Data shows economic development and human capital are equally necessary.

 

Over the past couple of years, we have heard many narratives particularly from the Leftist media, about the social wonder Kerala is because of its investment in human capital. In the same vein, there is a tendency to downplay Gujarat’s economic growth narrative because of the different model deployed there. Even amid the COVID-19 crisis, articles emerged about the failure of the Gujarat model to take care of the population’s health needs. Such glorification of Kerala was immature where the pandemic is still spreading today. None of these articles have considered data to understand the success of the socio-economic models at play.

ECONOMIC DEVELOPMENT

Gujarat is a Top 5 economy in India, with a GSDP of Rs. 16.7 lakh crores in FY’20 as against Kerala’s GSDP of Rs. 8.7 lakh crores. Table 1 compares the same from FY’15 to demonstrate that Gujarat has grown at 12.6% YoY since FY’15 compared to 11.1% for Kerala.

Per-capita GSDP or income is estimated at Rs. 2,46,495 for Gujarat—slightly higher than Kerala’s at Rs. 2,42,698. Gujarat has a larger population—6 crores in 2011. Data from the Civil Registration System (CRS) of births and deaths indicates the current population is an estimated 6.8 crores. Kerala’s population was 3.34 crores in 2011; CRS data suggests it is an estimated 3.58 crores in 2020. Gujarat’s population is growing much faster than Kerala’s—an estimated 12% vs 7.4% in the past decade. (See Table 1).

The GSVA composition (Table 2) of Gujarat and Kerala are starkly different. Data from RBI from 2017-18 shows Kerala’s GSVA comprises of 5.1% from agriculture, 26.2% from industry and 68.7% from services. There is a large skew towards services, which is mainly based on the government, tourism and ancillary services sectors. The IT industry, which is a major source of the services sector growth in Karnataka where it contributes 25% to GSDP per the state’s Economic Survey, has not been developed to its potential in Kerala and does not contribute as much. Besides services, the state has not seen investment in agriculture or industry to the extent of other major states, which leaves Kerala overly dependent on the services sector. With the COVID-pandemic, tourism and other services sectors like hospitality, restaurants, and travel have been badly impeded, and their recovery looks to be a slow, long road ahead. (See Table 2).

Table 2: Composition of GSVA for Kerala and Gujarat in 2017-18. Computed from RBI data.

Kerala’s push towards universal literacy has resulted in the highest literacy rates in the country, at 97.9% for women and 98.7% for men. This is a remarkable achievement, but unfortunately has not translated adequately into higher education or the workforce. Kerala’s gross enrollment ratio in HE stands at 37 in 2018-19, certainly higher than the India-average of 26.3 but much lower than Tamil Nadu at 49. TN has managed to propagate high literacy into college which Kerala has not. Moreover, in Kerala, the difference between women’s GER at 43.2 and men at 30.8 is stark. This would be a great asset if women’s workforce participation was proportionately higher but PLFS data shows women’s unemployment rate is 23.2% against 6.2% for men. Kerala’s women seem to suffer more because they are better educated but lack adequate employment prospects. Kerala must find a way to translate literacy into human capital development and workforce participation. (See Table 3).

Table 3: Factors for human capital development for Kerala and Gujarat. Source: National Fertility and Health Survey-4, Sample Regn. Survey 2018, Employee Provident Fund, All India Statistics for Higher Education. *author estimates

Meanwhile, Gujarat has not focused adequately on human capital development. Men’s literacy is 89.6% and women’s is 72.9%. Higher education GER is only 20.4—lower than the all-India average of 26.3. Human capital development is going to be all the more important in the coming decades, and its crucial for the state to focus on it the way it has on employment. But Gujarat’s women’s unemployment rate is 4.1% compared to 5% for men. This is antithetical to its GER of 18.7 for women and 22 for men and is a strong employment model for other states to implement.

