It is becoming increasingly clear that the Kerala economy can no longer rely on the economic model attributed to it. For years, Kerala has been buying almost all consumer goods from other states, funded by the earnings from exporting its human resources. But the state will now have to create a new development model based on productivity in agriculture and industry.
Entrepreneurship is the sum of personality traits that enable an individual to identify and capitalise opportunities for wealth creation. These traits include independence, perseverance, risk-taking, creativity, and more. Although most people possess these traits to varying degrees, they flourish only in a supportive social environment.
READ I Household illiteracy extracting a heavy human cost
Kerala economy and entrepreneurship
Historically, Kerala society has not been a conducive one for entrepreneurship. The state lacked a Vysya caste within its social hierarchy, which traditionally played a key role in trade and business. Kerala’s princely states invited Gujaratis to develop its trade sector. The values and attitudes instilled by the matrilineal and joint family systems were generally unfavourable to fostering an entrepreneurial culture. It is worth noting that the Christian and Muslim communities, relatively free from these cultural constraints, later emerged as entrepreneurial leaders.
Despite these challenges, Kerala was more industrialised at the time of independence than it is today. Travancore, Cochin, and Malabar had several well-established industries. Had these industries continued to grow, Kerala’s deficiency in entrepreneurial resources might have been mitigated. Unfortunately, the trade union militancy of the 1960–1980 period was a significant setback. Many industrial units either closed down or relocated to neighbouring states, and the social image of entrepreneurs as exploiters of workers became ingrained in the Malayalee psyche.
Kerala Model a product of migration
Remittances from migrant workers have always played a significant role in Kerala’s economy. In the 1950s and 60s, Keralites migrated to Ceylon (present-day Sri Lanka), Burma, Singapore, Malaya, and industrial cities like Madras, Bombay, Calcutta, and Delhi. However, much of the so-called ‘Kerala model of development’ can be attributed to the Gulf migration that began in the mid-1970s. Ironically, while Keralites rejected the exploitation of surplus value at home, they accepted it in the Arabian deserts. The consumption boom fuelled by remittances was hailed as a model, masking the inconvenient truth that very little wealth creation was actually occurring within the state.
Remittances boosted consumer spending in Kerala, which has ranked first in per capita consumer expenditure since 1999-2000. Consequently, trade, hotels, and restaurants — key components of the tertiary sector — became the backbone of Kerala’s economy.
The dependency culture
In economics, the adverse impact of large remittance inflows on a local economy is referred to as the Dutch disease. In Kerala’s case, remittances drove up wages and land prices, making local production uncompetitive compared with other states. Small-scale agricultural and industrial producers often found the petrodollar more rewarding than local enterprise. The low self-esteem associated with entrepreneurship in Kerala added to this problem.
With productive sectors languishing, migration offered only a partial solution to Kerala’s growing problem of educated unemployment. There has been mounting pressure on successive governments to create employment opportunities in the public sector. The desire for secure government jobs fostered a dependency culture, exacerbating fiscal problems as government revenues were insufficient to support the growing number of employees and pensioners.
Changing environment for entrepreneurship
The environment for entrepreneurship in Kerala has changed significantly over the last 15 years. The left-wing parties, particularly the Communist Party of India (Marxist), which once viewed entrepreneurship with suspicion, have adopted a more positive stance. The failure of the People’s Planning Campaign for decentralised planning, led by the Left Democratic Front government, to revitalise productive sectors was a major factor in this shift. This realisation influenced the LDF governments that came to power in 2016 and 2021, leading to efforts to improve Kerala’s ranking in ease of doing business.
The single-window clearance system has reduced procedural delays in obtaining various sanctions and permits, and Kerala has now leapfrogged to the top ranks in ease of doing business. The establishment of industrial parks, including those on college campuses, reflects a positive shift toward entrepreneurship.
Two other developments have accelerated this change. One is the influx of migrant workers from northern Indian states. Kerala’s youth, generally averse to manual labour, have left many sectors reliant on migrant labour. This has helped curb some of the state’s unhealthy labour practices. The other is the introduction of the Goods and Services Tax (GST). With uniform tax rates across the country, Kerala’s entrepreneurs are now competing on a more level playing field.
Information and communication technology (ICT) has also made entrepreneurship easier. Access to accurate and reliable information is key to calculated risk-taking, and today, almost all relevant data on machinery, raw materials, manufacturing processes, and marketing can be found online. Selling quality products or services at competitive prices is now feasible, with platforms like Facebook, Amazon, and WhatsApp offering a level playing field for entrepreneurs of all kinds.
Challenges to entrepreneurial culture
Despite these positive changes, there are still significant challenges to fostering an entrepreneurial culture in Kerala. First, the disdain for manual labour and the race for degrees to secure elusive government jobs remain prevalent. Without practical skills and a willingness to innovate, many young people migrate abroad in search of education that promises decent employment.
Another growing threat is the rise of religiosity across communities, particularly among Christians. Historically, Syrian Christians displayed remarkable entrepreneurial instincts as they migrated from lowlands and midlands to highlands, and later to the Gulf. Today, however, organised churches with vast wealth are leading a spiritual movement through a network of retreat centres. These movements often promote values contrary to wealth creation, leaving many followers with feelings of guilt and melancholy.
Kerala urgently needs policy interventions to sustain its entrepreneurial momentum. Entrepreneurs face various risks, many of which are beyond their control, such as changes in technology or shifts in consumer preferences. Society must provide safety nets to ensure a continuous flow of entrepreneurial talent. The government could introduce social security measures to cover these risks. For example, entrepreneurs who have provided permanent employment to at least 10 workers for 10 years could be granted a 5% reservation in government jobs. Additionally, the current pension system should be replaced with a need-based universal pension system.