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Conundrum of Kerala's struggling economy by Soutik Biswas

Why is India's most socially developed state - and one of the developing world's most advanced regions - an economic laggard?

This question about Kerala, known all over the world for its lush landscapes, sun-drenched beaches and idyllic backwaters, has been a subject of intense debate among economists and social scientists.

Kerala defies all stereotypes of a "socially backward" Indian state - swathes of people living in abject poverty, men outnumbering women because of female foeticide, internecine caste politics.

Many of its social indicators are on par with the developed world and it has the highest human development index in India.

It also has the highest literacy rate (more than 90%) and life expectancy in India, lowest infant mortality, lowest school drop-out rate, and a fairly prosperous countryside.

That's not all.

In contrast to India's more prosperous states, like Punjab and Haryana, Kerala can boast a very healthy gender ratio - women outnumber men here.

Life expectancy for women is also higher than for men, as in most developed countries. Thanks to a matrilineal society, women, by and large, are more empowered than in most places in India.

Low population

When it comes to low population growth, Kerala competes with Europe and the US. And all but two districts of the state have a lower fertility rate than that needed to maintain current population levels.

All this happened because of the region's early trading connections with the West - the Portuguese arrived here in the 15th Century, followed by the Dutch and then the British - and a long history of social reforms initiated by the missionaries and the kings of two princely states that were later integrated to create Kerala.

And thanks to pioneering land reforms initiated by a Communist government in the late 1950s, the levels of rural poverty here are the lowest in India. Decent state-funded health care and education even made it the best welfare state in India.

Yet, today, Kerala is a straggler economy almost entirely dependent on tourism and remittances sent back by two million of its people who live and work abroad, mostly in the Gulf.

Joblessness is rife due to the lack of a robust manufacturing base - more than 15% in urban areas, three times the national average. More than 30 million people live in the densely populated state, a third of which is covered by forests

More people here are taking their lives than anywhere else in India. Alcoholism is a dire social problem - the state has India's highest per capita alcohol consumption. People migrate because there are no jobs at home.

Money shortage

Economists find this paradoxical given the fact that Kerala has met most of the UN's millennium development goals.

"Unlike many East Asian states, social development has not become an instrument in triggering economic development in Kerala," says economist Joseph Tharamangalam.

So the state has little money to fund health care and education leading to an explosion of expensive, private hospitals, schools and colleges, which the poor cannot afford.

Road networks are extensive, but the state has few highways. Electricity has reached nearly every village but the quality of service is poor.

Many believe that the skewed nature of the economy - it has been called the "money order economy" - is to blame.

Kerala lives off remittances and it lacks a manufacturing base. Economists draw parallels with the Philippines and Sri Lanka, which face similar problems.

And Kerala has not benefited directly from the rise of its biggest service industry, tourism. Service tax is a federal tax which first goes to Delhi, and is then distributed among different states.

Kerala's biggest advantage - high literacy - has become a strange liability: the vast majority of educated unemployed have to go elsewhere for work.

Economists like KK George, who have spent a lifetime studying the "Kerala conundrum", say the state is facing a "second generation problem" of growth.

"Having fulfilled all millennium development goals, the state has no money left for higher investments. The central government is busy tackling poverty and illiteracy in most states, so doesn't have time or money for Kerala. And successive governments in Kerala have not been able to take it forward," says Dr George.

Economists say it is ironic that a region which benefited early from informal international trade - with the Dutch and the English - and its proximity to West Asia has failed to reap the benefits of economic liberalisation at home.

Over-politicised

Some commentators say the problem stems from the fact that Kerala is an over-politicised and "over-extended state". The argument goes that radical unions, bolstered by successive communist governments, have acted as "pressure groups advancing particular vested interests".

In the process, the general prosperity of the state has been neglected.

Also, analysts say, decades of militant trade unionism led by the Communists has led to a poor work ethic and an "estrangement" from private investments - a condition similar to India's other Communist-run state, West Bengal.

Nobel laureate economist Amartya Sen says Kerala has to "learn from the world". Its famed model of development, which is still touted as the most inclusive one, appears to have hit the buffers.

"The Kerala model is grinding to a halt because the social and political groups having fulfilled their original agenda now have no new agendas. Society has lost its capacity to set collective goals. There are no more big dreams," says Dr George.

"The old change agents like the Christian church and their missionary organisations, social reform movements in various caste groups, trade unions and political parties are acting merely as pressure groups either to defend the status quo or to extract the maximum possible share of a cake that is not increasing in size."

Clearly, Kerala needs a new contract between the state and its people to move ahead and build upon its enviable gains.