GLOBAL FINANCIAL CRISIS AND KERALA ECONOMY: EMIGRATION AND REMITTANCES*

S Irudaya Rajan Centre for Development Studies

The liquidity crisis and associated recession that originated in the US and then spread to Europe has by now engulfed most of the economies in the developed and developing world. While some of the developing countries whose financial system is not sufficiently integrated and/or not exposed to toxic securities are likely to escape from the direct impact of the crisis, there is hardly any escape route for them from the adverse impact of the recession in the real economy. It has been predicted that the export earning of these countries, from both merchandise and invisibles, will be hit, causing unemployment and output contraction on the one hand and foreign exchange crisis, exchange rate depreciation and accentuated inflation on the other (Patnaik, 2008). To the extent that the present crisis echoes the great depression of the 1930s, the global community has woken up to address the challenge. Institutional responses and strategic initiatives have been under way at the global, multilateral, national and sub-national levels to address the crisis. Nobel laureate Joseph Stiglitz (2008) considered the crisis as an opportunity to reassess global economic arrangements and prevalent economic doctrines. Perhaps such a reassessment and revisit are imperative at the national and sub national levels. The impact of global financial crisis in India is already felt, inter alia in terms of reduced export earning, 1 drastic decline in industrial growth 2 and employment, 3 the depreciation of the Rupee, reduction in foreign exchange reserves,4 downturn in stock market 5 and many other indicators. The central Government and Reserve Bank of India have already initiated a series of steps 6 to ease the crisis. But in a country like India, which is regionally more diverse than most continents, measures at the state level to address the impacts that are specific to the regional economy cannot be overemphasized. Such initiatives are especially called for in the context of Kerala,
* Paper submitted to MISA Project-Phase 2 and presented at the ILO/SMC Conference on Assessing the Impact of the Global Economic Crisis on International Migration in Asia: Findings from the MISA Project, Ortigas Center, Manila, Philippines, 6 May 2010. The author is a member of the team of researchers at the Centre for Development Studies who prepared a report for the Government of Kerala on the Global Financial Crisis and the Kerala Economy: Impact and Mitigation Measures. This paper is an abridged version of the authors contribution. A copy of the report is available at www.cds.edu.
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Going by the latest estimates, export declined by about 12 per cent during the month of October 2008 as compared to the corresponding month in 2007 2 The index of industrial production for the month of November 2008 recorded a negative growth for the first time during the last 15 years. 3 It has been reported that about four lakhs workers have been laid off from textile industry itself. 4 The stock of foreign exchange declined from $ 330 billion some six months before to 245 billion by the first week of December 2008. 5 The BSE index declined from over 20000 during the early months of 2008 to 9000 during the last week of November 2008 6 This included reduction in repo rate by 100 basis points to 8 per cent and CRR to 8.5 per cent by October 20, 2008 to make available more liquidity at lower cost followed by a series of fiscal measures to rejuvenate the economy.

