#37 Kerala vs Gujarat Models: History Matters

There are no real current claimants to these models. These states need to go beyond their legacy gains.

May 27, 2020

This newsletter is really a public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?

Welcome to the mid-week edition in which we write essays on a public policy theme. The usual public policy review comes out on weekends.

— Raghu Sanjaylal Jaitley & Pranay Kotasthane

It doesn’t take a lot to happen in the political economy for analysts to start debating Kerala versus Gujarat models of development. The COVID-19 crisis has proven to be no exception. So far, Kerala has done well in containing the pandemic despite the relatively higher risks of returning expatriates. It has fewer than 1000 cases at this moment, its testing rates have been among the highest in the country and a low TPR (test positivity rate) of below 2 per cent suggests it has been able to trace and contain the spread in line with global benchmarks.

Gujarat, on the other hand, currently, has the third-highest number of cases and its ‘steady’ increase in the number of cases raises questions on the extent of testing done in the state. It also has the highest mortality rate (7.8 per cent) in the country. This has provided enough ammunition for the proponents of the Kerala model to declare victory and suggest to other states and to the centre to learn from it. Similarly, in the past, supporters of Gujarat model have missed no opportunity to highlight its superiority and for the rest of the country to follow suit.

In any Kerala versus Gujarat model debate, it is difficult to separate political biases from the conclusions drawn. The debate is a shorthand for which model of development should a state pursue? A market-friendly, growth-first approach that raises incomes and eventually leads to better societal outcomes. Or, a state-led focus on human development parameters which creates a strong foundation for sustainable economic growth. There’s a strong tendency on both sides to over-attribute any success of either model to the policies and actions of the recent governments in the states. There’s always more than a whiff of evidence being cherry-picked to support ideological positions.

We try to make sense of this debate without any intention of choosing a winner.

First things first, this is a false dichotomy. Kerala has, in some sectors, given a free-hand to the private sector whereas Gujarat, much like Kerala, has over 80 state-run companies.

Second, we believe there’s a huge path dependence that has led to the current model of the two states.

And third, We will do well to learn from the success and the failure of the two models instead of genuflecting at one because of our political biases.

Itihaas Gawaah Hai

Kerala and Gujarat have been the gateway into India for many centuries. Surat and Kochi were great, cosmopolitan port cities that attracted traders from all over the world. The open and liberal nature of people and the royalty in both states provided a safe harbour for various communities looking to set up a new base or fleeing persecution (Parsis, Jews, Dawoodi Bohras et al). Their paths diverged in the early 19th century.

The Model Native State of Travancore

The princely states of Travancore and Kochi and the British controlled Malabar comprised the region that’s current day Kerala in the early 19th century. The Hindu society here had the jenmi landed upper castes aristocracy that lorded over the remaining castes who worked in the fields. There was no significant Hindu mercantile caste (another path dependence story but for some other time). The Muslims, Christians and Jews filled in and controlled the commerce in these regions. The arrival of Christian missionaries in the early 19th century led to more conversions from among non-varna Hindus. More importantly, the missionaries set up schools that were open to all which further increased the allure of conversion for backward Hindus.

A somewhat alarmed but progressive Hindu royal family of Travancore issued a proclamation in 1817 to become the first state to provide free education to all its subjects. Similarly, the three regions were among the first to focus on public health and vaccination in India. The Queen of Travancore inoculated herself and her entire family in 1813 to demonstrate her commitment to the programme.

By 1846, the Travancore medical department was established and in 1879 vaccination was made compulsory (see link above) for all government servants, children and those dependent on the state. Kochi and Malabar followed suit with a lag. Travancore was keen to be seen as a model ‘native state’. It privatised landholding and introduced commercial crops in the state. Private property rights meant a greater incentive to improve farm productivity. The results were immediate. The state ran a budget surplus for a better part of the 19th century and it used it to invest in education and public health.**

In a way, the state implemented the so-called ‘Gujarat model’ and followed it up with social spending about 150 years ago.

Between 1871-72 till 1946-47, the state expenditure on education and healthcare increased by 71 and 26 times, respectively. By 1900-01, Travancore had over 1000 schools of which more than half were run by private management. It also had 35 hospital beds per 100,000 persons at that time.** To put this in perspective, in 2019, India has 55 hospital beds per 100,000 persons while Gujarat has 33. Travancore and Kochi were ahead of the rest of India by about half a century on human development indicators by the beginning of 20th century.

