Kerala’s traditional and modern industries contributing to its growth

Dr. Santosh Kumar PK, Director and Associate Professor at the Centre for Budget Studies, Cochin University of Science and Technology, engages in a conversation with India Business and Trade, and discusses the current state of Kerala’s economy, highlighting its strengths, such as a high per-capita income and robust social welfare programmes, as well as challenges, including land scarcity, the regulatory framework, diversification of the export portfolio and outflow of skilled workforce etc.

Dr. Kumar emphasises the state’s commitment to addressing these challenges through fiscal management, attracting investments, and rejuvenating its workforce to ensure economic sustainability to become an export hub. He also sheds light on Kerala’s trade policy, which aims to enhance export growth and economic resilience through a holistic approach that includes financial incentives, streamlined trade procedures, and support for market research.

Image source: Kerala Tourism

IBT: According to you, what is the current state of Kerala’s economy?

Dr. Santosh Kumar: Nestled in the southwestern corner of India, the state of Kerala embodies a paradox. Revered for its high per-capita income and robust social safety net, it stands as a beacon of progress and development. Kerala proudly holds its position as the 9th largest economy in India, with an annual gross state product (GSP) of ₹9.78 lakh crore (US$131.98 billion) in 2020–2021 and a per-capita GSP of ₹ 257,711 (US$3,200). The dominance of the tertiary sector, which contributes approximately 63% of the state’s GSVA, underscores the pivotal role of services in propelling the economy forward. 

Kerala’s economy shines not only in terms of fiscal might but also in its unwavering commitment to social welfare. The state’s unparalleled investments in education and healthcare, reflected in its remarkable literacy rate of 96.2% and a life expectancy of 77.3 years, demonstrate a holistic approach towards human capital development.

Additionally, Kerala’s heavy reliance on foreign remittances, while injecting vitality into the economy, renders it vulnerable to the caprices of global economic dynamics. Any downturn in global economies could potentially reverberate as tremors within Kerala’s economic landscape, necessitating a fundamental shift towards a more diversified and self-reliant economic model.

IBT: What are the major industries in Kerala, and how do they contribute to the state’s economy?

Dr. Santosh Kumar: Kerala’s economy is characterised by a mix of traditional and modern industries, contributing to its unique economic landscape. These industries play a pivotal role in shaping Kerala’s economy and driving its growth. These are:

Agriculture and Allied Industries: Kerala’s agricultural prowess is a cornerstone of its economic vitality. Renowned for its production of coconuts, rubber, tea, coffee, pepper, and an array of spices, the state has carved a niche for itself in the agricultural landscape of India. The synergy between traditional farming methods and modern techniques has led to sustainable agricultural practices, contributing significantly to the state’s GDP and ensuring food security.

Tourism Industry: Drawing travellers from across the globe, Kerala’s enchanting backwaters, verdant hill stations, and rich cultural heritage make it a magnet for tourists seeking a serene yet stimulating experience. The tourism sector not only serves as a revenue-generating engine but also fuels the growth of hospitality, transport, and allied industries, creating numerous employment opportunities for the local populace.

IT Sector: Kerala’s burgeoning IT sector has been a beacon of technological advancement in the region. With a burgeoning network of IT companies, the state has fostered a conducive environment for innovation and entrepreneurship, attracting both domestic and international players. This surge in technological advancements has not only bolstered the state’s economic prospects but has also positioned it as a prominent player in the global IT landscape.

Manufacturing Sector: While the manufacturing sector in Kerala may be relatively nascent, its steady growth is indicative of the state’s determination to diversify its industrial landscape. From shipbuilding and petrochemicals to electronics, food processing, textiles, and pharmaceuticals, Kerala is steadily making its mark in the manufacturing domain. With a commitment to quality and innovation, these industries are becoming significant contributors to the state’s economic resilience.

Handicrafts and Handloom Industries: Kerala’s traditional handicrafts and handloom industries serve as custodians of the state’s cultural legacy. With an emphasis on preserving age-old practices, artisans and weavers continue to produce exquisite coir mats, coconut shell products, and handwoven textiles, providing a window into Kerala’s rich cultural tapestry.

Education, Healthcare, and Financial Services: Kerala’s commitment to education is evident in its high literacy rate and a thriving educational ecosystem comprising universities, colleges, and technical institutes. Its well-developed healthcare system, comprising hospitals and medical colleges, reflects the state’s emphasis on ensuring the well-being of its residents. Additionally, the robust financial services sector, comprising banks and financial institutions, plays a pivotal role in facilitating economic transactions and fostering financial inclusion.

IBT: What are some of the key export products from Kerala?

Dr. Santosh Kumar: Kerala is a major producer of agricultural and allied products such as spices, coconut, tea, and coffee. The state is famous for its high-quality spices, such as black pepper, cardamom, and ginger. Kerala is also a major exporter of coconut products, such as coconut oil, desiccated coconut, and copra. The state is a major exporter of shrimp, tuna, squid, and other seafood products.

The state’s cashew nuts are known for their high quality and are exported all over the world. Coir is a natural fibre that is extracted from the coconut husk. Kerala is a major producer of coir and coir products, such as mats and carpets. The state is known for its handloom and powerloom products, such as sarees, dress materials, and furnishings.

In addition to these traditional export categories, Kerala is also emerging as a major exporter of value-added products in the sectors of engineering, electronics, and pharmaceuticals.

