What is it with Kerala and its lottery industry?

How history plays out for years/decades/centuries is just amazing. This is true even in things like finance. Historically, the region of Kerala has been famous for chit funds, which was nothing but a mutual lottery system. In this people would contribute a certain sum to a fund. The fund would then be lent out to a subscriber (or subscribers depending on the design of the fund) at some interest rate. The selection of the subscriber was mostly based on a lottery system.

This has been a way of financial intermediation in the region for ages. Even banks that came up in the region in 20th century offered these chit funds as a main way of business. They would mention the same in their Memorandum of Association. It took intervention from the regulator asking banks to stop chit fund activity. But chit fund activity continues to thrive in the region.

This chit fund activity has eventually shaped the lottery market in the state as well. This is a superb article by Arun Janardhanan on the thriving lottery industry in the state:

In God’s own country, this is one industry the sun never sets on. Since the state launched its own lotteries in 1967 under a CPI(M) government — the first state in the country to do so — they have never made a loss.

The lotteries, apart from liquor, are also the one confirmed source of finance in a state with strapped resources. In the five-year tenure of the outgoing Oommen Chandy government, proceeds from lottery tickets rose 10 times, from Rs 557 crore to Rs 5,696 crore. The CM, who often talks of the state lotteries in glowing terms, said at a press conference last week that the government intended to nearly double the revenue to Rs 10,000 crore. Chandy is in-charge of the Tax Department that covers lotteries in the state.

Whoever gets elected in the polls next month, this is one revenue model that no one is likely to touch. On May 31, 2015, Kerala’s public debt stood at an overwhelming Rs 1,35,114.95 crore.

It is a common sight to see people chasing a lottery agent to buy tickets in the state. Hawkers roam around on tricycles selling tickets. In Kerala cities and villages, speakers blare out urging people “Not to miss”, “Last day (to buy tickets) — tomorrow, tomorrow, tomorrow”, “Win-win everyone”, “Tomorrow is your day”, “All you need is to buy one (ticket)”, “Chance of a lifetime” — all ending with that magic promise: “Rs 1 crore”.

However, the business model really doesn’t depend on jackpot winners such as Sheikh. It keeps going on the fact that lottery customers purchase at least a ticket every day, to win some day, in the belief that “somebody has to win”. The prize money, ranging from Rs 5,000 to the bumper Rs 10 crore, keeps them coming back, in the hope of bagging the next big one.

The Kerala government’s lottery wing has offices in all the 14 district capitals, besides regional offices. There are close to 40,000 authorised agents, around 1.4 lakh retail sellers apart from many more unregistered hawkers, and approximately 70 lakh tickets in circulation on a daily basis under half-a-dozen brand names.  Palakkad and Thrissur districts top the list of lottery sales while Kollam and Thiruvananthapuram have the maximum number of customers.

Why should this be?

There are few clear answers on why Kerala is so fascinated with lotteries. “They are imagining a source of redemption,” remarks Paul Zacharia, the well-known Malayalam fiction writer and essayist. He compares the state’s love for lotteries with a Malayali’s admiration for Mata Amritanandamayi or Sri Sri Ravi Shankar. “Lottery is something that makes people dream, and exploits the poorest of the poor. In Kerala, everyone, including political parties, have let them down, and they submit themselves to supernatural powers such as godmen or lotteries, searching luck,” he says.

Another reason that winning cash holds such a sway over the average Keralite, says Zacharia, is that while most have managed to fulfill their basic requirements, not many have easy money. And here is a product that comes certified by the government itself.

K Venu, a Communist thinker and prominent Naxal leader from the 1970s, who is now a writer and columnist, believes the primary reason for Kerala’s addiction to lotteries is its reluctance for physical labour. A majority of native residents prefer white-collar jobs even if these are underpaid, he points out. “Out of some one crore working people in the state, except the 15 to 20 lakh government employees, a large number choose to work in sectors such as textile shops or as office assistants and on the hospitality side. The huge scarcity of native labourers in sectors requiring hard work has triggered the migration of poor people from states like West Bengal or Bihar. Even though the latter get Rs 500-700 per day, many Malayalis prefer white-collar jobs which pay Rs 200-300 per day. And they are the one prominent section that searches for easy ways to make money… Not just lottery, I have friends who have lost several lakhs investing in superstitious wristbands and lockets sold online that promise luck or to double their money,” Venu says.

He argues that Kerala’s unemployment numbers are misleading. Kerala has the highest unemployment rate among the big states as per the Economic Review —7.4 per cent compared to the national average of 2.3 per cent. “Those registered with employment exchanges are people who don’t have government jobs. It doesn’t mean they are all jobless. There is a huge population that chooses to retain underpaid jobs in the service sector,” the writer says.

Flaying the government’s involvement in lotteries, Venu adds, “Like the way lockets are sold online promising luck, the government is selling dreams. After all, the basic idea of lottery itself is gambling, and here the government is running that business with hype and advertisements.”

With Kerala not seeing a growth in job-generating industries, the number of white-collar jobs has been falling, thus adding to the problem. Lesser cash also comes combined with a highly consumerist society that puts a premium on spending. Kerala has one of the highest monthly per capita consumer expenditures in India, both in rural and urban areas, as per the National Sample Survey Organisation data.

Superb stuff.

It is far more historical actually. One has to go deeper in roots and figure why is it that these schemes have worked for centuries in Kerala region? One bit could be that the region was always a thriving area for trading spices and there was never a case for industry in the region. Thus, this trading money eventually found way into such speculation activities. Chit funds and lottery was one such outcome of this speculation. First this business was mostly done by private players and now State has emerged as a big player. The State has actually certified the activity..

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