Kerala 2005 - of Planning Commission

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The structural shift in consumption, as brought out in
Table 5.3, indicates that the main source of consumer
demand was for non-food items in the 1990s. While total
demand for food (State’s income, including remittance)
increased by 56 per cent in the second period, the
demand for consumer durables more than doubled.
It can be seen that the contribution of remittances
to consumer durables-led growth in the 1990s was
17 times more than that in the first period. It is here the
reinforcing contribution of economic reforms had its
significant impact. The unregulated waves of the reforms
made it possible to release pent up demand in the case
of a number of goods and services hitherto unavailable.
Thus, there was a building up of an effective demand,
backed by increased income, in the Kerala economy for
certain commodities, which remained unrealised in the
face of substantial supply constraints. In short, the role of
emigration and remittances was to remove the effective
demand constraint in a developing economy, with the
reforms removing the supply constraints. 5
It is this increased demand, in general, and that for nonfood
items, in particular, that worked behind the economic
revival of Kerala in the 1990s, the impact mainly being in
trade and related services. In other words, it is in the tertiary
sector that the human development induced growth found
its fuller realisation. This also means that the productive
sectors of the Kerala economy could not utilise in investment
the immense savings generated from the emigration boom.
The reasons are quite clear in terms of Kerala’s record in
labour relations and the absence of compensating factors,
such as a well-functioning economic infrastructure. The
former indicates that the wage effect induced by remittances
via pressure on an inter-related labour market reinforced
the institutional power of labour (in terms of early and
high level of unionisation) and stood to drive away most
of Kerala’s indigenous labour-intensive industries, such
as coir processing/manufacturing, cashew processing
and tile manufacturing. The prospect for a transition to a
technologically advanced, high productivity industrial
sector was thus aborted by the power of the organised
labour. Technological change, especially mechanisation,
was also opposed in agriculture, where the problem was
compounded by the failure of public investment in such
productivity-enhancing critical infrastructure as land
and water management. It was in the background of this
inability of the productive sectors to attract investment that
the tertiary sector flourished in quick-profit ventures to take
advantage of the growing consumer demand.
The increased income induced a boom not only in
consumption but also in ‘savings’ as reflected in the high
growth rates of bank deposits (at 19 per cent per annum
during the period 1992-2002) and in a sense, in the low
credit-deposit ratio of about 40 per cent. Thus, Kerala
has had a high potential for higher economic growth
– both demand induced (expanding market) and resource
propelled (potential for investment).
Table 5.3: Food and Non-food Demand by Source of Income and by Sub-periods
(1980/81 prices, Rs. crore)
Average Consumer Expenditure
1980-81 to
1990-91
1990-91 to
1999-2000
Period 2 ÷ Period 1
(% change)
Net State Domestic Product
Food 739.0 813.9 10.1
Non-food 513.4 847.1 64.9
Sub-total 1,252.5 1,661.0 32.6
Remittances
Food 28.1 356.1 1,167.3
Non-food 19.8 342.1 1,628.7
Sub-total 48.4 698.2 1,342.6
Net State Domestic Product plus Remittances
Food 772.6 1,205.6 56.0
Non-food 528.3 1,153.6 118.4
Grand Total 1,300.9 2,359.2 81.4
Source: NSSO: 1983; 1993-94; and 1999-2000 Rounds.
5 Kannan (2004).