originating in
agriculture being negative while it was higher in the non-agricultural
sectors. However the gains were primarily taken up by the tertiary
sector. The rate of growth of manufacturing has been generally
lower then that of the tertiary sector and below the all-India level as
also lower than that of three neighbouring south Indian states in the
post-independence period. For instance between 1970-71 and
1986-87 the manufacturing sector in Kerala recorded a compound
annual growth rate of a mere 2.8 per cent (at 70-71 prices)
compared to over 5 per cent in both Tamil Nadu and Karnataka.
The period from 1986-89 to the early 90s shows a dramatic
improvement in the growth rate per annum to 12 per cent. In the
first half of the nineties, 1990-91 to 1995-96; the rate of change
was rather uneven varying from a low of 3 per cent to a high of 8
per cent, all at constant prices. Other indicators like productive
capital and gross output per capita in the factory sector are
consistently lower in Kerala than in lndia.
95
In terms of its product structure, the study by Subrahmanian
and Pillai (1986) revealed that the situation did not alter very radically.
Since the early decades of the century Kerala's factory employment
continued to be concentrated in resource based industries, with only
a small share of 'footlose' type industries, which has resulted in a
fragile industrial base. Some diversification of the industrial base is
necessary to ensure the required growth stimuli through inter-industry
linkages and agglomeration economies.
3.6 Tert iary Sector in t h e Kerala Economy
The share of the tertiary sector which comprises transport
and communication, storage, trade, hotels and restaurants, banking
and insurance, real estates and ownership of dwellings, public
administration and other services leaped up from 29.32% in
1950-51 to 36.40% in 1980-81. It further hiked to 43.88% in
1996-97 In 1998-99 the share of the tertiary sector was 49.42%,
which further ~ncreased to 50.64% in 1999-2000. The tertiary sector
is the one, which has consistently shown high growth rates.
Whatever growth in aggregate income has been achieved has been
due to the buoyancy of this sector.42
- - -.. -
'' K P Kannan et nl. (1988). '.Agricultural Stagnation and Economic Growth In Kcrala An exploratory Analysis," Working paper no. 227, Centre for Developnicnt Studics. Thiruvananthapuram.
The tertiary sector growth is due to the link between the
increased flow of money into the Kerala economy since the
mid-seventies, growth in consumption and the growth in service
sector as well as the growth in finance capital. The increased flow
of money first manifested itself in a construction boom but it did not
lead to industrial growth because the linkages with the existing
industrial structure were weak.43 It also increased the demand for
health and educational services and that is manifested in the
tremendous growth in the number of private health care as well as
educational institutions. The increase in the production and
circulation of goods and services in the tertiary sector was also
striking as manifested in the growth in the number of cinema
theatres, hotels, bars and restaurants, printing and publishing
centres etc. Thirdly it also led to increased demand for consumer
durables. All these contributed to an increase in the overall service
sector activity including trade, commerce, banking, transport and
other services. All these might have contributed to a growth in
profitability of such activities which are basically 'quick, money
venture's.44 This is reflected in the SDP growth in the service sector
of 5.32% during 1976-86 compared to 4.24 during 1962-75.
- 43 G. Gopikuttan (1997). "Casual Labour Market in ICerala," paper presented
at Dr. Krishnan Memorial Seminar, Centre for Development Studies, Thiruvananthapuram.
* K.P. Kannan et al. (1988). "Agricultural Stagnation and Econon~ic Growth in Kerala. An exploratory Analysis," Working paper no. 227, Centre for Development Studies. Thiruvananthapuram, p. 14.
Since there is significant underestimation of income in trade,
commerce etc, the real growth rate is likely to be far higher than what
is indicated in the official estimates. The multiplier effect of increased
expenditure might have also contributed to an expansion in the
circulation of money. Since this emerged as a 'quick money making'
sector savings from the agricultural sector and the mercantile
capitalists in the industrial sector as well the illegal money generated
in the economy might have also been at t ra~ted.~ ' Thus, the private
sector savings had to choose between investment in the low
profitability productive sectors and high profitability productive
sectors and high profitability-cum-quick money service sector.
This seems to have gone through two phases: from the mid-
seventies to the mid-eighties and thereafter. The construction boom
created a speculative market for land. But this has now tapered off.
So is the case of investment in health and educational sector and
other service sector activities such as cinema making, hotels and
publishing. In the financing of these ventures, private unregistered
banking institutions known as 'blade companies' played a major
role by mediating between the investors and the savers. Saturation
of investment as well as legal restrictions has put an end to this
intermediation. A phase has thus come to an end. In the second
'' K.P. Kannan er 01. (1988). "Agricultural Stagnation and Ecoliomic Growth In Kerala An esplorator) Analysis," Working paper no. 227, Centre for Development Studics. Thiruvananthapuram, p. 19.
98
phase, the increased financial resources have been channelised
through the stock market for both primary and secondary
investment depending on their risk preference. However, the motive
of the majority of such investors seems to be the same as before
i.e.. quick money making.
3.7 Economic Recession
Though the state witnessed a boom in economic activities
during the early 1990s, evidence suggests that the state's economy
began to face recession since the mid 1990s. The recession
tendency started with the collapse of the share market by the end
of 1994. The spurt in investment in land and real estate during the
early 1990s associated with the revival of Gulf migration came to
halt between 1994 and 1995. Prices of land and real estate
registered a sharp fall and the boom in business came to a halt.
