Kerala’s Remittance Economy: Impending Crisis

gulf returnee

The ‘insider-outsider’ problematic of diaspora gives every Malayali’s life a degree of tension and uncertainty today. For the six million remittance-dependent population of Kerala, no news from the Gulf Cooperation Council (GCC) countries is comforting. Of late, the distress signals from countries like Saudi Arabia, Oman, Kuwait etc are too many. So are their implications for Kerala.

The major documents of the Government of Kerala have, of late, specifically broached this issue – the latest one being the State Budget 2017-18 presented by the Finance Minister under the LDF dispensation.  The other two are the White Paper issued by the State Government in June 2017 and the State Planning Board’s Economic Review 2016-17 presented by the government before the budget. While the White Paper pointed to the risk of the state’s dwindling foreign NRI remittances, the other reports and documents mentioned about this uncertain situation resulting from the Gulf crisis as a potential danger. Why are we apprehensive about the distress signals emerging from the Gulf crisis?

Kerala is the single largest source of the Gulf Cooperation Council (GCC) countries’ expatriate base. And all the GCC countries are in the midst of a crisis in the wake of a series of unfolding events and developments—from the world recession to the Arab Spring, from the oil price fluctuations to localisation of labour, albeit all of them are inter-related in many ways. Nearly 2.5 million emigrants from Kerala (known as non resident Keralites [NoRK]) represent more than 40 per cent of the GCC’s overseas Indians (of an estimated 7 million). The population of Kerala (34 million) itself is well above the combined population of the five GCC countries, except Saudi Arabia whose population – 31 million – is still below that of Kerala.

It is also important to note that the 2.5 million NoRK send as much as $ 17 billion annually to their homes, which is almost 31 per cent of Kerala’s Gross Domestic product—1.4 times more than the internal revenue income of the government. Besides, the total NoRK deposits in the banks in the state stood at $20 billion during 2015-16.  Notwithstanding all these, the state of Kerala started experiencing major setbacks in terms of the social pressures of accommodating the return emigrants (RMs) from the Gulf as well as in-migrants (IMs) from other states of India. While the flow of NoRK continued to grow over years, there was also an unprecedented increase in the percentage of RMs. This was estimated to be 1.5 million in 2015-16 which appeared to be more than 50 per cent of the total number of NoRK. This has tremendous implications for Kerala’s livelihood security as more than 6 million people in the state are still dependent on foreign remittances of NoRK. These remittances have actually strengthened their household earnings, food consumption, health care, housing, education etc. Remittances also helped bridge the widening gap in the budget totals with the current account deficit of the state growing over years.

The emerging economic scenario of Kerala is, however, likely to be the one caught between several paradoxes and vulnerabilities. The economy has already experienced a slowdown in revenue growth, an unprecedented fall in commodity prices, a decline in revenue from tourism etc. Added to the list of woes is the likely fall in foreign remittances from the Gulf with the unexpected, yet dramatic fluctuations in crude oil prices. The Kerala State Planning Board (KSPB) had acknowledged in its previous reports that the external environment that continued to stimulate Kerala’s economy for over two decades “has turned distinctly negative.” Though remittances still remain as it were, “threats loom large on the horizon” as the employment situation in the Gulf region “has been stressed with the drastic fall in the prices of crude oil”, says KSPB.

The above scenario, however, is again accentuated by the ground situation in Kerala which has, over years, worsened with the multiplier effects of the economic policy regime in place. Kerala is now topping the list of the most unemployed states in India. The latest data showed that among major states, Kerala has the highest unemployment rate of 12.5% as against the all India level of5%. The women in Kerala, who are generally considered as more economically and socially empowered than in many other states in India, face the worst scenario with their unemployment rate reaching very high. Kerala has now 3.8 million registered job seekers and 55 per cent of them are women. Meanwhile, a paradoxical situation also emerged–while Kerala has the highest rate of unemployment in the country, the state has also become the hub of IMs from other states such as Uttar Pradesh, Assam, Bengal and Odisha. The number of IMs had phenomenally increased from 2.5 million in 2013 to 3.2 million during 2015. Studies say that they are collectively sending as much as $ 3 billion every year. The complex situation of high unemployment, growing RMs and accelerated IMs threaten the economic architecture of the state’s historically negotiated social balancing. This needs to be addressed in the context of the theoretical questions put across by economists with regard to the ‘Kerala Model of development’ (KMD) which was lauded by several international agencies in the 1970s and 1980s.

