GRM 2010 GRM 2011

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Distress Signals from Kerala’s Remittance Economy: Implications of the Unmitigated ‘Dutch Disease Syndrome’
Paper Proposal Text :
Distress Signals from Kerala’s Remittance Economy: Implications of the Unmitigated ‘Dutch Disease Syndrome’


The South Indian State of Kerala, which is the single largest source of the Gulf Cooperation Council (GCC) countries’ expatriate base, is in the throes 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 slump to localisation of labour, albeit all of them are inter-related in many ways. Nearly 2.4 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 6 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 2.4 million NoRK send as much as $ 15 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 $ 18 billion during 2015. Notwithstanding all these, the state of Kerala also started experiencing major setbacks in terms of the social pressures of accommodating the return emigrants (REM) from the Gulf as well as in-migrants (IM) 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 REM. This was estimated to be 1.24 million in 2014 which appeared to be nearly 52 per cent of the total number of NoRK. This has tremendous implications for Kerala’s livelihood security as more than 5 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 distress signals are too many. 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 slump of crude oil prices. The Kerala State Planning Board (KSPB) acknowledged lately 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. It has the highest rate (7.4%) of unemployment – as high as three times the national level rate (2.3%). 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 as high as 47.4 per cent (compared to 9.7 % for men). Kerala has now 3.65 million registered job seekers and 56 per cent of them are women. Meanwhile, a paradoxical situation has also emerged–while Kerala has the highest rate of unemployment in the country, the state has also become the hub of IM from other states such as Uttar Pradesh, Assam, Bengal and Odisha. The number of IM has 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 REM and accelerated IM threatens 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 figure of 3.2 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 decline, might cause a range of social and economic spill-overs. 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. The paper seeks to address these issues in the background of the inability of the state to address 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.