Introduction

In economic theory, industrialisation is considered to be the key engine of economic prosperity. No country in the world's economic history seems to have achieved high economic development without rapid industrialisation. However, Kerala's development paradox with remarkable success in high social development indicators comparable with some of the advanced countries without concomitant performance in the productive sectors especially the manufacturing sector has attracted considerable scholarly attention (Isaac and Tharakan, 1986; Subramanian and Pillai, 1986; Subramanian, 1990; Thomas, 2005). Demystifying the conventional regional specific factors like characteristic of labour, nature of trade-unionism, high wage-cost economy and quality of entrepreneurship, Subramanian and Pillai (1986) and Subramanian (1990) argued that lack of modernisation and industrial diversification contributed to industrial backwardness in the state. The growth of the manufacturing sector in Kerala lagged behind the national level when the economy started accelerating in the 1980s (Subramanian and Azeez, 2000).  An analysis of Kerala's economic performance in an open economy perspective by Joseph and Harilal (2003) analyzed the bearing of resource movement effect and spending effect associated with large-scale migration and highlighted their bearing on the deceleration in the performance of Kerala. Their findings highlighted the revival of the economy since the late 1980s and made the case for, along with earlier studies, restructuring with a focus on high-value-added products. They argued that Kerala, being a high-wage economy, cannot survive on low-value-adding traditional industries. Kerala witnessed  high levels of economic growth, especially in the last fifteen years before the floods in 2018-19.  Against this background, this paper undertakes an analysis of the performance of Kerala's manufacturing sector with a focus on the recent trends as evidenced by the Kerala Economic Review 2021. Such enquiry assumes added importance in the current context wherein the policymakers are in search of reviving the COVID-19-ridden economy.

Two main data sources are used for the analysis. The national accounts data on gross value addition and state domestic product at current and constant prices are used for the aggregate analysis. The monthly Index of Industrial Production (IIP) data is used for analysing the COVID-19 impact on India's manufacturing. The IIP data on Kerala is obtained from the department of economics and statistics (DES), the government of Kerala.

Manufacturing sector in Kerala: A long-term perspective

The growth performance of the manufacturing sector at the national level has been subjected to intense scholarly scrutiny. The discussion was centred around the performance of manufacturing after the economic reforms. More recently the focus has been on invigorating manufacturing-led growth which got manifested in the Make in India program and Aatma Nirbhar Bharat. In Kerala also manufacturing sector has been high on the policy agenda. Hence, Kerala's growth trends vis-à-vis all India appear to be in order. Our approach is to compare the manufacturing growth in Kerala and all India with that of GDP at the national level and GSDP at the state-level. The manufacturing growth trends in Kerala and all India shows different trends. In Kerala, it increased from 4.3 per cent to 6.1 per cent during 1980-90 through 1991-00 while manufacturing growth at all India level has shown a minor decline from 6.23 per cent to 6.1 per cent. In the subsequent decade manufacturing growth at the national level increased to 8 per cent whereas Kerala witnessed a decline (5.19%). The trend reversed again in 2011-19 with manufacturing growing at a higher rate in Kerala than all India (Table 1). Further, it is evident that the manufacturing sector registered higher growth than total GDP growth in all India for three decades from 1980 to 2010. During 2011-19, the manufacturing growth at the national level has been the lowest in the last four decades. On the contrary, Kerala recorded poor performance from the 1980s through 2010, followed by a turnaround in the growth of manufacturing in the last decade (2011-19). It is interesting to note that Kerala's manufacturing sector performed better while the national trend shows a decline. (Table-1)

There is a growing literature indicating the prevalence of de-industrialisation in many of the developing countries after globalisation. In the literature, de-industrialisation is defined as the process involving a decline in the share of manufacturing output in the GDP or a decrease in the share of manufacturing employment (Tregenna, 2009). In this context, India's performance and that of Kerala with respect to the share of manufacturing total value-added deserve attention.

The share of manufacturing in Kerala’s GSDP is compared with the national trend from the 1980s onwards when the growth momentum actually began in India. The data is averaged for ten years for smoothening the fluctuations. The share of manufacturing in total GSDP in Kerala was found to be considerably lower than all India average during the last four decades and the gap is increasing especially since 2000. Manufacturing share at all India level (18.3%) has been 1.3 times higher than Kerala (14%) during the 1980s which marginally declined to 1.2 times during the 1990s and increased thereafter (Figure 1). From, 2011 to 2019, the manufacturing share at all India level is 1.6 times higher than in Kerala. The trend suggests that both in Kerala and all India the share of manufacturing has been showing a declining trend right from the 1980s, albeit with more intensity in Kerala from the 1990s. The decline in the share of manufacturing was 3 per cent during 1990s to 2000-2010 while there was hardly any major decline at the national level. In the next decade (2011 to 2019), the rate of decline is higher for all of India as compared to Kerala. It appears that both Kerala and India are tending towards the deindustrialisation process with Kerala witnessing de-industrialisation at a faster rate. However, as will be evident from the discussion in the forthcoming section, in the recent past, there is some evidence of a marginal increase in the manufacturing share in GSDP in Kerala. (figure-1)

Figure 1: Share of Manufacturing in total GSDP in Kerala (%)

Reference