The two significant factors of the KMD were the admirable growth in the social sector, without the state having passed through the stage of industrialisation. The economists were, by and large, focussing on the endogenous factors in the making of KMD and the challenges within. However, since 1990s, some scholars began to focus on the trends underway in the regional economy pointing to the manifold effects of both exogenous and endogenous factors. Drawing our attention to the implications of the Gulf remittance for the Kerala economy, they argued that the State had already experienced the impact of ‘Dutch disease’ in diverse areas—from agriculture to manufacturing. They had warned that Kerala would continue to witness major structural changes (as conceptualised by the Dutch disease economists) caused by the remittance boom from the Gulf following oil price hike after 1973. The structural changes were palpable in the spending boom scenario in the state, triggered by the Gulf remittance. The major effect of the Gulf boom was that the goods (both tradable and non tradable) were bid up far beyond their value. This included, primarily, the real estate and consumer goods. There was a substantial increase in the wage structure also. There was almost five-fold increase in the wage rates since 1973-74, which continued to grow in the 1980s and 1990s. With the rising Gulf boom, the labourers in Kerala were unwilling to work at wage rates lower than the existing one. The impact of migration on the domestic supply of labour was nowhere evident than in the construction sector. Though there was remittance-induced construction boom in the state since 1980s, there was also a scarcity of construction labour largely due to the fact that a substantial share of the migrant labourers from Kerala was from the skilled category of construction workers. This, in the long run, set the stage for the flow of IM from other states in India whose number swelled to an all time official figure of 3.2 million (other sources estimated this to the level of 4 million).

Now the emerging circumstances in the GCC states have caused worries whether the Gulf remittances would be a sustainable source of Kerala’s GDP. The legal measures put in place by the GCC states to regulate their expatriate population (through programmes like Nitaquat and localisation), besides the austerity measures being considered in the wake of the oil price fluctuations, might cause a range of social and economic spill-overs.

Among all the GCC states, Saudi Arabia has already made considerable progress in what is called ‘Saudization.’ The process was initiated a few years back but it has made momentum in recent months in tune with the Vision 2030 of the Saudi State. The balanced (Mawzoon) Nitaqat system, which became operational from December 2016, brought to an end the ascendancy of expatriate workers in important job. As told by the Saudi officials, the new system would improve the job market situation, raise the quality of employment, generate suitable jobs for Saudi men and women, create a secured and attractive working environment and end unproductive Saudization. The new Saudization system came in line with ‘Vision 2030.’ It would realize the objectives of the “National Transformation Program.” It underlined the imperatives of addressing the issue of expats occupying important jobs, falling productivity of the job market, low participation of women and the gap between academic courses and job market requirements. The Saudi labour minister said that it would “result in the employment of more Saudis and increase the number of firms in the yellow category of the Nitaqat. At the same time, most companies will remain in the green zone.”

The Mawzoon was introduced as part of its initiatives to promoted private firms to employ more Saudis and introduce major reforms in the job market in line with Vision 2030. Under the new system, the firms would be classifies into three groups: Firms having 50 to 99 workers, firms with 100 to 199 workers, and those with 200 to 499 workers. The Saudi state is also seriously considering a tax regime to meet the emerging crisis situation in the economy. The situation in other countries such as Oman, Qatar, Kuwait, Bahrain and UAE is also likely to follow the pattern set by the Saudi state.

What still worsened the economic situation of Kerala was the demonetisation. The slump in the economy already started in early 2017 with the demonetisation affecting traditional sectors, real estate (including construction activities), tourism etc. Added to this complex scenario was a host of issues emerging from the GST. Contrary to the earlier claims—of its positive effect being a consumer state—Kerala began to face one of the worst consequence of the GST regime. This significantly affected the construction sector, real estate and services economy.

No doubt, Kerala’s remittance economy and the very social architecture of the state will have to bear the brunt of these cross undercurrents in the regional and international economy. A major question raised is whether the state will be able to address these issues in the background of its inability to deal with such problems in the past insofar as the long-term consequences of the absence of a strong manufacturing sector, even at the height of the remittance boom, are much more complex and enduring than the ‘Dutch disease’ economists had forewarned. Though the LDF Government has announced a rescue package, as part of addressing the Gulf crisis and recessionary trends in the state, besides Rs.80 crore being a package for rehabilitating return migrants, it remains to be seen if the remittance economy can endure the pressures of the time, especially in the context of the skyrocketing unemployment in the state.

The first meeting of Loka Kerala Sabha (LKS) which came to an end in the State’s capital in January this year put across several proposals in the background of multilayer crises that the state’s economy has been experiencing. The meeting also sought to harness the social and cultural capital of the Malayali diaspora with a view to expanding the scope of expatriate involvement in the larger development process. The State Government assured the expat-capital that the state would set up a single window system to explore and expand non-resident Keralites (NoRKs) investment in potential areas of the state’s development.  Yet, a billion dollar question remains—whether the LKS launched by the LDF Government can open up opportunities to harness the much-needed resources for the state’s development, particularly in the background of the flow of return migrants and dwindling remittances?

The author is Professor, School of International Relations and Politics, Mahatma Gandhi University, Kerala. He also served as Member of the Working Committee of NORKA, Kerala State Planning Board.  He can be reached at [email protected]

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