Service industry dominates the Kerala economy. Kerala leads many other Indian states and territories in terms of per capita GDP and economic productivity and Kerala's Human Development Index is the best in India. Kerala's low GDP and productivity figures juxtaposed with higher development figures than in most Indian states - is often dubbed the "Kerala Phenomenon" or the "Kerala Model" of development by economists, political scientists, and sociologists. This phenomenon arises mainly from Kerala's land reforms, social upliftment of entire communities and reforms introduced by communist party which had held the state for a long period of time. Some describe Kerala's economy as a "democratic socialist welfare state". Some, such as Financial Express, use the term "Money Order Economy".Kerala's economic progress is above the national average. But relatively few major corporations and manufacturing plants are headquartered in Kerala.
Around 30 lakh Keralites are working abroad mainly in Persian Gulf; migration to where started with the Kerala Gulf boom. So the Kerala Economy is largely dependent on remittances. Unemployment recently dropped from high rate. One concern is that Kerala government is running some of the highest deficits in India.
Kerala produces 97% of national output of pepper and accounts for 85% out of the area under natural rubber in the country. Coconut, tea, coffee, cashew, and spices - including cardamom, vanilla, cinnamon, and nutmeg - comprise a critical agricultural sector. A key agricultural staple is rice, with some six hundred varieties grown in Kerala's extensive paddy fields. Nevertheless, home gardens comprise a significant portion of the agricultural sector. Related animal husbandry is also important, and is touted by proponents as a means of alleviating rural poverty and unemployment among women, the marginalized, and the landless.
The state government holds a monopoly over liquor sale in the state, after the state banned foreign liquor shops, through the government owned Kerala State Beverages Corporation (KSBC). Every year, liquor sales have been rising.
The government applies the highest state tax on liquor (around 120%). This earns it high revenues. Kerala has the highest per capita consumption: over eight litres (1.76 gallons) per person a year, in the nation, overtaking traditionally hard-drinking states like Punjab and Haryana. Rum and brandy are the preferred drinks in Kerala in a country where whisky outsells every other liquor. Taxes on alcohol is a major source of revenue for the state government. More than 40% of revenues for its annual budget come from liquor sales. Revenues from alcohol to the state's exchequer have registered a 100% rise over the past four years.
Kerala is an established tourist destination for both Indians and non-Indians alike. Tourists mostly visit such attractions as the beaches at Kovalam, Cherai, Kappad, Muzhappilangad Beach and Varkala, the hill stations of Munnar, Nelliampathi, Wayanad and Ponmudi, and national parks and wildlife sanctuaries such as Periyar and Eravikulam National Park. The "backwaters" region - an extensive network of interlocking rivers, lakes, and canals that center on Alleppey, Kumarakom, and Punnamada - also see heavy tourist traffic. Examples of Keralite architecture, such as the Padmanabhapuram Palace, Malik Deenar Mosque Kasaragod are also visited. The city of Kochi ranks, also known as the "Queen of the Arabian Sea" has the highest number of international and domestic tourists in Kerala. The capital city Thiruvananthapuram, Kozhikode (Land of Zamorins) and Alappuzha(called the "Venice of the East") are also popular destinations. Tourism plays an important role in the state's economy.
In a state of 32 million where unemployment approaches 20 percent, one out of six employed Keralite now works overseas. As of 2008, the Gulf countries altogether have a Keralite population of more than 2.5 million, who send home annually a sum of USD 9.25 billion, which is more than 15.13% of Remittance to India in 2008. The largest number work in construction, although high literacy allows Keralites to secure office work. Foreign remittances augment the state's economic output by nearly 25 percent. Migrants' families are three times as likely as those of nonmigrants to live in superior housing, and about twice as likely to have telephones, refrigerators and cars. Pathanamthitta and Thrissur districts have on an average one member from each household a Non Resident Indian.
Kerala has 145,704 km of roads (4.2% of India's total). This translates into about 4.62 km of road per thousand population, compared to an all-India average of 2.59 km. Virtually all of Kerala's villages are connected by road. Traffic in Kerala has been growing at a rate of 10-11% every year, resulting in high traffic and pressure on the roads. Total road length in Kerala increased by 5% between 2003-2004. The road density in Kerala is nearly four times the national average, and is a reflection of Kerala's unique settlement patterns. India's national highway network includes a Kerala-wide total of 1,524 km, which is only 2.6% of the national total. There are eight designated national highways in the state. Upgrading and maintenance of 1,600 km of state highways and major district roads have been taken up under the Kerala State Transport Project (KSTP), which includes the GIS-based Road Information and Management Project (RIMS). Kerala ranks second nationwide in diesel-based thermal electricity generation with national market share of over 21%.