Covid and The End of Kerala Model?

That Kerala has been often quoted as a "Model State" is a fact. Based on many metrics, many economists and social welfare analysts have often singled out Kerala for its high per capita, the higher literacy rate, their land reforms, higher life expectancy, lower infant mortality etc. In essence, its better social infrastructure has been its key selling point as a "Model State".

Wikipedia has a whole page dedicated to the "Kerala Model". There is also a segment which reproduces an opinion which says that it is the world's most sustainable model. I am not here to contest any of that. This post tries to look at the Post Covid world and how the so called "Kerala Model" may account for nothing in the absence of a strong local / domestic economy.

When you think of Kerala, you think of the famous tagline "God's Own Country", which it is truly. Filled with natural landscapes which are beautiful and magical, a trip to Kerala will have great takeaways in the form of wonderful memories. Personally, I would visit Kerala and Karnataka over any other Indian state. My maximum tourist visits have been only to Kerala and bordering towns in Tamil Nadu. 

The next thing that you'd be reminded of Kerala is the agricultural exports. Especially spices, coconuts, rubber etc. If I am right, Kerala's share int he national output on many agricultural products are pretty high. For a tiny state (ranking 23rd in terms of Area; and 13th in terms of Population), its economy appears to be pretty solid. 

What is equally interesting to note is that Kerala contributes to over 10% of overall foreign remittances to India. Approximating USD 12 Billion per annum, which based on today's exchange rate would be around INR 90000 Crores. One of the principal reasons for the same is that Kerala has the largest migrant population of all the Indian states. Almost 20 Lakh Keralites are (almost 6% of Population).  This is not a small number by any means. 

Let me give the perspective -

a. Kerala's Gross State Domestic Product is around INR 7,80,000 Crores. This means that almost 11.5% of its overall economy is dependant on Foreign Remittances.

b. Kerala is also India's largest Educational Loans originator, at around INR 60000 to INR 65000 Crores per annum, on an average. This is almost 65% of the overall Foreign Remittances to Kerala.

Now lets look at Covid (a.k.a. China-Virus or Wuhan-Virus) world - With the general economy in a turtle mode for over a year, Covid has made things worse. The Global Economy has come to a virtual standstill. From an outlook which ranged from 5 to 6% of overall GDP Growth for the country, economists are now quoting negative growth to 1%. 

And the Global tendancy to give preference to localites over foreign migrants owing to high rates of unemployment. we are going to see lot of migrants across the globe losing their jobs. The middle east, which was living almost entirely off oil boom, is looking at a bleaker future. Russia, US and Mexico's production has made things worse for them. With the supply glut and the oil prices hitting historic lows, their economy will be hit big time. Countries like Saudi has already resorted to increasing the migrant tax or charges. It is unviable for migrant to have his or her family in Middle East. And this is not restricted to middle east. As highlighted earlier, there is this trend of reverse Globalisation that this world is witnessing. 

What does all this mean to the Kerala Model? 

1. With such bleak economic opportunities, and lot of entities cutting the salary, and lot of individuals will be having less to spend. Among the first expenditure anyone would be cutting is "Recreation", which includes Tourism. More than any other sector, it is the tourism sector that would be hit massively. Tourism contributes to more than 10% of Kerala's economy, and was steadily growing.  With people spending less on tourism, we can expect serious dip in inflows into the State. That can render lot of people jobless. And this can be disastrous for a State with one fourth of its workforce in the tourism sector. 

2. With salary cuts pretty much the norm across the globe, and the migrants in Middle East already working on relatively less salary, any more cuts would mean that they'd be remitting less and less to Kerala. For a State that is heavily dependent on Foreign Remittances, this would be another major point of concern. (Personally, I have seen more instances of Keralites working outside their State and India, than others working in there.)

3. With job cuts in the middle east or unsustainable living abroad, and an expected increase in reverse migration, I expect the unemployment in the State to only grow up. People returning aren't always in a position to set up new businesses with instances of them complaining about the inadequate support for setting up businesses. Previously tourism was the main business, and with that also looking bleak, we would be witnessing some massive idle resources in the State. Unless there are some drastic policy measures put in place with robust execution, the States inability to absorb and employ them productively. 

4. What about the massive loans taken for education? With the above pointers, we are probably looking at a rather bleak outlook for the repayment of these loans in the medium term. Any decisive recovery of these loans will will only add to further difficulty in the State.

In addition to the new world or post-Covid world, there are other Kerala specific problems which we have been seeing for years. Kerala is among the highest of politically aware State. You'd probably find more active political parties in Kerala than any other State. Many of these parties have thrived on protests against the so called "Bourgeoisie".  Many of the successful Kerala based on Entrepreneurs don't have any serious business in Kerala. They all tend to operate outside of Kerala. The frequent protests masquerading as political activism has resulted in very little robust domestic industry which can accommodate more employment. Then there are tales of "Nooku-Kooli", which is a rather bad big black mark on the State's work environment.

The State is yet to recover fully from the havoc caused by floods last years. Its finances aren't really great, as admitted by the Government itself. Barely a week back, Thomas Isaac, the State's Finance Minister, admitted that Kerala is financially broke. And the post-Covid world will not be kind to that State. And it is then that the other famed stories about Kerala will be tested.

We are in for some interesting times. And Kerala... for some troubled times, with almost 20%+ of its GDP looking rather weak, and 25% of working population risking a job loss.

When economics sings a sad tune, each and every metric on the social infra business, will start weeping. This is not to say that other States are in a good place. But, hey, Kerala is the "Model State".