Dwindling remittances will have dire consequences for the Kerala economy
The historic discovery of oil in West Asia and the subsequent commercialisation of it in the 1960s stimulated great demand for skilled and unskilled labour.
Keralites, confronted with a stagnant economy and unemployment at home, capitalised on this opportunity, triggering a wave of migration and heralding the gulf boom. In decades to come, Kerala achieved a series of economic and social changes aided by international remittances.
Before the Gulf boom, Kerala experienced the paradox of economic underdevelopment in the face of high human development indicators. This changed after the inflow of remittances. The consequent rise in consumption, savings and social investments augmented the domestic economy, spearheading a cultural and social change in the society.
As per the Kerala Migration Survey 2018, about 38 percent of the household remittances was used for daily living expenses. About 19 percent had cash in hand/bank, 12 percent used it to pay back debts, and 8 percent used the money for children’s education. Between 2013 and 2018, the remittances for day-to-day expenses increased by 42 percent and children’s education by 26 percent. This data suggests that the money has been directed toward improving human capital and living standards, which has benefited not only the direct recipients but also the society at large.
The emergence of the supermarkets in the 1990s and the early signs of shopping complexes, including that of malls, even in Kerala’s interiors, were beneficiary investments from the remittances.
Many non-banking financial companies (NBFCs) and majority of cooperative banks have benefited from savings and fixed deposits from non-resident Keralites.
The lack of investment options and not-so-conducive climate for doing big business in Kerala propelled many of them to set up small and medium enterprises, eateries and cloth bazaars in Kerala.
The influence of remittance can’t be ignored in the education and in the health sector. The demand for English medium schools and the sprawl of the unaided schools meeting the market demands were largely propelled by the remittance economy.
As many studies have pointed out, Malayalees’ spending habits for healthcare leans towards the private sector in the search for more quality.
This has catalysed the education and health sector in Kerala. Indirectly, it opened up the means for a better lifestyle and improvement in the living conditions. Later on, non-resident Indian (NRI) quota (read high fees) in the professional engineering colleges helped many of these private institutions to thrive in times of financial difficulties.
One must also admit that the politics in Kerala and the finance and funding of the political parties depend a lot on NRKs. From the bucket collection methods in Kerala to the fundraising trips of senior leaders to West Asia, these are the no-so-secret benefits of remittance and the NRK community. Financing election campaigns is another ground for the NRKs to cooperate with the politics of Kerala. Philanthropy at the local level has increased over the years; funding local festivals and health emergencies are examples of such benevolent acts.
The families of NRKs have been able to come out of the poverty traps they inherited from their ancestors within one or two generations. The upward mobility of the NRKs is evident in Kerala’s social structure.
The long history of migration has begun to reverse in recent years. As a percentage of NSDP, remittance constituted 19 percent in 2018 (KMS, 2018) down from 36 percent in 2014. This was accompanied by the slowdown in emigration trends from 2013 to 2018. The return migration has increased from 2013 to 2020 due to the recent pandemic.
With the onset of the pandemic, economic conditions worldwide took a downward slide triggering a mass layoff and wage reduction. Kerala emigrants took the hardest hit in the pandemic. This, combined with the decline in emigration and remittance trend, indicates that the state may continue to see less remittances. There is no certainty that remittances will give steady inflows. It is, therefore, important that timely action be taken to strengthen the economic base by ensuring that the inflows are directed to productive and sustained income-generating activities.
A survey conducted by RBI in 2013 indicated that the frequency of sending remittances was found to be the highest for Kerala but the findings about the possible end-use of the funds remitted by overseas Indians to their families back in Kerala revealed that remittances were predominantly utilised for consumption, followed by savings. Investments formed a negligible portion compared to other centres.
This is also reflected in the credit-deposit (C-D) ratio. At 60 percent, the CD ratio of the state is the lowest in all India, indicating high growth in deposits and low credit. Much needs to be done to improve the allocation of money through improvements in the overall investment climate.
It is not difficult to assess the impact of less remittance to Kerala as it is an important element in the state’s socio-economic, political, and cultural fabric. While the state government is reeling under pressure from the lack of revenue generation and high welfarism adopted over the years, the remittance cushioned the state to stretch its boundaries. Coffers would be left dry and sticky if the remittance dwindled even by a few percentage points.
This article was written by D Dhanuraj and Nissy Solomon.
D DHANURAJ is Chairman and NISSY SOLOMON is Senior Associate, Research at Centre for Public Policy Research. Views expressed by the authors are personal and need not reflect or represent the views of Centre for Public Policy Research.
This article was first published in Money Control