The study was conducted with budgetary support from the State Government during the 2017-18 financial year and was submitted to the Higher Education Department, Government of Kerala. The study traces the evolution of Kerala economy, its characteristics and the sectoral changes in state income and employment. It delves in detail about the agricultural, industrial and service sectors and explores the reasons for the growth or the lack of it in each sector. The study also examines some of the weaknesses of Kerala economy like unemployment, dependence on external markets, degradation of environment, over exploitation of natural resources and deteriorating fiscal position in the context of the emerging ‘second generation problems’, arising from the very success of Kerala in social development. Further, the study explores the potential of the state for faster economic growth to sustain its social development.