Kerala 2005 - of Planning Commission

Since employment opportunities were limited in Kerala due
to low industrial growth, the rapidly growing and surplus
working age population was absorbed for employment in
the Gulf countries. In other words, the demographic window
worked as a push factor for large-scale migration that brought
remittances to the State, which induced a consumptionbased
economic growth in Kerala. The next section analyses
the quantum of remittances, the consumption boom and
investment initiatives.
2.2 Migration and Reforms: The Catalysts
2.2.1 Remittances and Growth
Taking human resource as a product of the State, Kerala
may be one of the largest exporters of resourceful minds
and gifted professionals to other parts of the country, a
process that has its origins in the World War II period.
The accelerated process of emigration, especially the
more recent emigration to the Gulf and to North America,
has had its impact on every facet of Kerala’s economy
and society. However, this impact was not sufficient for
bringing about an accelerated growth in the State; an
enabling environment appears to have been provided by
the economic reforms specified below.
The turnaround in growth in Kerala came immediately
after the economic reforms that were initiated during the
mid-1980s. However, for a low income, weak industrial
base economy like Kerala, the economic reforms per se
could not have triggered a high growth regime spanning
over a period of one-and-a-half decade. Hence, the fuel
for it must have been external, in the form of the flow
of remittances. An important outcome of economic
reforms, i.e., the discontinuation of the fixed exchange
rate system in favour of a market-determined one, seems
to have boosted remittances. It meant a higher growth in
remittance income as a result of the depreciation of the
Rupee. Thus, it is the dynamics of the linkage of human
development, through migration and remittances, with
economic reform that has helped Kerala’s economy
break out of the low growth/stagnation trap it was in
prior to 1987.
Until the 1970s, international migration from Kerala
had been relevant only for its demonstration effect and
as a means for upward social mobility. A small number
of emigrants had gone to South-East Asian countries,
Sri Lanka, Myanmar, Malaysia, Singapore, etc., and their
CHAPTER 5
HUMAN DEVELOPMENT AND ECONOMIC GROWTH 77
emigration had enabled their families to improve their
socio-economic status, as judged by land ownership,
good housing and better education for children.
The positive gains of these pioneers was a major factor
contributing to the acceleration of emigration from the
State to the other regions of the world when opportunities
emerged. Large-scale emigration from the State began only
in the 1970s. The Middle East countries were the destination
of 95 per cent of the emigrants, with Saudi Arabia alone
accounting for nearly 40 per cent of the total. Outside the
Arab world, the principal destination of Kerala emigrants
was the United States, which accounted for 2.2 per cent
of the total.
As already stated, the revival of growth in the Kerala
economy since the late 1980s brings into prominence the
role of remittances, attempts to quantify which have been
detailed in Chapter 3. The increase in per capita income as
a result of the remittances has, in the presence of economic
reforms, had two positive effects in favour of growth:
Increase in (i) consumption and savings of the people and
(ii) new investment initiatives in Kerala.
2.2.2 The Consumption Boom
The consumption pattern in Kerala has undergone
significant changes due to the flow of remittances as well
as the nature of demographic transition. The average
per capita consumer expenditure in Kerala was below
the national average till 1977-78. Since then, this has far
exceeded that of India, progressively reaching 41 per cent
above the national average in 1999-2000. This could not
have been possible but for the accrual of extra income in
the form of remittances.
Besides the phenomenal rise in consumer expenditure,
it is its compositional change that is of further interest
here, as it provides enough indications of its impact on
various sectors of the economy. It is a well-known fact
that as income increases, the proportion of expenditure by
the households on non-food items also rises significantly.
This, in turn, also implies substantial flourishing of trade
and related services. And in the context of Kerala, we
find this development rule very much in force, as is
evidenced in the results from the three surveys by National
Sample Survey Organisation (NSSO; 35th round, 1983;
52nd round, 1993-94; 55th round, 1999-2000) that
provide proportions of consumer expenditure on food
items and non-food items. 4
4 See Pushpangadan (2003: Appendix 1) for details.