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Weaknesses of Kerala Economy


  • The chronic unemployment problem has been the bane of the state eclipsing all its other achievements. Though there was growth in state income from the late 1980s, it was largely a jobless growth.

  • Unemployment rate in Kerala for rural areas is 15.8 percent against the national average of 2.5 per cent in 2004-05. For the urban areas, the rate was 19.9 per cent against the national average of 5.3 per cent.

  • The unemployment problem in Kerala is more for the educated than for the population as a whole. Unemployment rates for the educated in Kerala are the highest for both rural and urban areas among the major states.

  • The unemployment rate for educated persons in rural areas of Kerala was 29.6 percent against the all India figure of 8.5 percent. The corresponding figures for urban Kerala and India were 29.6 percent and 8.2 percent.

  • The unemployment rate among educated women in the rural areas was 53.3 percent against the all India average of 23.1 percent. The problem was slightly more in the urban areas of Kerala (55.5 percent). The rate was less in the urban areas in India (19.9 percent). Educated female unemployment in rural areas of Kerala was the second highest among major states (after Orissa). Educated female unemployment in urban Kerala was the highest among these states.

  • The problem of unemployment would have threatened to become socially explosive but for the large scale migration of Malayalees to other regions of the country and also to other countries particularly to the Arabian Gulf countries.

  • The number of migrants to other states in India was estimated to be 8.7 lakhs in 2007. The emigrants to foreign countries numbered 18.48 lakhs during the same year. The number of people working abroad exceeded the number of people employed in the organized private and public sectors in Kerala

External Dependency

  • A major weakness (and potential strength) of Kerala economy is its extreme dependence on outside the state and outside the country, both for employment and for remittances.

  • The non-resident remittances to Kerala (through authorized channels) in 2006-07 amounted to Rs.24,269 crores.

  • The NRM remittances accounted for 20 per cent of the total non-resident Indian (NRI) remittances from abroad to the country.

  • The NRM remittances are equivalent to nearly one fifth of the state income.

  • Any political or economic change in foreign countries particularly the gulf region can make Kerala economically vulnerable as it had happened during the economic meltdown in recent years and during the Iraq-Kuwait war in 1990.

  • Even a change in exchange rate can affect Kerala economy in a major way.

  • Extreme dependence on imports from the rest of India for its daily necessities including food materials is another weakness due to the tardy growth of its production sectors like agriculture and industry.

  • Economy is extremely dependent also on national and international markets for its major cash crops like coffee, tea, rubber, spices.

  • It also depends on external markets for its traditional industrial products like coir, cashew, handloom, handicrafts and of late sea foods.

  • This dependence on external markets makes the state’s economy extremely vulnerable to developments taking place elsewhere in the country and abroad.

  • Trade agreements like those with the World Trade Organization and with other Asian countries (like the ASEAN and SAARC) also affect the state’s economy. No doubt, they also offer opportunities.

Deteriorating Fiscal Position

  • Deteriorating fiscal position is another major weakness of the state economy.

  • The average Gross Fiscal Deficit of the state during 2005-08 was 3.3 per cent of Kerala’s SDP as against 1.9 per cent for all states.

  • The problem of deficit in Kerala is more in the revenue account. Revenue deficit alone amounted to 2.2 per cent of SDP as against -0.4 per cent for all states.

  • Both the size and the nature of the fiscal crisis in Kerala are related partly to the Kerala model of development with its budgetary priorities in favour of social sectors.

  • It is also on account of the pattern of growth of Kerala economy favouring largely the service sector.

  • Under the Constitution of India, the power to tax many of the fast growing services like finance and communication is vested with the federal government and not with the state governments.

  • The weak revenue position of the state has led to its borrowing on a large scale to meet even government’s current consumption.

  • The fiscal crisis has placed a limit to the development in the social sectors. Cracks are already visible in the large edifice of government’s social service infrastructure like education, health care, social security and food security.

Second Generation Problems

  • It was seen earlier that many of Kerala’s achievements are comparable to those of developed countries.