There was a substantial fall in construction activity resulting in
heavy fall in demand for construction materials and construction
~abour.~"he large scale return of emigrants from the U.A.E in 1996
and Saudi Arabia, Bahrain and other Gulf countries in 1997
resulted in a big fall in the flow of workers' remittances and put an
end to the boom in economic activities. The big fall in the price of
rubber; spices and other commercial crops during 1996 and 1997
'I' B A Prakash (1999). Kerala's Economic Development: Issues and Prohlem.s_ Sage publications, New Delhi, p.89 .
99
further aggravated the situation affecting the income of lakhs of
small farmers. The restrictions imposed on marine exports by
foreign countries also created a crisis situation in the marine fish
production and processing fronts. Thus Kerala began to experience
a severe recession since the mid 1990s.
A major internal factor that contributed to the economic
recession is the plan strategies and development policies of the
state. Plan strategies and development policies pursued by
successive governments gave undue importance to state
intervention in economic activities and neglected the role of private
investment and the private sector. Even after the implementation of
economic reforms by the central government no major change was
made in Kerala with regard to development policies. Private
investment was not considered as a solution to solve the serious
infrastructure problems with regard to power, roads, water supply,
irrigation etc. No serious attempt was made to create a favourable
atmosphere to promote private industrial investment through
appropriate industrial, credit, labour and infrastructure policies.
Another internal factor was the changing preferences in the
investment of savings. Instead of investing in industry, agriculture
or the service sector, people were investing in shares and real
estate to earn big profits. This resulted in excessive speculative
it~vestments in shares and real estate during the early 1990s.
Lack of conducive atmosphere for private investment also
contributed to this. There was a steady boom in the share business
in Kerala between 1989 and 1994. Majority of the persons who
invested in shares were not aware of the complexities of the share
market. But the big fall in the price of shares since the end of 1994
resulted in a virtual collapse of the share market. The fall in the
market price of shares of a large number of companies was more
than 90 per cent between 1994 and 1997.~' This created a grave
situation and almost all the investors in shares suffered either
heavy losses or total loss of their investments.
Collapse of the real estate market is another notable factor.
The economic boom in the early 1990s had resulted in a spurt in
prices of land and real estate in anticipation of speculative profits.
Real estate investors spent a lot of money on constructing flats in
cities and towns in anticipation of windfall profits. But by 1995, the
artificially hiked prices registered a sudden fall. According to one
estimate, the prices fell by 30 to 40 per cent.48 In places where
there is a concentration of Gulf migrant households, the price fall
was more than 50 per cent during 1996 and 1997. The collapse of
the real estate market created severe shortage of cash as large
volumes of savings and borrowed money were invested in land and
real estate. There was a big fall in construction activity resulting in
a heavy fall in the demand for construction materials and labour.
This adversely affected the production of local construction
47 Mnthr~rhzimi . 25 December, 1997, Calicut. JX Malh ruhumi . 23 December 1997, Calicut.
>
materials, employment opportunities of construcfion workers and
trade and commerce of a large number of construction workers.
Acute electricity shortage during the 1990s is another factor
contributing to the recession. Frequent load shedding, imposition of
power cuts to industrial and commercial consumers and restrictions
on power use during peak hours became very common. Shortage of
electricity assumed serious proportions in 1996 and 1997. Three
hours load shedding, 30 minutes cyclic load shedding and 35% power
cuts were effected from January 1996.~' The shortage of electricity in
Kerala was estimated to be 23% in 1996-97.
A major factor that contributed to the economic recession is
the severe financial crisis of the state government. The crisis,
which started during the early 1980s, assumed serious proportions
during the 1990s and also in this new decade. Rising expenditures
mainly due to salary and pension commitments and interest
payments and sluggish growth of revenue due to low demand and
sub optimal tax compliance have combined to make the situation
very difficult during 2001-2002.~' Due to lack of resources, the state
government has been forced to cut expenditure on development
and non-development activities. There has been an inordinate
delay in the payment of bills of contractors who executed public
works and supplied materials to various government departments.
-1) Statc P l ~ ~ ~ l ~ i t l g Board. 1997 > I >
Ck~tc Plann~ng Board. I : ' ~ o n o m ~ c R e v ~ e w , 2001
It is reported that the state government had to pay an amount of
Rs. 500 crores as arrears to contractors in the Public Works and
Irrigation Departments in July 1997.~' On the eve of the Tenth Plan,
the government's financial situation was such that to improve
services in the public sphere and to renew the development effort,
it was absolutely essential to put in place and implement a
programme of expenditure control, efficient resource use and
aggressive revenue mobilisation.
During the mid 1990s the factor, which has had the biggest
~mpact on the state's economy, was migration to the Gulf and the
inflow of remittance^.^^ In several districts of Kerala, Gulf
remittances are the basic factor determining all economic activities.
But the return of a large number of migrants from the Gulf during
1996 and 1997 created a severe economic crisis in those areas
having large concentrations of migrant households. Due to
restrictions imposed on foreign workers, more than 40,000 migrant
workers were forced to return from the U.A.E. since October 1996.
Another 37,000 returned from Saudi Arabia since October 1 9 9 7 . ~ ~
The return of migrants created an acute recession in seven districts
with large concentration of migrant households. There has been a
big fall in the price of land and real estate, construction activities
and trade and commerce.
> I Mrrli~yulii Munoruma. 27 July 1997, Kottayam. '' B A Prakash (1999). Kerala's Economic Development: Issues and
/ ' roh /ems . Sage publ~cations, New Delhi, p. 109. " Mrrl~~.valo Manoruma. 12 December, 1997, Kottayam
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