which is more vulnerable to any external shock as it is more integrated with rest of the world. Given the specificities of Keralas economy, namely that it is remittance driven and highly integrated with rest of India and the world, the authors of the 2008 CDS report have identified the following six channels through which the crisis can diffuse to the rest of the economy (Centre for Development Studies, 2008): (a) remittance inflows; (b) availability of credit from the banking system; (b) exports of certain specific items from the state such as cashew, coir, spices, marine products, handicrafts and IT and ITES; (d) tourist arrivals; (e) prices of intermediate inputs ; and (f) prices of imported good, both raw materials and finished goods. However, in this brief note, we shall discuss the emigration and remittances flows to assess the impact on Kerala economy. Over the last few months, the CDS 7 has undertaken four major studies on impact of Global Crisis on migration and remittances. They will be extensively used in this report. Before doing so, we shall also briefly discuss the impact of crisis on out-ward migration and remittances from the recent data available from both Ministry of Overseas Indian Affairs. Outflow of workers from India to the Gulf, 2009 As India has no official data to investigate the extent of the crisis-led return emigration from the Gulf to India, we estimated the possible trends in the number of return emigrants in the later section of the paper. The country does, however, have some data on emigrants who leave for the Gulf countries with Emigration Clearance Required (ECR) passports. In 2008, Indians workers emigrated for work through ECR passports accounted for 8.5 lakhs of the Gulf emigrants. The Ministry of Overseas Indian Affairs provided us with similar data for 2009 (see Table 1). The outflow of workers from India in 2009 has shown a decline of 2.4 lakhs from 8.5 lakhs in 2008 to 6.1 lakhs in 2009. Of the six countries in the Gulf, the emigration of Indian workers to the UAE alone fell by 2.2 lakh workers, followed by a decline of 36,645 workers to Qatar and 14,000 workers to both Bahrain and Oman Interestingly, Saudi Arabia has emerged not only as an important destination for Indian workers, but has also moved to number one position in attracting the Indian workers. This indicates that the crisis has not affected Saudi Arabia as much as Dubai in the United Arab Emirates (Irudaya Rajan and Narayana, 2010) During the last 20 years (1988 to 1998), Saudi Arabia attracted the largest number of Indian emigrants. Only in 1998-99, the UAE took the first position as the favourite emigration destination of workers from India (Irudaya Rajan, 2004; Irudaya Rajan and Zachariah,
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(i) Impact of the Global Recession on Migration and Remittances in Kerala, funded by the Department of Non-Resident Keralite Affairs (NORKA), Government of Kerala and the Ministry of Overseas Indian Affairs (MOIA), Government of India; (ii) The Financial Crisis in the Gulf and its Impact on South Asian Migrant Workers funded by the Asian Development Bank, MOIA, Government of India and NORKA, Government of Kerala; (iii) ILO sponsored report on Global Financial and Economic Crisis on Migration and Migrant Workers in India with Special Focus on Kerala; (iv) Preparation of a background paper on Migration and Development Linkages Re-Examined in the Context of the Global Economic Crisis for the third Global Forum on Migration and Development, held at Athens.

2010), pushing Saudi Arabia to second position (Irudaya Rajan and Gopinathan Nair, 2006).

Table 1: Outflow of Workers (Numbers) from India to the Gulf, 2009 Country Decrease/Increase, 2008-2009 Number Per cent United Arab Emirates 349827 130302 - 219525 -168.47 Saudi Arabia 228406 281110 + 52704 18.75 Bahrain 31924 17541 - 14383 -82.00 Kuwait 35562 42091 + 6529 15.51 Oman 89659 74963 - 14696 -19.60 Qatar 82937 46292 - 36645 -79.16 - 226016 -38.16 Gulf 818315 592299 Others 30286 17973 - 12313 -68.51 Per cent in the Gulf 96.43 97.05 +0.62 0.64 Total 848601 610272 - 238329 -39.05 Source: 2008 data from the published annual report of the Ministry of Overseas Indian Affairs; * communication from the Ministry of Overseas Indian Affairs for the period January to December 2009. 2008 2009 *

Table 2: Outflow of Workers (Numbers) from States of India, 2009 2009 * State Andhra Pradesh Karnataka Kerala Maharashtra Punjab Rajasthan Tamil Nadu Uttar Pradesh Others Total Source: Same as Table 1. 2008 97530 22413 180703 24786 54469 64601 128791 139254 136054 848601 69233 18565 119384 19128 27291 44744 78841 125783 107303 610272 Decrease/Increase, 2008-2009 Number Per cent 28297 -40.87 3848 -20.73 61319 -51.36 5658 -29.58 27178 -99.59 19857 -44.38 49950 -63.36 13471 -10.71 28751 -26.79 238329 -39.05

Saudi Arabia once again emerged on top in 2001-02. In 2003, the number of Indian labour migrants to the UAE stood at 143, 804, higher than the number of workers that went to Saudi Arabia by 22,000. Since then, the UAE has maintained its lead and in 2008, attracted about 3.5 lakh Indians which was 1.2 lakhs more than the 2.3 lakhs who went to Saudi Arabia. However, the number who went to UAE declined by 63 percent where as Saudi Arabia reported an increase by 23 per cent during 2008-2009. The reported trends of decline out of out flow of workers to United Arab Emirates and the increased out flow of workers to Saudi Arabia in India were similar to other countries in South Asia- Sri Lanka, Nepal, Pakistan and Bangladesh (Irudaya Rajan and Narayana, 2010)