  • But these successes have also brought in its wake some of the problems of the developed countries. Unlike these countries, the state does not have the financial ability or the economic strength to tackle them all by itself.

  • The federal agencies had added to the financial debility of the state by denying it adequate funds as they are still preoccupied with the first generation problems in education, health care and social security in other parts of the country and to meet the country’s international commitment to meet the Millennium Development Goals (MDGs).

  • Kerala’s unique ‘second-generation problems’ resulting from its very success in attaining higher levels of social development, therefore, receive scant attention from the federal agencies.

  • These second generation problems include ageing, changing profile of employment seekers, and degradation of environment.


  • The large graying population of the state has several implications in relation to health needs, service pension requirements of the government and social security system.

  • The share of elderly in the age group 60 and above in the population of both Kerala and India showed an increasing trend during 1981-2001.

  • The share of the elderly in the total population was always higher in Kerala than in the country. This share is increasing very fast in Kerala unlike in the country, where it is increasing only marginally.

  • The number of elderly in Kerala stood at 33.35 lakhs in 2001. The projection of the old age population in Kerala shows that the share of old people in the population is expected to reach 6.6 million by 2021.

  • The proportion of the old old (75+) will be 26 per cent of the elderly in the state by 2021.

  • The changing demographic profile is also likely to increase the demand for expenditure on health services.

  • The increasing proportion of the aged in the state’s population is changing the disease profile. A new category of diseases comprising degenerative and neo-plastic diseases like hyper-tension, diabetics, cardiovascular diseases, neurological disorders and cancer have emerged in the state. These diseases of the old age call for higher investment in diagnostic equipment, hospitalization, treatment, recovery and rehabilitation.

  • At a time when the expenditure requirements on health are rising, the state is finding it increasingly difficult to meet these requirements partly due to fiscal crisis. As a result, the quality of services in the government health services has been coming down. Consequently, there has been an increase in the demand for private medical care services offered mostly on commercial terms.

Changing Profile of Employment Seekers

  • Yet another second generation problem is the change in character of the unemployment in the state.

  • Higher levels of education have changed the character of unemployment in the State to that of educated unemployed.

  • Eighty four per cent of the unemployed registered on the government’s employment exchanges are matriculates and above. This makes most of the federal government schemes for employment creation, targeted mainly at the unskilled manual workers, inappropriate for the unemployed of the state.

Degradation of the Environment

  • The state is now confronted with major problems on the environmental front.

  • Today, Kerala faces a major environmental crisis from severe deforestation in Western Ghat Mountains, leading to soil erosion there and water logging in low land areas.

  • Polluted rivers and foreign hi-tech offshore fishing operations are reducing the fish catch. The reasons for the high degree of pollution of water, air and soil are many.

  • Due to historic reasons, chemical industries are clustered in this area. They were attracted to this area due to the availability of fresh river water. The rivers were also used for effluent discharge.

  • Many of the wood based industries including Rayon units and paper units had their backward linkages with the forest resources. They also used the river for effluent discharge.

  • Coir, a major traditional industry of the state using traditional technology was dependent on water bodies for retting coconut husk.

  • Excessive use of fertilizers, and pesticides including DDT and Endosulfan in agriculture contributed to the pollution of soil, water and air.

  • The quality of government’s management of environment is quite poor.

  • In per capita consumption expenditure, Kerala stands at the top among states. An effect of this high per capita consumption is the generation of massive solid and liquid waste. There has been a failure of governance, at every level, in waste management, both solid and liquid. In many places, the liquid waste is discharged to the water bodies.

  • Unregulated tourism also has adversely affected the environment in Kerala’s beaches, backwaters and the forests.

  • There has been over exploitation of natural resources. Mining of clay for bricks, a traditional industry of Kerala, expanded due to the construction boom in the state. Excessive mining of sand from the rivers to meet the growing demands from construction sector also led to the degradation of rivers and depletion of the soil and water resources of the state.

  • There is also large scale excavation of hills for filling up paddy fields and shallow water bodies for the booming housing and real estate sectors. Encroachment of forests and wetlands including lakes has also been going on leading to deterioration of environment.



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