Social reforms and Lal Salaam

Two other factors strengthened this in the early 20th century. Since the British didn’t rule directly over Travancore and Kochi and the royal families were welfare-oriented, the freedom movement didn’t take off here. Instead, there were strong social reform movements that aimed for basic civil rights of the lower castes. Sri Narayan Guru and Ayyankali established organisations like SNDP and SJPS that encouraged education for all (specifically girls), political representation, liberation from caste tyranny and freedom to enter temples. This Kerala renaissance was different from the Bengal or Pune renaissance in that it was led by non-varna Hindu leaders and it truly involved a large section of the society.

This spirit of social reform and consciousness continued after independence and it had a direct consequence in the rise of communism in the state. The communists came to power in the first elections for Kerala legislative assembly in 1957 and in keeping with history, focused on education, health, and land reforms in their short tenure. That set the agenda and successive governments in future toed the line.

The suspicion of the state towards markets and industries and militant trade unionism meant the state saw limited industrialisation. It ranked outside of the top 10 on most economic indicators till the mid-90s. An educated workforce without employment prospects within the state led to the ‘Gulf’ migration boom of the 70s and 80s. Despite high HDI (human development index) parameters, the revealed preference of the citizens was to leave the state. The remittances from this boom now account for more than 14 per cent of the state GDP. These have single-handedly kept the state economically viable.

The 73rd and 74th amendments to the Constitution that gave recognition and devolved powers to nagar palikas and panchayats were enthusiastically adopted by Kerala. It is among the few states that has about 85 per cent of state expenditure delegated to the local bodies with almost complete control on healthcare and education investments in their areas. We had covered this in an earlier edition but its worth repeating once more.

In our study on public health expenditure in India, we had observed that Kerala was an outlier when it came to fiscal decentralisation in health. Specifically:

The State of Kerala is far more fiscally decentralised, having fostered bottom-up participatory planning within the State for several years now. Within the health sector, the Kerala government continues to spend via the usual budget heads like 2210 and 2211, including funds for Public Health Centres (PHCs) — especially doctors’ salaries, etc.
Kerala also does not provide much by way of specific purpose transfers to panchayats and Municipal Councils in health. PHCs are typically controlled by Gram Panchayats and CHCs by Block Panchayats. Instead, Kerala gives large amounts of general-purpose transfers to local bodies, some of which can be used for health and other expenditures:
Development fund (against a decentralised ‘plan’ which includes local schemes developed in the gram panchayat/block or district panchayat. If health is featured in the local plan, then additional resources can be devoted to health from the local body, including for purchase of equipment at a PHC, new building construction and more.
Maintenance funds (non-road): includes funds for maintenance and upkeep of PHCs at the Gram Panchayat level.
Some amount of the expenditures on Anganwadi and ASHA workers and honorariums for other nutrition-related activities are also borne by LSGs (Local Self Governments).
LSGs also receive devolved funding from NRHM for certain local activities.
Kerala also has an “Information Knowledge Mission” dedicated to running a system of accounts and payments for all local bodies in the State. This body maintains a database that can disaggregate local body expenditures in health, water & sanitation and other sectors. LSGs’ expenditure on health in Kerala is thus unique in adding significantly to the State budget on health and related expenditures.

What explains this anomaly, we don’t know. But the result is that this has contributed to creating a strong public health service model managed by the local health officials and doctors. Kerala was the first state to be impacted by the H1N1 virus in 2009 and it set up a state nodal centre for emergency response to outbreaks at that time. This nodal centre along with the district nodes were responsible for containing the H1N1 and Nipah outbreaks. When COVID-19 struck, Kerala, with robust grassroots healthcare capabilities, was more ready than any other state in India.

Mercantilism in blood

Gujarat, in contrast, followed a very different path. It also had multiple princely states but barring Baroda, they weren’t stable or progressive like the states of Travancore or Mysore. Gujarat also had a strong Hindu and Jain mercantile community that was well entrenched. Further, the trading communities from outside that settled down in Gujarat (Parsis, Bohras) weren’t evangelical in their faith. The limited Christian settlements in the state also meant a significantly smaller missionary footprint. Unsurprisingly, there wasn’t a boom in education or healthcare investment in Gujarat in 19th and early 20th century, unlike Kerala.

