How Kerala’s economy has fared under LDF rule

Polls for the 140-member Kerala Assembly, in a single-phase election on April 6, will see the incumbent, the Communist Party of India-Marxist or CPI(M)-led Left Democratic Front (LDF) battle it out with the Congress-led United Democratic Front (UDF).

The state has never returned an incumbent government since the 1980s. Both the UDF and the Bharatiya Janata Party-led alliance are questioning the performance of the LDF on its development and economic record, while also focusing on identity and religious-centric issues.

The political economy context

The last five years, under LDF rule, appear to be an outlier because of several natural disasters that have imperiled key sectors of the state’s economy. In 2017, cyclone Okhi battered the state, followed by extreme rainfall and apocalyptic floods in 2018 and 2019, causing widespread devastation. The state also saw the deadly Nipah virus outbreak in 2018. And then, of course, the pandemic hit Kerala — with the first cases in the country reported from the state.

Finance minister TM Thomas Isaac, a fierce critic of the Central government, has raised, on several occasions, issues of the shortfall in payment of Goods and Services Tax compensation cess and demonetisation, arguing a shortage of financial resources at the disposal of the state had severely hit its development activities.

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A strong, unionised industrial sector and a relatively higher share of old-age population mean Kerala has one of the highest levels of minimum wages.

According to projections of the Report of The Technical Group on Population Projections, the proportion of people aged 50 and above was 38.7% in Kerala, compared to 28.2% at the all-India level as on March 1, 2021, as reported in an earlier HT report. This shows the state exhibits developed-economy demographic characteristic. The state has also been on top of human development indicators and boasts of a robust public-welfare system.

The growth and income trajectory

Two key macro-economic indicators, Kerala’s gross state domestic product (GSDP), and per capita income, present a mixed picture of how the state has fared.

Kerala’s rate of growth rate of GSDP — the equivalent of GDP at the state-level, which is the mostly common measure of income growth — has generally trended below the all-India GDP growth rate. However, the state’s economy has grown at a faster clip under the incumbent LDF rule than under the previous UDF government. Kerala’s per capita income, however, is one of the highest in the country, making it a wealthy state.

According to data from the state’s Economic Review 2020, the annual income per capita in Kerala was ₹149,563 in 2019-20, higher than the national average of ₹96,152. In other words, the average income per person in Kerala is approximately 1.5 times the all-India average. Kerala — along with Haryana, Gujarat, Karnataka, Maharashtra and Tamil Nadu — is among states with the highest income per capita in the country.

But Kerala’s growth plunged to 3.46% in 2019-20 from 6.49% in 2018-19, according to the latest Economic Review 2020, a reflection of the toll natural calamities have taken on productive sectors of the state’s economy.

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On January 30 last year, Kerala recorded the country’s first Covid-19 case. The pandemic-induced lockdown shrunk the state’s gross state value added (GSVA) by 26% in the first quarter of 2020-21. (In a rough-and-ready sense, GSVA, which is GSDP minus taxes, offers a more accurate estimate of growth in output).

The Pinarayi Vijayan-led LDF government assumed office in 2016. In 2016-17, which was not a normal year for the country because of demonetisation, the state’s economy grew a healthy 7.4%, compared to an all-India growth of 8.2% (final estimates). To be sure, many economists dispute the 8.2% growth rate of the country on the ground that it did not capture the impact of the decision to demonetise 86% of the currency in circulation in value terms on the informal sectors.

The state’s economy expanded almost in tandem with the country in 2017-18, with a growth rate of 7.1%, compared to an all-India growth rate of 7.2%. GSDP has begun slipping since then, apparently on account of natural calamities followed by the pandemic.

During the previous Congress-UDF rule (2011-2016), Kerala’s economic growth overtook the national average only once in 2012-13. While the state’s economy grew 6.6% that year, according to Kerala’s Economic Review, the country as a whole had grown at 5.4%.

The employment crisis

The state’s Economic Review, tabled in the Kerala Assembly on January 14, 2021, showed unemployment rate among youth stood at 36% in 2018-19, nearly double the national average rate of 16%. “In Kerala, the unemployment rate of the youth is 35.8% for rural areas and 34.6% for urban areas,” the review states. Unemployment rate among women was higher (17.1%) than men (5%).

Kerala may be a rich state, with a high share of remittances from employment abroad (its share in net state domestic product is estimated to be nearly 14%, according to a 2020 paper in the Indian Journal of Labour Economics), but it has seen high rates of unemployment under the LDF rule. To be sure, unemployment under LDF rule declined gradually, between 2016 and 2017, after the LDF assumed office, before starting to rise again.

For instance, Kerala showed an unemployment rate of 23.5% in Feb 2016, which declined to 10.4% in Aug 2018, with occasional spikes in between, according to data from the Centre for Monitoring of the Indian Economy. The unemployment rate was highest in 2020 during the month of May at 26.5%.

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The state government under LDF has comparatively made higher investment in education, health and social sectors, than on capital expenditure and agriculture.

Under the LDF, the state has seen an average allocation of 14.6% of its expenditure on education, the state’s budget documents show. The state’s spending on health, averaging nearly 6%, of its total expenditure is higher than the all-India average. The LDF government has committed nearly 3.9%% of its annual budgetary allocation in agriculture, lower than the national average.

Quality of life

Where the incumbent LDF government scores is human development, which is comparable to advanced economies of the world. On accomplishing Sustainable Development Goals (2018), Kerala ranked first alongside Himachal Pradesh, with a score of 69 against the national average of 5.7, according to the federal think-tank Niti Aayog.

Data shows that the maternal mortality ratio (MMR) is only 43 in Kerala, against 113 for the country as a whole. Percentage of live births without medical attention of qualified professionals received by mothers in the state is only 0.1 against 7.8 at the national level. Kerala also ranks highest in individual Sustainable Development Goals outcomes, such as access to healthcare, education and gender equality.

The next government in the state will have to navigate this complex economic picture — of high per capita income and good social development indicators coupled with high dependence on remittance, severe unemployment, and unstable growth path in the wake of disaster and the pandemic.