Kerala growth inequality remittances

June 3, 2015

The discussions and debates on the so-called “ Kerala Model of Development,” which in a nut shell stressed that the state could achieve high levels of physical quality of life and distributive justice with radical legislations (e.g. Land Reforms), progressive social sector policies (e.g. larger and growing government expenditure on education, health etc.) and public action, despite its slow economic growth during the pre-reform era, illustrate the point. However, some concerns on sustaining the progress achieved in health, education and other social welfare fronts were raised, as the success in achieving economic growth
was limited. And, the successive coalition governments, which alternated between the Right wing and Left wing political parties voted to power through democratic elections more or less every five years, gave differential emphasis on growth vis-à-vis distribution in economic policies and practices.

Kerala was born as a state on linguistic basis in November 1956. The first democratically elected government, which interestingly was under the control of the Marxist party, came to power in April 1957. The state was then a typical underdeveloped region with low per capita income, consumption, savings and investment– all much below all-India averages. Today, conditions are different with high rate of economic growth and level of per capita income measured in terms of per capita Net State Domestic Product (PCNSDP) higher than the national average.

(We have chosen the first option in the present study and) traced trends in monthly per capita consumer expenditure (used as a proxy for income) by estimating the value of Gini Coefficient in 1983, 1987-88, 1993-94, 1999-2000 and 2004-05. A caveat must be added here. The estimates of per capita income for each Indian states are made by dividing the state’s NSDP by its population. There is an inherent problem of under-reporting of NSDP because of the exclusion of migrants’ remittances.

The problem is complex in the case of Kerala, where migrants’ remittances as a phenomenon has been assuming importance since the eighties. According some scholars the inward remittance has been equivalent to around 25 per cent of NSDP in 1999 (e.g. Zacharia and Rajan, 2004) though it declined to 23 percent in 2003. The point for emphasis is that the actual per capita income in Kerala must have been larger than the official data on per capita NSDP. Interestingly, Kerala today ranks at the top among Indian states in per capita consumption expenditure though its rank in terms of per capita NSDP is relatively lower! Obviously, distribution pattern in monthly per capita consumption expenditure cannot be strictly taken as a proxy for per capita income distribution in the case of Kerala due to its unique distinction over most other states in relation to migrants’ remittances.

**LOOK AT GRAPH IN SOURCE, page 17**Table 4. Trends in Consumption Inequality (Gini coefficient) in
Kerala and India
38th 43rd 50th 55th 61st
round round round round round
1983 1987-88 1993-94 1999 2004-05
Kerala Urban area 0.390 0.381 0.343 0.374 0.410
Kerala Rural area 0.320 0.312 0.301 0.329 0.382
Kerala (U+R)
combined 0.352 0.343 0.319 0.348 0.392
India Urban area 0.341 0.332 0.343 0.374 0.375
India Rural area 0.308 0.300 0.286 0.311 0.305
combined 0.321 0.313 0.311 0.339 0.336
Source: Estimated from NSS (thick sample) of household consumer
expenditure surveys
It is instructive to note that the value of Gini coefficient has declined marginally in rural as well as urban areas and thus the overall pattern of inequality improved between 1983 and 1987-88, a period of growth recovery in PCNSDP, in Kerala. The trend of falling value in Gini ratio is seen to have continued till 1993-94, the year, which signals the impact of the paradigm shift in India’s growth strategy and in the case of Kerala the sharp upward movement in the growth rate of the macro economy along the high growth trajectory. The all-India pattern is also found to be similar to that of Kerala except that there is an increase in the urban Gini value at the national level. The overall pattern of inequality in Kerala has followed the all-India pattern marked by a fall in the Gini ratio during the period of initial growth momentum (rather recovery) of the postreform period. If one were to venture drawing an inference, the fact that level of inequality is seen reduced during the periods of growth recovery and the initial shift to a high growth trajectory in Kerala, implies that a moderate growth rate of an economy can be achieved with moderated inequality even under the regime of market-oriented reforms.



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