Here are some of the specific export categories in Kerala for which it is famous:

• Spices: Black pepper, cardamom, ginger, turmeric, nutmeg, clove, cinnamon
• Marine products: Shrimp, tuna, squid, cuttlefish, lobster, crab
• Cashew nuts: Cashew kernels, cashew shell liquid
• Coir and coir products: Mats, carpets, geotextiles, ropes, yarns
• Tea: Black tea, green tea, white tea
• Coffee: Arabica coffee, robusta coffee
• Textiles: Sarees, dress materials, furnishings, bed linen
• Engineering goods: Pumps, valves, machine tools, electrical equipment
• Electronics: Consumer electronics, industrial electronics, medical electronics
• Pharmaceuticals: Generic drugs, branded drugs, APIs.

IBT: What is the state’s trade policy and how it will boost the state’s overall economy?

Dr. Santosh Kumar: The Kerala State Trade Policy 2023 is a beacon of hope in the ever-evolving global trade landscape. It presents a comprehensive framework to boost trade and elevate the export potential of the state. With a strategic roadmap, the policy reflects the Kerala government’s commitment to economic resilience, diversification, and a favourable environment for trade and investment.

This policy has clear objectives, including enhancing Kerala’s share of exports, reducing reliance on specific markets, fostering diversification, and nurturing local exporters and foreign investors. It ambitiously aims to increase the state’s share of exports to 10% of India’s total exports by 2027-2028, elevating Kerala’s global economic footprint.

The policy takes an integrated approach, offering financial incentives for exporters to encourage innovation, diversification, and value addition. Export subsidies, air freight subsidies, and interest subvention on export loans alleviate financial burdens, empowering exporters to expand globally.

Streamlining trade procedures enhances ease of doing business, and robust support for market research aids businesses in navigating international markets. Initiatives like trade missions and participation in international fairs amplify the visibility of Kerala’s products and services, unlocking new avenues for export growth.

Emphasis on innovation and skills development equips exporters to meet evolving market demands. In essence, the Kerala State Trade Policy 2023 aims for sustainable economic growth, global competitiveness, and resilience in trade dynamics, fostering economic prosperity, job creation, and elevating Kerala’s status on the global trade map. Effective implementation and government support will catalyze a resilient and sustainable export ecosystem, defining Kerala as a hub of resilience, innovation, and economic excellence.

IBT: What are the biggest drawbacks/challenges facing Kerala’s economy?

Dr. Santosh Kumar: Beneath this veneer of success of Kerala lies a web of challenges that threaten its economic stability and growth prospects. Some of these challenges are as follows:

• Land Scarcity and Infrastructure: Kerala has long faced a shortage of suitable industrial land, hampering the establishment of large manufacturing units and hindering economies of scale. Inadequate infrastructure, including roads, ports, and electricity, adds to these challenges.
• Regulatory Framework and Business Environment: The complex regulatory framework, cumbersome licensing processes, unclear regulations, and inconsistent policy implementation have contributed to an uncertain business environment, deterring both domestic and foreign investments.
• Diversification of Export Portfolio: Kerala’s export portfolio is heavily reliant on a limited range of traditional commodities. While the state has a strong reputation for products such as spices, marine products, and coir, the lack of diversification has made the export sector susceptible to market fluctuations.
• Market Access and Promotion: Kerala’s export sector has faced challenges related to inadequate market access and limited promotional activities. Insufficient trade facilitation measures, including the absence of export-oriented infrastructure and logistical support, have hindered the state’s ability to access global markets effectively.
• Skill Development and Training: Despite high literacy rates, the lack of industry-relevant skills among the workforce remains a significant concern. There is a pressing need for the development of skill enhancement programs tailored to the specific needs of various industries.
• Retaining and Attracting Talent: Kerala has experienced a significant outflow of skilled professionals seeking better employment opportunities outside the state and even abroad, leading to a depletion of local talent.

IBT: What are the Kerala government’s initiatives to boost the state’s economy and promote exports?

Dr. Santosh Kumar: The state government is taking many steps to promote exports, such as providing subsidies and incentives to exporters, developing infrastructure, and organizing trade fairs and exhibitions. Initiatives aimed at reducing the fiscal deficit through prudent fiscal management and augmenting tax revenue highlight the commitment to financial prudence. Simultaneously, efforts to attract new investments and foster a conducive business environment exhibit a forward-looking approach to economic expansion. Moreover, the emphasis on enhancing educational infrastructure and skill development programs reflects a concerted effort to rejuvenate the workforce, ensuring their preparedness for the demands of a rapidly evolving global economy.

The Kerala government’s proactive stance in promoting industrial development is reflected in its comprehensive policies and strategic initiatives. By creating an investor-friendly climate and facilitating infrastructural development, the state will attract investments, leading to job creation and sustainable growth across various sectors. 

IBT: What is your vision for the future of Kerala’s economy, and how do you think Kerala plans to become an export hub?

Dr. Santosh Kumar: Kerala’s pursuit of economic progress demands a delicate balance between its robust social safety net and sustainable growth. This equilibrium is pivotal for resilience in the face of external challenges. Embracing innovation, entrepreneurship, and diversification will be instrumental in harmonizing prosperity and inclusivity in Kerala’s future, ensuring enduring economic vitality.

To position itself as a dynamic export hub, Kerala must embark on comprehensive reforms across manufacturing and export promotion. Streamlining regulations, infrastructure investments, export diversification, and fostering a conducive environment for skill development are imperative steps. Addressing these challenges strategically and implementing focused reforms will unlock Kerala’s true economic potential, propelling it as a significant player in the global market.

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Dr. Santhosh Kumar PK is a director and associate professor at the Centre for Budget Studies, Cochin University of Science and Technology. He is a resourceful economist and dedicated to shaping the next generation. Views expressed are personal.