The analysis of the data for the states of India also reveals some new and interesting trends in migration in the context of the financial crisis (Table 2). All the states show a decline in the outflow of migrants between 2008 and 2009, but the decline was the greatest for Kerala (61,319) and Tamil Nadu (49,950), both known for large-scale migration to the Gulf. However, in the case of Uttar Pradesh, the decline in migrant outflow is just 13,471. The 2009 data indicates that both Kerala and Tamil Nadu have been overtaken by Uttar Pradesh in the matter of sending highest number migrant workers to the Gulf countries even at the time of crisis. Overall, official data in India reveals that the number of workers going to the Gulf has declined. The decline in migration is the most pronounced in the case of the UAE, the region in the Gulf most severely affected by the crisis. Thus the recession has changed the migration dynamics in the states of India from Kerala and Tamil Nadu to Uttar Pradesh and demographic dynamics of workers in the Gulf region from the UAE to Saudi Arabia. Workers Remittances to India The money that migrants send home is important not only to their families but also to their countrys balance of payments. In many developing countries, remittances represent a significant proportion of the Gross Domestic Product (GDP) as well as foreign exchange earning. In 2008, the World Bank published a list of the volume of remittances and remittances as percentage of the GDP for 20 developing countries. India topped in terms of the volume of remittances with US$ 52 billion, which contributed 4.2 per cent of GDP in 2008 (Irudaya Rajan and Zachariah, 2010a; 2010b). In terms of the proportion of remittances to GDP, Philippines ranks first among the Asian countries (with 8.8 per cent of its GDP) followed by Sri Lanka. Seven of the 20 countries listed are in Asia: India, Sri Lanka, Pakistan, Bangladesh (South and South-West Asia), Indonesia, Philippines and Thailand (South-East Asia). In Yemen and Jordan, remittances contribute one fifth of the GDP. Table 3: Remittances to India, 1970-2008 Year US $ Million Year US $ Million 1970 121 1983 2,660 1971 140 1984 2,295 1972 129 1985 2,469 1973 181 1986 2,240 1974 266 1987 2,665 1975 430 1988 2,315 1976 642 1989 2,614 1977 934 1990 2,384 1978 1,165 1991 3,289 1979 1,437 1992 2,897 1980 2,757 1993 3,523 1981 2,301 1994 5,857 1982 2,618 1995 6,223 Source: World Bank. 2009 Year US $ Million 1996 8,766 1997 10,331 1998 9,479 1999 11,124 2000 12,890 2001 14,273 2002 15,736 2003 20,999 2004 18,750 2005 22,125 2006 28,334 2007 37,217 2008 51,581

Table 3 shows the trends in remittances for India over the past 40 years. According to the estimates of the World Bank, remittances to the country have grown steadily from US$ 120 million in 1970, to 2.76 billion in 1980, US$ 3.29 billion in 1991, US$ 12 billion in 2000 and about US$ 52 billion in 2008. Similarly, the percentage of remittances to GDP has increased from 0.14 in 1970, 2.50 in 2000 and 4.2 per cent in 2007 a significant contribution to the Indian economy. According to the latest World Bank estimates, India is likely to maintain the same amount of remittances as of 2008. Irudaya Rajan and Naryana (2010) predicted that three per cent increase between 2008 and 2009. Migrants remittances nourish not only their families but also their countrys balance of payments. In many developing countries, remittances represent a significant proportion of the gross domestic product (GDP) as well as foreign exchange earnings. Impact of the Global Financial and Economic Crisis on Kerala migration and remittances This section assesses the impact of the financial and economic crisis on Kerala migrant workers in the Gulf in relation to return emigration, outflow of workers and inward remittances. Return Migration to India and the State of Kerala, 2009 Though all agencies and institutions working on migration and remittances in India have predicted an exodus of emigrants from the Gulf to India following the financial crisis in the region, we do not have any firm estimates on the actual magnitude of such return emigrants. Gulf migrants are basically workers who went there for work on a contractual basis and are supposed to return to the country of origin once the period of the contract period ends. Return migration 8 is not a new phenomenon among Indian workers in the Gulf. For instance, Mr. Vayalar Ravi, Minister of Overseas Indian Affairs, Government of India, informed the Parliament that accurate figures on the return of Indian workers are not available. "It is estimated that about 50,000 to 150,000 workers have returned to India as a result of the delay in execution of projects due to the economic slowdown and recession," he said in a written statement. Mr. T.M. Thomas Isaac, Finance Minister of Kerala 9 State, India, informed the State Legislative Assembly that some 200,000 to 500,000 Keralites working in the Gulf are likely to return home by mid 2009. The Centre for Development Studies, Kerala, undertook four large-scale migration surveys in Kerala during the last 10 years to take stock of the number of emigrants, return emigrants and remittances to the State. The last survey was conducted in 2008 among 15,000 households in Kerala (details, Zachariah and Irudaya Rajan, 2010).
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The stock of return emigrants in Kerala was about 0.7 million in 1998, and increased to 0.9 million in 2003 and 1.2 million in 2008 (see Zachariah and Irudaya Rajan, 2009b). 9 According to the 2008 Kerala Migration Survey conducted by the Centre for Development Studies, the number of emigrants from Kerala is estimated at 2.19 million (about 90 per cent live in the Gulf) and remittances are estimated as Rs. 43,288 crores. Today, Kerala leads other states in India both in terms of outward emigration and inward remittances (Zachariah and Irudaya Rajan, 2009).

