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Why isn’t Kerala’s growth reflecting in its contribution to India’s GDP?

EAC-PM's report has pointed out that Kerala is the only southern state witnessing a decline in its contribution to national GDP. How is Kerala different from other southern states and why isn't the state's progress reflected in its contribution?

Sreelakshmi Soman

Published Sep 21, 2024 | 9:00 AM ⚊ Updated Nov 26, 2024 | 2:25 PM

Why isn't Kerala's growth reflecting in its contribution to nation's GDP

Kerala's contribution to nation's GDP

The Kerala government recently emphasised the state’s significant advancements in the industrial sector. Still, somehow, the progress hasn’t been reflected in the state’s contribution to the national Gross Domestic Product (GDP).

Despite the state’s reported economic growth, its share of the national GDP has remained static, leaving many observers concerned. Kerala Planning Board’s economic review indicates that Kerala achieved a GDP growth rate of 6.6 percent for the fiscal year 2022-23, surpassing the national average.

According to a report by the Economic Advisory Council to the Prime Minister (EAC-PM), Kerala’s contribution to the national GDP rose from 3.4 percent in 1960-61 to 4.1 percent in 2000-01, but has since fallen to 3.8 percent in 2023-24. Notably, Kerala is the only southern state witnessing a decline in its contribution to national GDP.

A senior official from the state finance department informed South First that they need to review the data and study the report thoroughly as they are uncertain about the possibility of political influence in highlighting specific states within the report.

Related: Five southern states contribute almost 30 percent of India’s GDP: PM’s Economic Advisory Council

Progress not reflected?

The state Finance Department highlighted that while the state’s GDP has improved annually, this progress is not reflected in its share of the national GDP. The new budget estimates Kerala’s Gross State Domestic Product (GSDP) at ₹13.11 lakh crore.

The Union government was expected to allocate ₹40,000 crore, representing 3 percent of the GSDP, but only ₹37,512 crore was approved. This shortfall has been attributed to discrepancies in data between the Centre and state.

Meanwhile, Kerala’s top Finance Department officials refused to accept or verify the EAC-PM’s report. A senior official suggested that the discrepancy may have occurred due to differences in the parameters used by the state and Union government. Kerala is still in the process of gathering authoritative information before making an official statement.

Why Kerala functions differently

A higher official in the Kerala finance department, on the condition of anonymity, told South First that the current issue cannot be attributed to a specific year or government.

Kerala’s economic assessment cannot be solely based on GDP contribution, as the state functions differently. Kerala is primarily a consumer state, focusing on distributing welfare and improving the quality of life for its people, he said.

While Karnataka’s tech sector generates significant revenue, its rural areas still struggle. In contrast, Kerala’s so-called rural areas have transformed into extensions of urban areas. The state’s advancements in quality of life and purchasing power benefit a large number of people.

Kerala excels in socio-economic indicators compared to other southern states, which is why it continues to receive less funds from the Union government compared to other states.

He stated that Kerala’s stable population, impressive advancements in education, healthcare, sanitation, and the well-being of senior citizens and girl children are ironically seen as ‘disqualifications’ under the Centre’s fund disbursal policy. Despite these achievements, the state’s progress seem to work against it when it comes to receiving financial assistance from the Union government.

The official added that despite allocating substantial funds to these sectors, Kerala has not received corresponding central funding, which is often directed toward socially backward states.

To address this, Kerala has requested a revision of funding parameters in a memorandum submitted to the Finance Commission. Although precise data on revenue production over the past 20 years is not available, Kerala has achieved a ₹30,000 crore increase in tax revenue over the last 3.5 years, bringing the total to ₹76,000 crores from ₹47,000 crores. Non-tax revenue has also seen an increase, but it’s unclear how this compares to other states.

Kerala’s focus is shifting toward a knowledge economy in the era of Artificial Intelligence (AI), given the high population density and limited space for large-scale production facilities. The state faces challenges related to sensitive zones and local protests, the official said, adding they have been impacting the feasibility of large production projects. Therefore, Kerala has been focusing on developing its knowledge economy rather than pursuing extensive production centers.

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An economic wake-up call for Kerala? 

EM Thomas, a distinguished author, educationalist, and former general secretary of the Kerala Economic Association, expressed concern to South First about Kerala’s economic trajectory, noting that “unlike other southern states, Kerala has not prioritised industrialisation.”

He pointed out that while neighbouring states have made significant strides in building large industries, “Kerala still relies heavily on contributions from Non-Resident Indians (NRIs) to sustain its economy. If the flow of foreign remittances slows down, Kerala’s foundation as a consumer-driven state will collapse.”

Thomas emphasised the need for Kerala to urgently enhance “employment opportunities, production, and overall output” to secure a stable future.

He further highlighted the state’s reliance on external sources for basic needs. “We are not self-sufficient in agriculture,” Thomas said, explaining that Kerala depends on neighbouring states to meet its food requirements. The plantation sector, too, is suffering, with “low production levels and instability.”

According to Thomas, Kerala lacks stable sources of income, relying instead on external, unpredictable revenue streams. “Major industries are reluctant to set up operations in Kerala due to high labour and material costs,” he concluded, urging the state to rethink its approach and focus on sustainable development.

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Why industries shift to other states? 

Thomas said there is an alarming decline in Kerala’s industrial sector, referring to the number of state’s manufacturers — like Kitex — who have relocated to other southern states contributing to the state’s shrinking industrial output.

Without a focus on boosting production, Kerala will struggle to contribute significantly to the nation’s GDP. “Instead of rejecting industries, we need to actively attract them,” Thomas said.

He pointed out the stark example of Koratty in Thrissur, which was once a bustling hub of industries. At present, many of those industries have shut down, and the area has been repurposed for Infopark developments, hospitals, and convention centers.

Thomas also highlighted the departure of Kitex, which last year laid the foundation stone for what will be the world’s largest garment factory in Sitarampur, in Telangana’s Rangareddy district.

“Why did they leave Ernakulam for Telangana? This is a question we need to address,” he stressed. Similarly, in Idukki, once-thriving plantations now lie dormant, with no efforts being made to revive them.

In 2021, citing persistent interference and harassment by state authorities, the Kitex Group declared plans to relocate a significant ₹3,500 crore project to Telangana. This initiative was set to develop manufacturing clusters in the Kakatiya Mega Textiles Park (KMTP) in Warangal and in Seetharampur.

“Who will take responsibility for this industrial decline?” Thomas asked. While Kerala conducts numerous conclaves to attract industries, they seem to have little impact. He called for a comprehensive study to understand why established industries are quitting Kerala and why new ones aren’t coming in.

(Edited by Neena)

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