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Growth Potential for Kerala Economy

  • Kerala has the potential for a much faster economic growth as a number of factors are now turning favourable to its growth.

  • The shifting from the fixed exchange rate system to the floating exchange rate system, though the floating is still being managed by the Reserve Bank of India, has turned out to be its advantage since 1991.

  • The geographical position of Kerala far from the input and output markets which was a disadvantage when Indian economy was a closed economy following an import substitution development strategy. But the location of the state is turning to be an advantage for it, with the opening of the Indian economy. Kerala’s geographical location close to the international shipping route has become a great advantage, especially now since two container terminals, one in Cochin and the other in Vizhinjam near Thiruvananthapuram are going to be located in the state’s coast.

  • Cochin today is the only place in India where South Africa Far East (SAFE) submarine optic fibre cables land. South East Asia - Middle East - Western Europe Cable network (SEA) is also landing at Cochin. Cochin is emerging as a gateway which now handles 70 per cent of India’s data traffic.

  • Kerala already has the physical, financial and communication infrastructure. In fact, it ranks first in the index of infrastructure among the states in India (GoI 2004). Kerala has the highest tele-density of 15.4 per 100 population.

  • It also has relatively well developed social infrastructure for education and health care. All that is now required is investments to upgrade the quality and to modernize the services.

  • Another positive factor for Kerala today is that it enjoys comparatively more social stability and absence of communal and caste conflicts due to the cultural synthesis which dates back to its early history and the social reform movements in the last two centuries.

  • The bad reputation of the state as a place of disturbed labour relations is now changing as strikes and lock outs which were quite frequent in Kerala in the 1960s and the 1970s have now come down considerably.

  • There is much scope for value addition to its export of both agricultural and traditional industrial products of Kerala.

  • The rich bio-diversity of state and the traditional knowledge regarding the many uses of Kerala’s flora and fauna offers potential for development of biotechnology provided the research capacity in this area is enhanced considerably.

  • Kerala economy has developed strong linkages with international markets historically. The large scale emigration of people had strengthened these linkages. With the opening up of Indian economy, it is expected that this state with its historic trading and cultural links with the outside world will be able to profit from the new opportunities.

  • The non resident Malayalees had got opportunities for getting exposed to global markets, culture, modern technology and management skills. But this exposure is not yet leading to any significant transfer of such technology and management skills to the Kerala economy.

  • Migration has also led to large scale inflow of funds to the state. But, instead of being invested in the state, they are being increasingly diverted to other states through financial intermediaries.

  • Much of the migrants’ remittances seem to be spent on conspicuous consumption in the absence of other investment outlets. The state has the great potential to convert the NRMs into its most important asset as was done by countries like China and Ireland.

  • If Kerala has to convert its above discussed advantages into opportunities, it has got to meet some pre-conditions.

  • Firstly, it has to improve the quality of governance and speed up the government’s decision making process.

  • Secondly, a qualitative change is required in the attitude of the political parties, public, civil society groups and the media. Dreze and Sen, great admirers of Kerala development themselves have pointed out the major short-comings of the state ‘The political economy of incentives is of crucial importance in translating the potential for economic expansion, implicit in human development, into the reality of actual achievement in the economic sphere’.



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