There was a continued focus on enterprise, trading and industrialisation with the hub of activities shifting to Mumbai as the Surat port turned shallow for large ships. For almost a century between 1850 to 1947, native capital and industries were concentrated in the hands of Parsi and Gujarati communities who emerged from various trading hubs of Gujarat. It hasn’t changed a lot since. The first half of the 20th century saw Gujarat becoming one of the fountainheads of freedom struggle in India. Three of the four most important figures of the Indian subcontinent in the 20th century (Gandhi, Patel and Jinnah) emerged from Gujarat. While this meant a strong sense of political awareness developed in the state, it didn’t lead to any significant social reforms. The Gandhian attempt at Sarvodaya to reform society withered away after his death.

Things didn’t change significantly post-independence. The middle-class route to prosperity remained through enterprise or commerce instead of education. The Gujaratis took to newer markets outside of India in East Africa and later to U.K. and U.S. But unlike Kerala migrants, they set up their own businesses and developed roots in these countries. This reflects in remittances that account for less than 1 per cent of the state’s GDP. That the NavnirmanAndolanwhich eventually led to the proclamation of emergency and the electoral rise of Hindutva both started from Gujarat shows it stays ahead on the political awareness curve. While Gujarat continues to lead on economic development parameters (among top 3 on almost all indicators across various reports) as it has for the better part of last two centuries, its public health infrastructure and education outcomes are poorer than most states (outside of top 10 on most parameters). This follows a long legacy of spending meagerly on social infrastructure. These are long-term investments whose benefits show up much later, often indirectly. This isn’t apparent in a state where the focus is on short-term returns on investment. This is evident in its response to Covid-19 over the last two months.

Convenient Falsehoods

In trying to carve out the developmental paths of these two states into a neat binary, many facts are overlooked.

For instance, India’s first new-age world-class airport was Kochi Airport. Cochin International Airport Limited, the owning company, is not a public sector unit. Instead, the Government of Kerala owns ~34% of the company while the rest is owned by individuals, banks, and companies outside the GoK. Not exactly communist, is it not?

While it is true that Kerala has the largest number of State PSUs in the country (~130), Gujarat ranks third on this list, with 86 companies, out of which 14 are in non-working limbo state. So Gujarat is not exactly an apostle of free markets either.

Now, Kerala has been praised, most recently, because of GoK’s offer to send a team of doctors and nurses to Maharashtra. Nurses from Kerala are a common sight across hospitals in India. However, what’s not understood is that of the 17,600 nursing college seats in Kerala (2016 figure), more than 90% were in private colleges (Source: WHO). Again, not what you would expect from a communist label.

Finally, it’s incorrect to label Kerala as a communist state. It is a part of the Indian Republic, which means it cannot be a communist state. Instead, it would be accurate to say that a few favourite policies that rank high on the agenda of communist regimes have had their way in Kerala.

Nobody’s credit

The Gujarat and Kerala models, as we like to see them, have been in existence for over two centuries. The current outcomes of these models owe more to the history and evolution of multiple social and political trends in these societies than specific policy decisions over the last few decades. The Covid-19 crisis is a challenge to both models. Gujarat will have to make up for its poor public health capabilities by seeking outside help and diverting state capacity from other areas to manage this. It will be an uphill battle. Kerala will have to weigh the impact of a significant drop in remittances as people return home and the economies of ‘Gulf’ struggle because of low crude oil prices. It might be in for significant contraction of its GDP. All models are inaccurate; some are useful and the utility of understanding them is in drawing lessons from one another.

A good state ‘model’ should consolidate the legacy policy gains it’s endowed with while breaking away to address policy areas that have been its Achilles’ heel. Any state that successfully makes this marked departure should be considered a good ‘model’. The rest is mere narrative building.

**(pg 10, Human Development Report:Kerala by CDS)

HomeWork/References

Reading and listening recommendations on public policy matters

Chakraborty, Achin. (2005). Kerala's Changing Development Narratives. Economic and Political Weekly. 40. 541-547. 10.2307/4416171
Lahariya C. A brief history of vaccines & vaccination in India. Indian J Med Res. 2014;139(4):491‐511
The Kerala Human Development Report 2005
[Article] Apurva Mandhani in The Print on how the Gujarat HC has taken the state, the centre and private hospitals to task