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Mainstream, VOL 61 No 49 December 2, 2023

Kerala’s Economic Conundrum: Decline of Industries and the Exodus of Youth | S N Tripathy

Saturday 2 December 2023, by S N Tripathy


Kerala, known for its picturesque landscapes often lauded for its high literacy rates and social indicators, grapples with a stark economic paradox. The plight of small businesses, especially in the tourism and transportation sectors, has left many on the brink of collapse. Moreover, the state’s heavy reliance on remittances from the Gulf countries faces a severe threat as economic downturns and localization initiatives pose challenges to the diaspora. Despite the claims of being a role model for the nation and economically advanced, the state is witnessing a shortage of industrial enterprises, leading to a surge in unemployment.

The present paper explores the critical issues surrounding the lack of investments, the graveyard of industries, and the subsequent rise in unemployment in Kerala with policy implications.

The Vanishing Industries:

Kerala stands out as the only state in India where entrepreneurs have resorted to extreme measures, including suicide, in the face of failed efforts to establish businesses. Despite the government’s claims of a conducive business environment, the harsh reality tells a different story. The lack of support, coupled with bureaucratic hurdles and economic challenges, has driven many entrepreneurs to the brink of despair.

While the government attempts to divert attention by showcasing a surge in startups, questions about these ventures’ actual job creation potential still need to be answered. The state’s failure to attract significant investors in the past two decades is only partially compensated by the hype surrounding startups. The discrepancy between the claims and the ground reality raises concerns about the sustainability and impact of these entrepreneurial endeavours.

Embarking from Kasaragod in the north to Thiruvananthapuram in the south reveals a haunting reality - a trail of ghost towns where closed industries and units awaiting closure dominate the landscape. The once vibrant industrial sector has become reminiscent of scenes from Western Spaghetti movies, dissuading entrepreneurs from venturing into what seems like a land laden with deadly mines.

Small businesses, the backbone of Kerala’s economy, are enduring significant losses, especially in tourism. The iconic, colourful buses that once traversed the state have been abandoned by owners, including prominent family-owned bus services that had thrived for decades. The financial toll on bus owners has been doubly harsh – while unable to operate, they continued to bear the burden of taxes, loans, and salaries. Even as restrictions ease, these businesses face additional challenges, including the need for substantial investments to bring their fleets back into service and the imposition of passenger limits.

Even the tourism industry in Kerala has been grappling with challenges since the devastating floods of 2018, and the effects linger, hindering recovery. The pandemic has only compounded the industry’s woes, leaving it precarious. The state’s heavy dependence on foreign income, primarily through remittances, further amplifies the economic strain.

Unemployment Crisis:

The Periodic Labor Force Survey (PLFS) report by the Union Ministry of Statistics 2022-2023 paints a grim picture of Kerala’s employment scenario. Despite the government’s portrayal of the state as a role model, it leads the table with the highest unemployment rates. The all-India unemployment rate for 2022-2023 stands at 6.7%, while Kerala surpasses it with a staggering 10% unemployment rate. The apparent economic advancement touted by the ruling CPI-M government starkly contrasts these alarming figures.

Paradoxically, while Kerala grapples with high unemployment rates, it has become a magnet for migrant workers, often referred to as "Guest Laborers." The Kerala State Planning Board estimates that in 2013, there were 25 lakh (2.5 million) such workers in the state. Though not officially recorded, the latest estimates suggest a significant increase to around 40 lakhs (4 million). These workers, including illegal immigrants from Bangladesh, find employment in labour-intensive sectors such as plywood companies, construction sites, hotels, eateries, and hairdressing salons.

Brain drains from Kerala has emerged as a critical issue, reshaping the career aspirations of students and young professionals. The allure of opportunities abroad, particularly in countries like Germany, Britain, Canada, Australia, New Zealand, and the United States, has become a growing trend, posing challenges to the state’s economic and employment landscape.

One of the primary drivers behind this brain drain is the pursuit of superior educational facilities. As these countries boast world-class universities and research institutions, students from Kerala are drawn to the prospect of acquiring an education that is not only globally recognized but also provides exposure to cutting-edge research and innovation. The perceived quality of education abroad often surpasses what is available within the state, prompting students to seek opportunities beyond Kerala’s borders.

