The development paradox in Kerala is now getting more entrenched with growth performance being less than satisfactory and its distributional pattern reflecting limited mobility.

Something is missing to connect both to an upward spiral, says Dr Vinod Thomas, Director-General and Senior Vice-President, World Bank, Washington.

Giving his key address at the annual convention of the Trivandrum Management Association (Trima 2011), he recalled that the high human development and low economic development has always presented a development paradox in the State. While India has an imbalance between economic and social development with the latter lagging behind, Kerala has an imbalance in the opposite direction.

Highest HDI

With only half the level of per capita income of the richest state Goa, Kerala had the highest human development index among Indian states.

Skill mismatch in the labour market results in high unemployment among the educated in the State.

Further, the State's underdeveloped business environment has failed to attract investment and capitalise on India's IT boom.

The high ratio of taxation to state GDP has not alleviated chronic budget deficits and unsustainable levels of Government debt; this has affected the sustainability of social services. The sharp decline of public spending in education and healthcare has resulted in worrisome changes in their quality in recent years.

Education access per se is not an urgent need in Kerala, but learning outcomes require more attention in the State.

Labour market

Labour market policies and support for greater mobility are vital. Greater flexibility in labour markets may hurt certain segments, but is better for workers as a whole.

“We must do all to strengthen education, labour mobility and efficient support for domestic production,” Dr Thomas said.

Low capital inflows and high skilled labour outflows suggest an underdeveloped business environment and inadequate growth of alternatives.

Finding a niche in the domestic and international market, such as IT, is the way to capitalise on the State's competitive advantages.


The large inflow of remittances from emigrant Keralites has high potential.

Providing better incentives and developing the financial infrastructure to channel a greater proportion of remittances for productive investment will contribute to higher growth.

Micro-finance remains a huge option despite all the controversy surrounding its use in India and elsewhere. Needed is a State that is accountable to citizens, with checks and balances sufficient to minimise capture by particular groups.

The public financial management system needs upgrading, information for decision making needs to be timely.

Kerala has a relatively high degree of decentralisation and good lessons for all. But the question concerns the results in service provision, especially for the poor, which decides the inclusiveness of growth, Dr Thomas said.