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Structure of Kerala Economy

Agriculture Sector

  • The share of primary sector in NSDP has been coming down steadily. This is largely due to the decline in the share of agriculture and allied services. There are many reasons for this decline.

  • The area under crops is coming down steeply.Area under all crops except plantation crops showed decline. The decline in area under food grains was particularly sharp.

  • Kerala’s agriculture is dominated by cash crops like spices, rubber, tea, coffee, cashew and coconut. Most of these cash crops are exported to outside the state and to other countries.

  • The production of cereals comprising mostly of rice, the staple diet of Malayalees has been coming down due to the failure to offset the decline in area by increasing productivity.

  • As a result, the dependence of Kerala on imports of food materials from elsewhere is increasing.

  • The crops which are showing large increases in area, production and productivity is rubber and to some extent, spices.

  • Kerala accounts for 92 percent of the production of natural rubber in the country. The share of cardamom is 78 percent. The state accounts for 67 percent of the production of pepper and 45 per cent that of ginger. The share of Kerala in the production of coconut is now 43 percent. The share of Kerala in the production of this crop has been coming down.

Industrial Sector

  • During the nineteenth and the twentieth century, industries like coir and coir mattings, cashew nuts and paper products developed in Travancore.

  • In Malabar, the manufacturing of roofing tiles and handloom products developed.

  • There was a large growth of chemical industry during the twentieth century even before independence, taking advantage of the proximity to Cochin port, the availability of waterways to transport bulk raw materials through barges, the availability of cheap hydel power and fresh water. The industrial units also used rivers for discharge of effluents.

  • But the share of manufacturing sector today is less important in Kerala than in India. In the share of manufacturing in SDP, Kerala lags far behind Gujarat, Haryana, Maharashtra and the neighbouring states of Tamil Nadu and Karnataka. In fact, Kerala’s rank in the share of manufacturing is the thirteenth among the fifteen major states.

  • A feature of Kerala’s industrial structure is the large share of unregistered units. The share of this sub sector in the state income originating from industries was 52.4 per cent as against 32.0 per cent for the country in 2006-07.

  • One of the main reasons for the state’s low level of industrialization is the absence of major industrial minerals like metallic ores, coal and crude oil.

  • Agro based industrial raw materials like cotton, jute, sugar cane and oil seeds are also not produced in the state in any large quantity.

  • The only commercially exploitable mineral resources are ilmenite, rutile, zircon and sillimanite found along the beach shores.

  • As for rubber, the major agricultural raw material of Kerala, most of the rubber based industrial units were located outside the state as the principal markets of tyre and other rubber goods lay outside the state.

  • There was also very little value addition in the exports of Kerala.

  • Till the 1990s, prime importance was given to public sector in the industrialization of the country. Most of the public sector industrial units were started by the central government. But Kerala had received only a small share in central government’s investment in industrial units. This is yet another reason cited for the relatively limited development of industries in Kerala.

  • The share of central government investment in fixed capital of public sector industrial units in the state is only 2.4 percent of the total investments as against 17.8 percent in Maharashtra, 7.6 percent in Tamil Nadu and 6.9 percent in Andhra Pradesh. This share has been coming down steadily.

  • In fact, after independence, the major industries which came up in the central government sector were a pesticide unit, a news print unit and a ship building unit.

  • There are other possible reasons for the industrial backwardness of Kerala during the era of economic planning in India.

  • The emphasis on basic and heavy industries like iron and steel machinery, chemicals and petroleum refining in the early decades of the planning era in India led to the state without raw materials for these industries lagging behind other states in industrial investment both in the public and private sector.

  • The import substitution based economic development strategy followed by the country till the 1990s retarded the industrial development of Kerala situated far away from the major input and the output markets in the country.

  • With the adoption of this strategy, the geographic location of the state which was an advantage for an export oriented state historically turned out to be its disadvantage.

  • The central government’s export import policy supporting largely manufactured export through larger subsidies and import entitlements and duty drawback schemes did not benefit Kerala which was exporting mostly agricultural products or agro based industrial products with little or no import content.

  • Even the exchange rate policy of keeping an over valued fixed exchange rate till the 1990s affected the rupee value realization of its exports as well as its non-resident Malayalees (NRMs) remittances.

  • Construction, a sub sector of the secondary sector has been booming in recent periods. The share of this sector in the state income of Kerala was 12.4 percent as against 8.1 percent for India in 2004-05. This sector accounted for 11.8 percent of its employment in the state as against 6.1 per cent for the country.

Tertiary Sector

  • The tertiary sector is the most important sector accounting for 62.5 percent of the state income and 40.4 percent of the employment in 2004-05.

  • There are several reasons adduced for the growth of the tertiary as also the construction sectors.

  • One major factor is the large scale remittances received from Non Resident Malayalees (NRMs). These have boosted consumption in the state. The state which ranks only fourth in per capita NSDP ranked first in per capita consumer expenditure in 2004-05.

  • The NRM remittances helped the growth of trade, hotels and restaurants, transport, finance and real estate sectors. This has also led to the growth of education and health sectors.

  • The growth in employment, education and health services is linked to the large-scale expansion of private sector in school and higher education as also in health sector. The expansion of these sectors is a result, partly of the increased demand from NRMs for these services even at higher cost.

  • Tourism is another growth sector of Kerala which contributed to the expansion of service sectors particularly hotel, transport and finance sub sectors. Kerala is emerging as one of the important destinations for tourists coming to India.

  • Share of Kerala in the number of foreign tourists arriving in India has been growing steadily to reach 11.2 percent in 2008.

  • The foreign exchange earnings from tourists coming to Kerala are estimated to be six percent of the total earnings received by the country. The flow of domestic tourists has also been increasing. The total revenue, both direct and indirect, generated from tourism is estimated at Rs.13130 crores in 2008.

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