Furthermore, promising better employment prospects is pivotal in luring young professionals away. The job markets in countries like Germany and the United States are perceived as more dynamic and offer diverse career growth opportunities. The prospect of securing a position in a multinational corporation or contributing to groundbreaking research projects is a powerful motivator for Kerala’s youth to look beyond the limited opportunities within the state.

The allure of promising career trajectories abroad is another significant factor contributing to brain drain. Many perceive that the scope for professional advancement and the potential for a higher standard of living are more attainable in these foreign destinations. The concept of the ’American Dream’ or the promise of a better life in developed nations has become a driving force, encouraging young professionals to venture outside Kerala to pursue their aspirations.

The consequences of this brain drain are profound and contribute significantly to the worsening of the unemployment crisis within the state. As the best and brightest minds leave Kerala, the local job market is deprived of its skilled workforce. This hampers local industries’ growth and innovation potential and intensifies the struggle for employment opportunities among those who remain.

Moreover, the trend of those who leave seldom returning compounds Kerala’s challenges. The expansive opportunities available abroad, coupled with the global exposure and experience gained, often discourage individuals from returning to their home state. The prospect of a more fulfilling and lucrative career, associated with a better quality of life, is a strong deterrent against returning to Kerala, further depleting the pool of skilled professionals within the state.

Back home, the avenues for employment within the state are narrowing. The Public Service Commission, once seen as a gateway to government jobs, has become a symbol of nepotism and favouritism. Only those with influential connections seem to secure positions through this agency, further fueling frustration and disillusionment among job seekers.

Remittance Woes and Global Economic Downturn:

Among Indian states, Kerala is a frontrunner in international remittance receipts (Parida & Raman, 2018). Over the past five decades, the substantial inflow of remittances has been pivotal in transforming the state’s socioeconomic landscape.

The immediate and tangible outcome of remittance receipts in Kerala has been the remarkable reduction in poverty levels, primarily attributed to the substantial increase in per capita income (Chakraborty, 2005; Kannan, 2005). The infusion of financial resources into households has uplifted living standards, providing families with the means to meet their basic needs and beyond. However, the enduring impacts of remittances extend beyond immediate economic gains.

A significant long-term impact of remittances in Kerala is evident in the marked improvements in education and health outcomes (Chakraborty, 2005; Kannan, 2005). The sustained inflow of remittances has facilitated higher levels of human capital formation at the household level, leading to enhanced educational attainment and improved healthcare access. Families, buoyed by financial support from abroad, have been able to invest in the education and health of their members, resulting in a more educated and healthier population.

Furthermore, the transformative effects of international remittances have been instrumental in reshaping the patterns of emigration from Kerala. In recent years, there has been a discernible shift from low-skilled emigration to a more skilled workforce, reflecting the changing dynamics of the global labour market (Parida & Raman, 2019). Moreover, emigration patterns have expanded beyond the Gulf region to encompass the Global North and Oceania regions, signifying a diversification in destination countries.

Thus, Kerala’s deep-rooted historical links with the Gulf have cultivated a robust diaspora, with approximately 2.5 million Keralites in the Gulf Cooperation Council (GCC) states Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and forming a vital political and economic connection-remittances from the diaspora account for nearly a fifth of the total remittances to India. However, the state’s unhealthy addiction to remittances has hindered the development of alternative opportunities for its labour force, leaving it vulnerable to the economic shifts in the Gulf. The state encountered the daunting task of reintegrating this skilled diaspora, a challenge exacerbated by losing remittances.

The World Bank (2021) depicts that "Kerala, an estimated 1.2 million migrant workers, out of more than 4 million who worked in the GCC countries and contributed 30 per cent of the state’s income, returned in 2020 after the global pandemic left them jobless. Low-skilled workers were the hardest hit". Bank deposits by non-resident Keralites rose 14 per cent to Rs 2.27 lakh crore in the pandemic-hit 2020, proving wrong the prediction that the state was in for big trouble as over 12 lakhs of them had returned to the state last year. According to the World Bank data, the country received USD 83 billion in remittances in 2020, down just 0.2 per cent from USD 83.3 billion in 2019.

