Since its incorporation as a state, Kerala's economy largely operated under welfare based democratic socialist principles. Nevertheless, the state is increasingly liberalising its economy, thus moving to a more mixed economy with a greater role played by the free market and foreign direct investment. Kerala's nominal gross domestic product (as of 2004–2005) is an estimated 89451.99 crore INR, while recent GDP growth (9.2% in 2004–2005 and 7.4% in 2003–2004) has been robust compared to historical averages (2.3% annually in the 1980s and between 5.1% and 5.99% in the 1990s). Nevertheless, relatively few major corporations and manufacturing plants choose to operate in Kerala. This is mitigated by remittances sent home by overseas Keralites, which contributes around 20% of state GDP. Kerala's per capita GDP of 11,819 INR is significantly higher than the all India average, although it still lies far below the world average. Additionally, Kerala's Human Development Index and standard of living statistics are the nation's best. This apparent paradox—high human development and low economic development—is often dubbed the Kerala phenomenon or the Kerala model of development, and arises mainly from Kerala's strong service sector.
The service sector (including tourism, public administration, banking and finance, transportation, and communications—63.8% of statewide GDP in 2002–2003) along with the agricultural and fishing industries (together 17.2% of GDP) dominate Kerala's economy. Nearly half of Kerala's people are dependent on agriculture alone for income. Some 600 varieties of rice (Kerala's most important staple food and cereal crop are harvested from 310,521 ha (a decline from 588,340 ha in 1990 of paddy fields; 688,859 tonnes are produced per annum.Other key crops include coconut (899,198 ha), tea, coffee (23% of Indian production, or 57,000 tonnes, rubber, cashews, and spices—including pepper, cardamom, vanilla, cinnamon, and nutmeg. Around 10.50 lakh (1.050 million) fishermen haul an annual catch of 6.68 lakh (668,000) tonnes (1999–2000 estimate); 222 fishing villages are strung along the 590 km coast, while an additional 113 fishing villages are spread throughout the hinterland.
Traditional industries manufacturing such items as coir, handlooms, and handicrafts employ around ten lakh (one million) people. Around 1.8 lakh (180,000) small-scale industries employ around 909,859 Keralites, while some 511 medium and large scale manufacturing firms are located in Kerala. Meanwhile, a small mining sector (0.3% of GDP) involves extraction of such materials as ilmenite (136,908.74 tonnes in 1999–2000), kaolin, bauxite, silica, quartz, rutile, zircon, and sillimanite. Home gardens and animal husbandry also provide work for hundreds of thousands of people. Other significant economic sectors are tourism, manufacturing, and business process outsourcing. Kerala's unemployment rate is variously estimated at 19.2% and 20.77%,although underemployment of those classified as "employed", low employability of many job-seeking youths, and a mere 13.5% female participation rate are significant problems. Estimates of the statewide poverty rate range from 12.71% to as high as 36%.