Those who were surveyed in 2008 were re-surveyed in 2009 in order to arrive at reliable estimates of the number of emigrants who returned home due to the crisis. The return emigrants in the original sample were asked their reasons for return to Kerala. We had listed ten possible factors that would have induced them to return and of these, three could be attributed to the recession: job loss and return due to financial crisis, expiry of contract (which was not renewed as expected because of the recession), and compulsory expatriation. The estimates on the migrants who returned due to the crisis are provided in Table 4.

Table 4: Number of Return Emigrants to Kerala due to Recession in 2009 Total Emigrants in 2008 based on 2008 Kerala Migration Survey Return emigrants among emigrants of 2008 in Return Migrant Resurvey in 2009 Return Emigrants to Kerala due to financial crisis and recession Source: Zachariah and Irudaya Rajan, 2010 Sample 3953 304 110 Kerala 2193412 168681 61036

Assuming that the stock of 2.2 million emigrants from Kerala resulted in about 61,036 crisis-led return migrants, what could be the number of return emigrants from the Gulf to India? Going by the database available from various sources (both formal and informal), we put the number of Indians in the Gulf at 5.1 million and the number of return emigrants from the region at 140,000 (Irudaya Rajan and Narayana, 2009). For instance, there were 1.7 million Indians in the United Arab Emirates (UAE) and about 47,000 Indians are estimated as number of return emigrants from the UAE alone. Why is the estimated number of Indian return emigrants from the Gulf less than the predicted number? According to the senior researcher of this paper, two important facets of Gulf migration from India could be responsible for this 10 the expenses involved in the migration process and certain peculiarities associated with it. Indians incur huge costs to migrate to the Gulf. According to the Kerala Migration Survey 2008, the cost of migration to the Gulf varied between Rs. 53,951 to Kuwait to Rs.74,606 to Saudi Arabia - between USD 1200 and USD 1660 (Rs. 45 per USD) (Table 5). This applies to all the South Asian countries (also see United Nations, 2009; Irudaya Rajan and Prakash, 2009).

Firstly, as organiser and participant in the Round Table Discussion on Global Financial Crisis and Indian workers in the Gulf sponsored by the Ministry of Overseas Indian Affairs, Government of India, held at Centre for Development Studies on 3 February 2009. Secondly, as a organiser and paper presenter at the International Conference on Effects of the Global Financial Crisis In GCC Countries and its Impact On South And South East Asian Migrant Workers during 21-22 July 2009 at the Centre for Development Studies which was sponsored by the International Labour Organization, United Nations Fund for Women and Ministry of Overseas Indian Affairs, Government of India. Both of these meetings, the senior author categorically stated that there will no exodus of return emigrants to India from the Gulf as predicted by both print and electronic media.