According to the state-level bankers’ committee (SLBC) data, NRI deposits stood at Rs 2,27,430 crore as of December-end 2020, a total 14 per cent growth from Rs 1,99,781 crore in 2019 (The Economic Times, Jun 28, 2021.
However, it was estimated that over 12 lakh non-resident Keralites have returned to the state in the last year due to the pandemic, most of them after losing their overseas jobs.

The World Bank study (2021) on COVID-19 and migrants from Kerala revealed that "around 49 per cent of households stated that the amount received had declined after January 2020. On average, overseas remittances fell by $267 monthly among households that reported receiving remittances."

Challenges in Rebuilding Kerala’s Economy:

The recalibration of Kerala’s remittance-dependent economy will be prolonged and complex. While the returnees bring valuable skills and experience, the state’s socialist policies and powerful unions, coupled with a less-than-friendly business environment, pose challenges to efficient economic revitalization. Kerala currently ranks 21st among 29 states in India regarding ease of doing business.

The state’s competitive advantage in the global labour market, exporting skilled workers, faces uncertainty as demand shrinks in the Gulf. Hence, this paper argues that government efforts should ensure the next generation possesses the skills to compete globally and succeed wherever opportunities arise rather than solely concentrating on the returning diaspora.

Mitigating the issue of brain drain requires a multifaceted approach. The state must enhance the quality of education and research facilities to retain its talent pool. Moreover, creating an environment that fosters innovation, entrepreneurship, and job creation is essential to provide attractive opportunities for young professionals. Initiatives to bridge the gap between industry and academia and support local startups can help create a more vibrant and sustainable job market within Kerala.


Kerala finds itself at a crossroads, grappling with economic challenges ranging from the struggles of small businesses to the impending return of the diaspora and the uncertainty surrounding remittances. The state’s dependence on remittances, combined with the global economic downturn and localization initiatives in the Gulf, necessitates a strategic and comprehensive approach to rebuilding the economy. The return of the diaspora, while bringing valuable skills, poses significant reintegration challenges that require careful consideration and planning.

Kerala’s economic landscape, marked by the graveyard of industries, rising unemployment rates, and a growing trend of outward migration, demands urgent attention. The brain drain trend from Kerala reflects the changing dynamics of career aspirations among the youth. The lure of superior education, better employment prospects, and promising career trajectories abroad pose a significant challenge to the state’s efforts to address unemployment and foster economic growth. Concerted efforts are needed to reverse the trend and to create an environment that retains local talent and attracts skilled professionals back to Kerala.

Kerala’s journey towards economic recovery will likely be prolonged, requiring a concerted effort to diversify its economy and create sustainable opportunities for its labour force. The state’s policymakers must reevaluate their strategies to attract investments, foster entrepreneurship, and create a conducive environment for sustainable industrial growth. Otherwise, the paradox of Kerala as an educational and social beacon but an economic laggard will persist, casting a shadow on the aspirations of its talented youth and the overall well-being of its populace.

(Author: Prof S N Tripahy is a Former Professor of Economics, Gokhale Institute of Politics and Economics. Pune)


  • Chakraborty, P. (2005). Emigration and poverty in Kerala. In G. Hugo (Ed.), Population mobility and development: Migration and urbanization in comparative perspective (pp. 137-159). International Organization for Migration.
  • Kannan, K. P. (2005). Impact of remittances on poverty in Kerala: Macro and micro-level analysis. In S. Irudaya Rajan & M. S. S. Pandian (Eds.), New dimensions of migration in South Asia (pp. 199-220). Sage Publications.
  • Parida, J. K., & Raman, R. (2018). International migration and remittances: An overview of Kerala experience. Asian Population Studies, 14(2), 188-205.
  • Parida, J. K., & Raman, R. (2019). Changing contours of international migration from Kerala, India. Journal of Ethnic and Migration Studies, 45 (6), 961-979.
  • World Bank. (2021). Resilience COVID-19 crisis through a migration lens. Migration, and development brief 34.
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