Data from the Employee Provident Fund (EPFO) also demonstrates the emphasis on formal job creation by the two states. Total number of EPFO jobs created in FY’20 by Kerala was 81,140, just over 10% of Gujarat at 7.2 lakhs. In the 18-28 age group alone, Gujarat created 5 lakh new jobs compared to 66,575 for Kerala. Calculating the coverage ratio of graduates in FY’19 to EPFO jobs created in the 18-28 age bracket in FY’20, Gujarat created more jobs than graduates at 137% whereas Kerala barely covered 29% of its graduating class. Kerala’s Leftist politics has clearly prevented large-scale job creation.

In higher education infrastructure, Kerala maintains an excellent pupil-teacher ratio of 18, compared to 26 for Gujarat. Kerala has 1,809 institutions and 23 universities whereas Gujarat has 2,634 institutions and 72 universities. Being a larger state, Gujarat must focus on both brownfield and greenfield expansion to improve its GER and human capital development. Kerala too has to focus on improving enrollment and providing follow-on jobs for graduates like its neighbor, Tamil Nadu, has.

The other issue Kerala has is its minorities seem to be faring worse in higher education compared to other large states. Against the state GER of 37, the GER of SCs is only 25.9, of STs is 23.1 and the estimated GER of Muslims is a mere 20.2. With one of the highest Muslim populations in the country—at 26.6% per the 2011 Census—this difference is quite stark.

In Gujarat, against a state GER of 20.4, SCs are at 26.9 and STs at 14.9. Estimated Muslim GER is only 5.2—a result of a lower Muslim population at 9.7% and extremely low enrollment. In 2018-19, only 36,052 Muslim students were enrolled in Gujarat’s entire higher education system. Human capital development is essential for Gujarat to maintain its economic growth and development beyond its industrial sector. It will continue to have a young population, as indicated by its higher population growth rate, crude birth rate (CBR) at 19.7 and fertility rate at 2.1 in 2018, per the Sample Registration Survey 2018. The state’s 18-23 year-old population stood at 72 lakhs in 2018-19—10.7% of the population—which is pretty substantial and must be mobilized with higher education and skilling. Life expectancy in Gujarat for SRS survey period 2013-17 was 72 years compared to 77.8 for Kerala, the highest in the country.

Kerala has an ageing population, with its fertility rate at 1.7 and CBR at 13.9. 18-23 year-old population stood at 29.6 lakhs in 2018-19, 8.3% of the population. Add to that the fact that a large segment of the state’s population has emigrated—either elsewhere in the country or abroad. One major factor in this emigration is the lack of quality employment and development prospects in the state. With inadequate focus on the economy, industry and services, Kerala has invariably created a large outflow of citizens who would have otherwise contributed to building a healthy economy. State Finance Minister Thomas Isaac himself declared in April that the state is ‘financially broke’, and this situation will only exacerbate in the wake of COVID-19 unless radical measures are taken to revive Kerala’s economy with a focus on economic development and human capital development beyond basic literacy.

CONCLUSION

The analysis clearly shows it is odious to compare two states in India without concrete data, as many Leftists in India are wont to do. Each state is very different, has its legacy, focus and ideology. Nevertheless, economic development must be the foremost goal of any state government to provide adequately for the citizens. Kerala does not seem to have a successful strategy for this. Even though it has touted its horn on the human development front, data shows it has not captured that value share either. Tamil Nadu has done a far better job.

Gujarat, on the other hand, has focused admirably on infrastructure and industry. The state has to now focus equally on developing human capital and services sectors to provide adequate high-skilled high-paying jobs to its larger and younger population.

In the wake of the COVID-19 economic fallout and the prospect of kickstarting state economies, each state government must make an honest appraisal of the economic entity their citizens have entrusted to them and not indulge in politics at the expense of citizens’ lives and livelihoods.

T.V. Mohandas Pai is Chairman, Aarin Capital Partners and Nisha Holla is Technology Fellow, C-CAMP.