Remittances, consumption and economic growth in Kerala: 1980-2000

Abstract

Kerala’s lopsided development, human development before economic development, has been characterized by steady economic growth since 80s with acceleration in the 90s. The leading sources of growth are the services (tertiary sector) instead of the conventional commodity producing sectors (primary and secondary). Further analysis shows that these services are non-tradable in general and in particular, transport, trade, hotels and restaurants, telecommunication and other services. The surge in growth has emanated mainly from the increase in consumer demand in favour of durable goods. The inability of the manufacturing sector to meet the growing demand chiefly from migrant households for consumer durables has resulted in the increase in regional trade and transport. In the case of telecommunication, the demand came mostly from the large number of ‘spouses away households’ and from ‘elderly living alone households’ in the state for keeping in touch with their near and dear ones living within and outside the state. The combined effects of forward and backward linkages of the growth in tourism, trade and transport have resulted in the growth of hotels and restaurants. The durable goods accumulated by the households in the 80s have generated the growth of services in the informal sector for the repair, maintenance and servicing of these goods in the 90s. In addition, the mushrooming of private institutions in health and education has also contributed much to the growth of other services during the period. Commercial banks have not played any significant role in the intermediation of the huge surplus generated by foreign remittances for the growth observed in the 80s and 90s since the credit-deposit ratio continues to show its declining trend during the period. In the absence of proper accounting of the savings generated in the economy, it is argued that source of finance for the growth of the service sector has come from either the informal credit market or own-funds or both. This consumption-led growth cannot be sustained unless the state actively involves in locating the hidden markets for skilled labour globally and provide world-class training facilities for such jobs for their migration. This would mean that the growth strategy should concentrate on export of services based on skilled manpower and the export of skilled manpower itself instead of labour intensive and land-intensive traditional commodities. Another strategy for the sustainable growth is to increase the share of the fast growing domestic tourism by innovating institutions for cost effectiveness to attract such tourists. Finally state should create forward linkages of the huge consumer durables acquired by the households with the rapidly growing informal sector for repair, maintenance and servicing of durable goods. This involves, among other things, reverse engineering for developing the production technology of spare parts and organising it at the household level instead of factory level for price competitiveness.