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Economic History of Kerala

Kerala Economy in the Early Historic Period

  • The course of economic development of the state is closely related to its location, climate and topography. In a way, Kerala's unique pattern of development and its population profile are products of its history as much as of its geography.

  • The location of the region on the Arabian Sea coast permitted trading and cultural relations with outside world. Musiris situated on the coast and the numerous minor ports attracted traders from around the world. These ports developed into centres of trade between the Arab countries, North Africa and the Roman empire. Arabs, Jews and Christians first came to Kerala as traders.

  • In 10th and 11th centuries, trade from India to West was controlled by Arabs of Morocco, Tripoli and Tunis; who operated from Aidhab on the Red Sea. It is said that half the ships from Aidhab went to Gujarat while the other half went to Malabar. There were several Arab Muslim settlements on the West Coast of India, which might have served to strengthen this trade. Similarly, there are evidences of Chinese trade relations with Kerala.

  • As a result of such trade, use of money and different types of coins increased in this region, leading to minting of coins here itself.

  • The growth in trade had increased the production of spices and other cash crops which in turn have generated more trade.

  • But there was not much growth in manufacturing during this period. Kerala could sustain itself as a trading region without a manufacturing base. This might have led to the fact that the Malabar Coast, though acknowledged for long as an important trading region, never developed a manufacturing hinterland like other trading regions of India.

  • The large proportion of Christians (19.02 percent) and Muslims (24.70 percent) in the state's population may be partly due to this historic trading and cultural contacts rather than through Muslim conquests, as in rest of the country.

  • The symbiosis of different religious groups and cultural streams has led to communal harmony and social stability in the state.

  • The historic and cultural contacts with the Arabs helped Malayalees to easily avail of employment opportunities following the oil boom in the Arab world from the 1970s.

Kerala Economy in the Modern Period

  • The region was the first centre for European colonization in India following the landing of Vasco da Gama in Calicut in 1498 AD. Portuguese conquest of the region was followed by those of the Dutch and the British.

  • However, except Malabar, the other parts of the present day Kerala viz. Travancore and Cochin were not directly ruled by the British.

  • Almost all the present differences between Kerala and the rest of the country in social development can be traced at least to the last two centuries.

  • It may be noted that the princely states of Travancore and Cochin had established very clear leads in all indicators of social development over other princely states and British India, much before independence.

  • When social development was gathering momentum in the erstwhile Travancore and Cochin states during the 19th century and the first half of the 20th century, there was large scale economic expansion to support it.

  • Both in Travancore and Cochin, area under cultivation especially that of cash crops like coconut , tea, coffee, spices and rubber, was constantly expanding. Many of these important crops were introduced by the Europeans in Kerala from their other colonies in Africa and Latin America.

  • The Europeans initiated cultivation of some of these crops under the plantation system in vast tracts of forest and hilly areas. The local population followed suit.

  • As most of the expansion of area under crops, both cash and food crops had taken place in virgin forest land and also in land reclaimed from backwaters, the period also saw increase in agricultural productivity.

  • Along with agricultural production, agro-processing industries like coir and cashew also expanded.

  • In Malabar, Basel Mission, a Swiss missionary cum trading organization introduced modern factories using the latest available technologies in spinning and weaving and also in manufacturing of roofing tiles.

  • Large chunk of capital invested in modern industries, together with the spurt of investment in plantation companies, enabled Travancore to overtake other major Princely States in total corporate paid-up capital.

  • The period also witnessed large growth of exports leaving a favourable balance of trade. Both the net barter terms of trade and income terms of trade were favourable to the state during most of the pre-independence period.

  • The growth of the banking business in Travancore and Cochin was well ahead, not only of Malabar, a part of Madras Province of British India, but also of other provinces and regions. During 1926-30, Travancore alone accounted for about one-fifth of the total number of banks then existing in the combined area of erstwhile British India and Travancore.

  • The economic expansion of Travancore state had helped its revenue raising capacity. Unlike today, revenues of the state then included income tax, excise duties and customs duties.

  • It was the continuous growth in revenue together with the state’s expenditure priorities in favour of social services and the lower cost of providing education mostly at the school level and health care mostly at the primary level that brought about the phenomenal social development in pre-independence period.

  • It is often overlooked that in the matter of per capita income, Kerala was above the all India average in 1950-51 and 1955-56. Unlike today, both in per capita terms and in the share of industry in the state income, Kerala’s position was higher than the national average in 1950-51 and 1955-56.

Stagnation Phase

  • The economy started slowing down during the period 1955-56 to 1965-66, almost coinciding with the first decade of the formation of Kerala.

  • Brief spurt in economic activity took place during the period 1965-66 to 1970-71.

  • The annual growth rate of state income between 1971-72 and 1986-87 was just 1.88 per cent. There was slackening of growth in all sectors of the economy during this period.

  • During the 1970s, the growth in income originating from the primary sector was negative.

  • Both during the 1970s and the 1980s growth rates in all the three sectors were lower than those of the country.

Turnaround Phase

  • There has been a turnaround in the economy from 1987-88. The turnaround coincided almost with the economic reforms in the country characterized by liberalization, privatization and globalization.

  • Growth rate of the state income at constant prices during the period 1987-88 to 2000-01 rose to 6.0 per cent. Growth rate during the period 2000- 01 to 2006-07 was higher at 8.1 per cent and was more than that for the country (7.1 per cent).

  • The sectoral composition of the growth during 2000-01 to 2006-07 shows that it was largely the secondary sector followed by the tertiary (service) sector which has contributed to the growth during this period (11.5 per cent and 8.7 per cent).

  • The growth rates of both these sectors were higher than that of India (8.2 per cent and 8.5 per cent).

  • However there was only marginal growth in the primary sector (1.8 per cent) which was lower than that of India (2.8 per cent).

  • As a result of the higher growth in recent years, Kerala’s per capita NSDP in 2006-07 was Rs.36,907 against the national average of Rs 29,524 in 2006-07.

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