The South Indian state of Kerala is often slated for its low level of industrialisation and deteriorating agriculture sector, subduing employment generation in the state. The unemployment rate of Kerala stands at 7.4%, which is more than three times the national average. However, even in this milieu, Kerala is deemed a rich state with a high per capita income. As per the economic review of 2015, the per capita income of the state stands at Rs. 1, 15,225, higher than the per capita income of India by over 50%. Thanks to the heavy inflow of remittances that helped Kerala attain such glory.
Remittances constitute the backbone of the economy of Kerala. Hence, the oil crisis in the Middle East is generating a wave of panic across the state. Kerala is already going through a phase reminiscent of a crisis with mounting fiscal and revenue deficit. The declining trend in remittances to the state is an added threat. During the third quarter of 2015–16, remittances to the state declined to Rs. 1 lakh crore. According to the Kerala Migration Survey (2014), the total number of emigrants from Kerala stands at 0.24 crore with more than 90% of them in the Middle East.
As per the 2011 census, the total population of Kerala is 3.36 crore, of which 12.6% are above 60 years of age. Kerala tops the list among the Indian states, when the percentage of the elderly population to the total population is taken into account. This throws light to the fact that the population of Kerala is ageing fast, and the state is moving to the next stage of demographic transition. The mushrooming number of old age homes in the state is the best example to support this argument. A large percent of the elderly population in the state are highly dependent on the money sent by their children from abroad. With a dip in remittances, the greying population will be adversely affected and it can be a font for another crisis.
The spending spree of Keralites can be attributed mainly to the increasing flow of remittances to Kerala. High levels of income have led to a commensurate increase in the level of consumption, with high spending on consumer durables, real estate and a move towards institutions providing better quality services. In order to match the increased demand, there was heavy investment in these areas. The proliferation of multi-speciality hospitals, private schools, shopping malls, flats and villas across the state are mostly due to the NRI culture in Kerala. Even though the population of Kerala constitute only 2.76% of India’s population, the state has with it Asia’s largest shopping mall. Here also, the investment was by an NRI industrialist from Kerala.
The CRISIL prosperity index puts Kerala in the second position, next to Punjab. As per the index, a prosperous state has a high proportion of households owning four durable assets – television, computer/laptop, two-wheelers and four-wheelers – as well as a low proportion of households with no assets at all (neither radio nor bicycle in addition to the above four assets). Remittances thus have played a major role in raising the standard of living of people in Kerala. Any reverse trend in the remittance flow will negatively affect the consumption culture in the state. A recent data published by the Motor Vehicles Department (MVD) confirms the fact that there was a drop in vehicle buying in Kerala. The growth of passenger vehicles sales in Kerala was only about 2% in the financial year 2015–16. The fall in registration of new vehicles in the state is mainly due to the changing scenario in the Gulf region, compelling Keralites to cut back their spending in consumer durables. Thus, the fall in remittances is bad news not only for consumers but also for investors in the state.
It also presents a gloomy picture for the Finance Ministry of Kerala. In the first budget of the LDF Government, Finance Minister Thomas Issac proposed the idea of mobilising additional resources from the market through Kerala Infrastructure Investment Fund Board (KIIFB). The minister aims to muster around Rs. 1, 00,000 crore from the markets, eyeing mainly remittances. By issuing bonds through KIIFB, the government plans to raise funds outside the budget for taking up various infrastructure projects in the state. The decline in remittances raises doubts on the success of KIIFB in augmenting infrastructural development in the state. It is an irony that the state thought of utilising the remittances when it started declining.
Another challenging issue is with regard to the return emigrants. If we analyse the trend, along with the increase in the number of emigrants, there is a corresponding increase in the number of return emigrants from abroad. The number of returnees has increased from 7.4 lakh in 1998 to 12.5 lakh in 2014. During the same period, the number of emigrants increased from 13.6 lakh to 24 lakh. The state was able to absorb such small shocks, as the emigrant populace of Kerala was huge. The nitaqat law that was implemented in Saudi Arabia between 2011 and 2013 did not exert much influence on remittances to the state. But if the oil price crisis continues, the scenario will be much different.
The people who moved to the Gulf region have acquired more skills during their stay abroad. When they return to Kerala, the market in the state is not ready to absorb the skilled workforce. So, how can Kerala survive this crisis? There cannot be an immediate solution. However, in the long run, the state should ponder more avenues through which it can generate more income and become less reliant on remittances. The most important requirement is to shake off its image of not being an investor-friendly state. Rather than sending its people outside, it should be able to attract skilled people from across the globe. The ease of doing business in Kerala is not positive that the returnees will be able to set up their business of choice with the benefits they have gained from their exposure while living abroad. Political parties as usual will cry for support system and pensions for returnees. That is not a permanent solution to the problem. What is required is to catapult the synergies of the skill set of the returned workforce with the positive investment climate.
*Deepthi Mary Mathew is Research Associate at CPPR Centre for Comparative Studies. Views expressed by the author is personal and does not represent that of CPPR
This article was first published in #Swarajya Magazine. Click here to read the article More Investor-Friendly Conditions Might Save Kerala’s Struggling Remittance Economy