An Overview of Kerala Model of Development

Synopsis:  Kerala’s model of Development prioritizes spending on Social infrastructure. It provides greater Economic security even during the time of adversities.

Background

• ‘Kerala model’ of governance highlights that Human development welfare measures are effective even with low Economic growth.
• It has also highlighted the importance of the role of the People’s movement. It pressurizes the government to adopt redistributive measures.

Kerala’s growth story

• Many economists predicted the failure of the Kerala model of governance during the economic stagnation in the 1970s and 1980s. The reason was that a slow-growing economy will not have enough fiscal capacity to fund its welfare programs.
• But after the 1980s, the growth in Agricultural income and remittance increased. It provided a long period for economic growth. During this growth period,
  • the workforce engaged in the secondary sector increased from 20% (1988) to 32% (2018-19).
  • The per capita income that was 10% lower than national average during 1990, raised to more than 65% of national average by (2019-20)
  • Health and education indicators improved, social security schemes were expanded.
• One issue was the quality of infrastructure of public schools and public hospitals. The inadequate facilities forced many people towards the private sector.

Innovativeness to raise Funding

1. Kerala’s welfare policies were hampered due to a lack of adequate financial resources due to harsh limits on state borrowings. The passage of GST disallowed states to tax commodities based on their priorities. It affected their avenues for resource mobilization.
2. In this context, KIFB was set up to raise funding from the financial market. The idea was that greater public spending will increase tax revenues by stimulating growth.
3. The government assured repayment of loans by legally committing to pay a portion of its revenue from motor vehicle tax and petroleum Cess.

Public Spending on Social infrastructure

• In the last 5 years, Kerala invested a large amount in building up infrastructure for public schools and hospitals. For example, greater than 45000 classrooms were made ‘Hi-tech’ classrooms.
• The investments were sourced through ‘Kerala Infrastructure Investment Fund Board’ (KIFB).
• The result was, the number of students in public schools increased. The effectiveness of Kerala public hospitals were witnessed during the Pandemic.
• Apart from public schools, KIFB funding was used to build economic infrastructure such as industrial parks, bridges, Kerala fibre-optic network (K-FON), TRANSGRID 2.0.

Implications of Investing in Social Infrastructure

• There are concerns over Kerala’s unsustainable levels of Debt. For example, the debt to gross state domestic product is 36%
• Further, Kerala is very much vulnerable to shocks of the economy such as natural disaster (floods in 2018,2019 & the pandemic), job losses in west Asian countries, the contradictory fiscal policy of the centre. All these can adversely impact its economic growth.
• However, public spending in social and economic infrastructure will create a more skilled, educated, healthier workforce along with quality infrastructure. This will ensure that even at times of adversities Kerala will be in a better position to absorb the shocks of the Economy.

Source: The Hindu