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Table 5: Average cost of Emigration for different Migration Corridors from Kerala to the Gulf, 2008 Average cost (Rupees) Average cost (US $) Migration Corridors Kerala-Bahrain 57172 1270 Kerala-Kuwait 53951 1199 Kerala-Oman 56840 1263 Kerala-Qatar 66316 1474 Kerala-Saudi Arabia 74606 1658 Kerala-UAE 61308 1362 Source: Zachariah and Irudaya Rajan, 2009 To cover the expenses of migration to the Gulf, many prospective emigrants borrow from various financial sources including moneylenders, and even resort to selling their assets such as land and gold ornaments (for details, see Table 6). Under such circumstances, emigrants who lose their jobs in the Gulf and are still in debt would opt not to return home (even during a crisis in the destination country) for fear of defaulting on their loans. They would rather accept any kind of job, even at a lower wage, and continue to send home remittances to repay their debts.

Table 6: Sources of Finances for Emigration, 2008 Source Per cent of Emigrants From Family Members 26.8 Personal Savings 40.1 Parents Savings 37.7 Borrow from Friends 42.1 Loans from money lender 12.6 Loans from Banks 14.1 Sale/Mortgage of Land 4.9 Sale/Mortgage of Other Assets 3.4 Sale/pledge Ornaments 29.2 Government Assistance 0.4 Others 7.0 Total Emigrants 3953 *The total exceeds 100 as emigrants use more than one source. Source: Zachariah and Irudaya Rajan, 2009

Table 7: Channels of Migration by Emigrants, 2007 Channel Male Female Number 185 0 7 Total Male 74.2 0.7 9.2 16.01 100.0 Female Percent 88.52 0.00 3.35 8.1 100.0 Total 78.7 0.5 7.3 13.5 100.0

Friends and relatives 330 515 Government agency 3 3 Foreign employer 41 48 Private Recruitment Agencies 71 17 88 Total 445 209 654 Source: Irudaya Rajan, Varghese and Jayakumar, 2009

Another facet of Indian migration to Gulf is the existence of a social network of friends and relatives in the destination country, which plays a major role in helping the prospective emigrants by arranging visas and taking care of other matters involved in the emigration process. For instance, an all-India survey conducted by the Centre for Development Studies for the International Labour Organization and the Ministry of Overseas Indian Affairs revealed that close to 80 per cent of Indian emigrants relied on their friends and relatives as an important channel for migration (Table 7). This also ensured that, in the event of a lay-off, they had someone to turn to for temporary support. Thus the cost and social network aspects involved in the Indian migration process have minimised the extent of return emigration during this time of financial crisis. In fact, this is evident in the existence of a set of migrants who can be categorised as: lost jobs in the Gulf and have not returned to the country of origin. Return Emigrants due to Global Financial Crisis Table 8 indicates that there are several reasons why emigrants return to Kerala and these are not related to the recession. Both in 1998 (Zachariah, Irudaya Rajan and Mathew, 2003; Zachariah, Gopinathan Nair and Irudaya Rajan, 2006) and in 2008 (Zachariah and Irudaya Rajan, 2008), which were non-recession years, emigrants retuned because work contract had expired and was not renewed. Failure to get the promised salary or wages and the harsh climatic conditions in the Gulf region were other factors that forced many emigrants to return. Women emigrants said that they came back as conditions at home were such that their presence was needed. Thus, in 2009, most emigrants could have returned due to reasons unrelated to the global recession.

Table 8: Reasons for Return of Return Emigrants in Kerala, 2009 Reasons for the Return Number Male Female 65 0 30 5 10 0 49 14 3 22 24 39 256 1 0 0 3 9 30 48 Total 65 35 10 Per cent Male Female Total 25.4 0.0 21.4 11.7 10.4 11.5 3.9 0.0 3.3 2.1 16.4 0.0 4.6 0.0 1.0 6.3 8.2 18.8 10.9 62.5 22.7 100.0 100.0 Cumulative Estimated Percent Number 21.4 37022 32.9 56940 36.2 62631 52.7 57.3 58.2 66.5 77.3 100 100 91085 99052 100759 114986 133765 173032 173032

Lost job due to financial crisis Expiry of Contract Compulsory Repatriation Low wages or not getting promised wages Poor working condition Harsh behavior of Employer Ill health Problems at home Others Total

