The development trajectory of Kerala has long been a subject of discourse due to the incongruence between its social and economic progress. Historically, the state has been perceived as an unsuitable investment destination, particularly in the industrial sector, attributed to a hostile investment climate and the prevalence of active trade unionism supported by pro-labor policies. However, this perception seems to be changing as Kerala is now attracting investments in the industrial sector, indicating the potential for a new narrative of late industrialization.
An analysis of data published by the Annual Survey of Industries for the period 2009-2019 provides valuable insights into Kerala’s industrial growth. During this period, Kerala recorded a modest compound annual growth rate of 2.55% in the number of factories, in comparison to the all-India figure of 4.07% and Gujarat’s growth rate of 5.64%. While these numbers may not appear remarkable when compared to leading industrial states like Maharashtra and Tamil Nadu, which witnessed growth rates of 2.53% and 3.43% respectively, Kerala’s growth stands out within its own context.
However, Kerala’s performance in terms of fixed capital investments in these factories is truly noteworthy. The state registered a growth rate of 12.82% in fixed capital investments during the same period. This growth significantly surpasses the all-India growth rate of 7.33%, as well as the growth rates of Tamil Nadu (6.24%) and Karnataka (6.33%). Even when accounting for the base effect, with Kerala starting at lower levels of investment compared to other states, this surge in fixed capital indicates a clear departure from Kerala’s previous reputation as a hostile investment destination. Importantly, these investment flows have occurred despite changes in political regimes, demonstrating policy continuity and stability.
Several factors have contributed to Kerala’s shifting fortunes in the industrial sector. The implementation of suitable policies, supported by institutional frameworks, has played a vital role in attracting investments. The state government’s proactive approach in creating a conducive environment for industries, including streamlining bureaucratic procedures and offering incentives, has bolstered investor confidence. Additionally, Kerala’s focus on ramping up necessary infrastructure, such as transportation networks and power supply, has further enhanced its appeal as an investment destination.
Moreover, Kerala’s strengths in human capital and social development have also played a role in its emerging industrial growth. The state’s high literacy rate and skilled workforce provide a competitive advantage, particularly in knowledge-based industries and sectors requiring specialized skills. Furthermore, Kerala’s social development indicators, such as healthcare and quality of life, contribute to a favorable environment for industries that prioritize employee welfare and well-being.
While Kerala’s progress in industrial growth is encouraging, it is essential to recognize that sustained efforts are necessary to maintain this positive trajectory. The state should continue to prioritize policies that attract investment and support the growth of industries. Strengthening the ease of doing business further, addressing any existing bottlenecks, and fostering innovation and entrepreneurship will be crucial in sustaining Kerala’s industrial development.
Kerala’s transformation from a perceived hostile investment destination to an emerging industrial hub marks the beginning of a new narrative for the state. The analysis of industrial data reveals significant strides in the growth of factories and fixed investments, highlighting Kerala’s potential for late industrialization. The combination of right policies, institutional support, and improved infrastructure has contributed to this positive shift. By capitalizing on its strengths in human capital and social development, Kerala can continue to attract investments and pave the way for sustained industrial growth, ultimately achieving a more balanced social and economic development trajectory.