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Decline in Kerala’s inward remittances will hit state's finances

Maharashtra toppled Kerala in inward remittances. Kerala slipping from the pole position was not unexpected given the job losses among migrants in West Asia during 2020-21

July 22, 2022 / 04:28 PM IST
Representative image

Representative image

Since the Covid-19 outbreak in the Arab Gulf countries in March 2020, many in Kerala had anticipated that the state would lose its pole position in remittances. Last week, the Reserve Bank of India's (RBI)'s Fifth Round of Survey on Remittances for 2020-21 put it down in black and white.

Yes, Kerala has been pushed down to the second position in the volume of inward remittances. Of the total, Maharashtra has secured the top position with a share of 35.2 percent. Meanwhile, Kerala could garner only 10.2 percent of the total inward remittances. Additionally, the United States (US) grew as the largest remitter to India with a share of 23.4 percent. The United Arab Emirates (UAE) followed with 18 percent and the United Kingdom with 6.8 percent.

In the previous survey which analysed the inward remittances for 2016-17, Kerala was in first position with a 19 percent share followed by Maharashtra with 16.7 percent. The UAE was the largest remitter with a 26.9 percent share then, followed by the US (22.9 percent) and Saudi Arabia (11.6 percent).

The fresh survey also reveals that the share of remittances from West Asia to India has declined from more than 50 percent in 2016-17 to about 30 percent in 2020-21.

Why the changes? 

These changes weren’t unexpected. "The West Asian economies were badly hit during the Covid-19 outbreak because they mainly depend on construction, tourism, hospitality, and aviation sectors. All these sectors were locked down, and thousands of low-paid workers were terminated from their jobs," said Rafeek Ravuther, a migrant rights activist.

"More than 1.7 million Keralites had returned to  the state, mainly from West Asia, due to job loss between 2020 and 21. With this situation, how can the remittances grow?," he asked.

A World Bank outlook released in April 2021 said that "heavy GDP losses were observed in all MENA (Middle East and North African) country groups, which includes West Asia."

And while talking about how and why Maharashtra has toppled Kerala from the pole position in inward remittances, and the US has become the largest remitting country, Mini Mohan, a migrant rights expert, said “dynamic changes" are happening in migration.

"While Keralites still prefer West Asia, skilled migrants from other parts of the country, like Maharashtra and Delhi, are migrating to the US and Europe, which brings in more money to the remittance kitty," Mohan said.

A history of remittances 

Since the 1960s, Keralites have been migrating to different parts of the world, especially to West Asia.

The 2018 Kerala Migration Survey by S. Irudaya Rajan and KC Zachariah reveals that one in every fifth household in Kerala has a migrant citizen.

And a study by KP Kannan, a leading economist in Kerala, also reveals that remittances received annually in Kerala are some 13.33 percent of the Net State Domestic Product (NSDP).

However, following the Covid-19 outbreak, remittances to the state, especially from West Asia have been hit badly. A World Bank study on Covid-19 and migrants from Kerala in 2021 had revealed that "around 49 percent of households stated that the amount received had declined after January 2020. On average, overseas remittances fell by $267 monthly among households that reported receiving remittances."

What the dip means?

M Suresh Babu, an IIT-Chennai professor and a development economist, said, "Kerala relies heavily on remittance and any dip in that will affect the state economy because it is already under financial stress."

"There are two types of multipliers in any economy. One is the investment multiplier, and the other one is the consumption multiplier. The remittances go to the consumption multiplier. Or in other words, inward remittances to Kerala are used to purchase things, to pay school or medical bills, repay loans  etc," Suresh Babu said.

"So, when remittances are low, less money is circulated in the market. Less money in the market means the government tax collection share also goes down," he said. Babu added that the state economy is unofficially called LLR (Liquor, Lottery and Remittance) economy and if there is imbalance in any one of them, then it’s going to be a serious issue.

Kerala's public debt is around 2.8 lakh crore and is among the top 10 states with the highest debt burden. A RBI note called Kerala “highly stressed.”

Kerala's committed expenditure rises every year limiting the state’s flexibility to decide on other spending priorities such as developmental schemes and capital outlay.

Committed expenditure of a state typically includes expenditure on the payment of salaries, pensions, and interest. In 2022-23, Kerala has budgeted to spend Rs 94,781 crore on committed expenditure items, which is 71 percent of expected revenue receipts. This comprises spending on salaries (31.3 percent of revenue receipts), pension (20 percent), and interest payments (19.4 percent).

Further, Babu said, “Kerala has reached the third phase of migration where skilled migrants are required. Unfortunately, the current Kerala higher education sector is not capable of delivering job-market oriented talented migrants.

“Eventually, Keralites will be rejected, and skilled workers from states like Maharashtra and others will benefit and they will remit more to their states,”  he concluded.

​Rejimon Kuttappan is a freelance journalist and author of ‘Undocumented: Stories of Indian Migrants in the Arab Gulf’. Twitter: rejitweets.
first published: Jul 22, 2022 04:28 pm