Economic Growth Challenges in Kerala

Abstract

In 2010, Kerala’s per capita GSDP (in 2005 PPP dollars) was about $4,763. By the World Bank’s standard classification of countries by income group, Kerala is in the lower middle income category. If, during the next 30 years, Kerala’s GSDP can grow at the rate at which it has been growing over the past 20 years, by 2040 it will catch up with the per capita income of today’s developed countries. However, sustaining such a growth rate over three decades is not easy. Evidence suggests that most countries that move into the middle income category after several years of high growth get stuck in this category and find it difficult to catch up with the high income countries. In 2010, 30 out of the 38 lower middle income countries had been in this income group for over 28 years. They were unable to attain an average annual per capita income growth rate of 4.7 per cent to reach even the upper middle income threshold. Upon reaching a certain level of per capita income, their growth slowed down. Kerala will also find it difficult to sustain the pace and pattern of growth of the past 25 years, because the consumption drivers of the economy are vulnerable to internal and external dynamics.