After COVID-19: Potential Challenges for Kerala's Economy

As the crisis induced by the spread of the coronavirus enveloped the country, Kerala attracted international recognition for the handling of the infection by its government. This is well-deserved. Actively led by the Chief Minister, the government has responded with determination and creativity to the contagion that spread rapidly, leaving the state with a relatively high number of infected persons in relation to population. Although Kerala and Maharashtra had equally high numbers in the initial stage, the spread of infection was handled efficiently, and at the time of writing this, Kerala has the lowest recorded death rate from COVID-19. i.e., the number of deaths in relation to cases of infection.  A robust and effective public health system has so far managed to contain community spread. The public policy response comprising isolation of the infected, quarantining of those they had been in contact with, and early implementation of social distancing within the population appears to have worked to good effect.

     Successful containment of the spread of the disease will not, however, end for Kerala the problems arising from the consequences of the pandemic. While the latter is bound to have many after-effects, the most pressing will be the economic impact. Two of these may be identified. The first is a possible impact on migration patterns. At the initial stage, the largest number of infected persons had returned from the Gulf, as was also the first Malayali who succumbed to COVID-19. Clearly, the region they had travelled from was a hot-spot of the virus. This is likely to have some impact on the decision to migrate in the future. That the Malayali is risk-averse when it comes to contagious diseases was demonstrated by the public most sharply in Kozhikode during the outbreak of the Nipah virus in 2018, and in the self-regulating behaviour that can be observed today. Were migration to the Gulf to decrease sharply, it will initially have an impact on income and employment. (I here refrain from speculating on some possible beneficial effects of less migration, such as on wages and consequently on production.) That said, the decision whether to migrate or not may not be entirely the Malayali’s choice. Epidemics bring forth a tendency to keep out migrants, and expatriate labour may not be so welcome in the Gulf countries anymore, a tendency mirroring a wariness to migrate that is likely to emerge in Kerala. The Arabian Gulf region has already been affected by a decline in oil prices even before the emergence of the pandemic, leading most noticeably to a tightening of the government budget in Saudi Arabia. The boom in the Gulf is over, and the region can no longer be treated as a vent for Kerala’s surplus labour. If employment is to be provided for this cohort, it would largely have to be found within the state. This calls attention to the need for a creative public policy response.

       The second of the challenges looming before Kerala may be illustrated by reference to an incident that occurred at the early stage of the COVID-19 crisis. As soon as it became known that infections were spreading in Kerala, the neighbouring states closed their borders. Although assurances were given that carriers of essential supplies would be allowed passage, some disruptions have taken place. Prices of some essentials, it has been reported, had risen a week into the lockdown, signaling a weakening of the supply chain. Chief Minister Vijayan is reported to have approached his counterparts in the neighbouring states to secure free movement of essential commodities into Kerala (and of persons requiring medical attention from Kerala into Karnataka). It is not clear as yet what the outcome has been. I have not come across any other state having to seek central intervention to ensure its security, pointing to Kerala’s somewhat unique position in being short of essential items of consumption. Very early in the lockdown, the head of a prominent traders’ association had warned that a prolonged lockdown would seriously threaten the state supply position for rice, pulses, oil, vegetables, and sugar—in short, Kerala would be unable to meet its food demands domestically.

         This reliance on external sources of the supply of essentials reflects the development path taken by the state. While Kerala’s human development achievements are indeed noteworthy, and could serve as a model of sorts for much of the rest of the country, the heavy shortfall in its production of the items of everyday consumption takes away from its overall economic performance. It is not as if this could not have been seen as coming. Ongoing research by M. Parameswaran of the Centre for Development Studies shows that the production of the ten major crops of the state started declining in the seventies, revived for the next two decades and has been declining once again in the past decade. The timing of the beginning of the slowing suggests that the emigration to the Gulf following the boom there in the early seventies is a likely source of the agricultural decline in Kerala. This is fully captured in the model of the ‘Dutch disease’ familiar to economists.[1]

        The early seventies was also the period of implementation of land reforms in the state. That production declined around then may appear surprising. However, it is no longer so when all aspects of the implementation are considered. While the land reforms had the effect of destroying an inefficient and oppressive feudal order, it ended up leaving land in smaller parcels and, at times, in the hands of former intermediaries—a class that did not till the land. As labour exited the state as a result of the migration to the Gulf, product wage in agriculture rose to such an extent that agriculture, especially paddy cultivation, was no longer profitable. Paradoxically, Kerala imports produce while agricultural land remains severely underused. Now, a crucial supply chain of its economy has become vulnerable to disruption. It is reported that post COVID-19 American firms have begun to consider ‘re-shoring’, referring to the practice of re-locating services back to a country so that it is in control of the entire supply chain. There is a lesson in this for Kerala. In a revealing interview to a national television channel in April 2020 the state’s Finance Minister expressed disappointment that the Government of India was not sufficiently attentive to the fact that Kerala faced a “chronic food deficit” amounting to 50 percent of its consumption needs. The obvious solution to this predicament is to step up domestic production of food. Interestingly, Kerala’s political class appears to be more willing to accept this conclusion than the professional social scientists[2].

      Somewhat contradictorily, while aiming to improve lives, Kerala has shied away from creating a dynamic economy, one that generates employment and produces goods that are competitive on the national market. Instead, it based its development on the export of labour. This has worked to the extent of enhancing income flows in the form of remittances but it has also had the effect of crowding out production, leading to further exit of labour from the state as the demand for labour declined. In a strange irony, Kerala has tried to build socialism by relying heavily on global capitalism! With globalisation set to slow after the present pandemic, this mode of development cannot be depended upon.

       Hopefully, a new generation of social scientists studying Kerala’s economy and society will devote attention to the challenges we will surely face in the near future.

[1] In economics, the Dutch disease refers to a condition whereby a boom in one sector causes decline elsewhere in the economy.  The variation for Kerala is that this boom took place offshore, in the Arabian Gulf. A use of this model to explain agricultural decline in the state is found in my "Land reforms and the question of food in Kerala", 'Economic and Political Weekly', May 1999.

[2] See “CM for steps to ward off food insecurity”, ‘The Hindu’, April 22, 2020.