50 19.1 14 5.5 3 1.2 25 8.6 33 9.4 69 15.2 304 100.0

In 2009, it was job loss resulting from the financial crisis in the Gulf that forced the majority of the emigrants to return. While 21 per cent of the return emigrants (or 37,000) returned due to job loss, 3.3 per cent came back because they were compulsorily repatriated. Thus about 43,000 emigrants (24.7 per cent) who returned were recession-driven. Non-renewal of job contract, a common experience among Gulf emigrants caused about 11.5 per cent of them to return home. This is a normal process in the Gulf migration (Irudaya Rajan, Varghese and Jayakumar). However, for arguments sake, if we include such return emigrants to the earlier estimate of 43,000, the total would go up to 63,000 persons (or 36.2 per cent) who returned home because of the global recession. Thus, the number of emigrants who came back due to recession-related factors could range from a minimum of 37,000 to a maximum of 63,000. However, during the first half of 2009 (the recession period), 173,000 emigrants returned to Kerala; same time about 97,000 former return emigrants of Kerala remigrated and became emigrants once again. Similarly, there were about 142,000 new emigrants who left from Kerala to the Gulf countries. Thus the total outflow of emigrants was estimated as 239,000 as against 173,000 return emigrants even at the time of the crisis a gain of 66,000 emigrants (Irudaya Rajan and Zachariah, 2010a) Lost Jobs in the Gulf and have not returned to the Country of Origin One of the strategies adopted by the emigrants who lost their jobs in the countries of destination due to the financial meltdown is to return to their countries of origin and look for employment. However, there is an equal number or more persons who lost their jobs and are still not able to return due to their heavy investment in migration. Thus there is a class of emigrants who will remain unemployed in the destination country and continue to look for jobs in the sectors which are less/not affected by the crisis, and be ready to work even for lower wages and under hostile working conditions. The Return Emigrant Survey 2009 conducted in Kerala offered a unique opportunity to estimate the number of unemployed emigrants or those who lost their jobs in the Gulf countries due to the crisis. According to these estimates, of the 2.2

million stock of emigrants from Kerala, about 39,396 persons lost their jobs between 2008 and 2009 but have not returned to their country of origin (Zachariah and Rajan, 2009). Applying the same methodology, the number of Indians who lost their jobs in the Gulf but not returned is placed at 90,000. How the workers cope with their shattered livelihood requires separate investigation. Remittances from abroad: There is now enough consensus that although the per capita domestic product in Kerala is low compared with most other states in India, the per capita consumption expenditure in Kerala is second only to Punjab, mainly because the shortfall in GDP is offset by the inflow of large volumes of remittances from abroad especially from countries in the Middle East and also from other parts of India. Increasingly a number of economic activities within the state notably, commerce, real estate and construction are financed to a certain extent with remittances from abroad. Four rounds of the Kerala Migration Surveys (1998, 2003, 2007 and 2008) conducted by the Centre for Development Studies (CDS), reinforces the fact that migration has emerged as the single most dynamic factor in the otherwise dismal scenario of Kerala in the last quarter of the twentieth century. In Kerala, probably, emigration might have contributed more to poverty alleviation than any other factor including agrarian reforms, trade union activism and social welfare legislation (Zachariah, Mathew and Irudaya Rajan, 2003; Zachariah and Irudaya Rajan, 2007; 2009). In 2008, remittances account for about 3 per cent of net national disposable income. Unfortunately no official estimates of remittances to Kerala or any other states in India are available. There is, of course, a plethora of estimates very often done under simplifying assumptions. We also conduct our own estimates of remittances for Kerala and these estimates are based on four rounds of field survey covering 15,000 households dispersed through 300 localities in Kerala. The Kerala Migration Survey 2008 conducted by the CDS, (with financial support from Department of NonResident Keralite Affairs, Government of Kerala) gives the following estimates: (i) the number of international migrants (emigrants) from Kerala stood at 2.2 million representing 29 emigrants per 100 households; (ii) the proportion of Kerala emigrants who went to the Gulf region accounts for 89 percent; and (iii) the largest number of Gulf emigrants (53.3 percent) had only primary education but without a secondary school certificate. It is widely held that 25 percent of all remittances to India consist of remittances to Kerala. However, our estimate of remittances to Kerala comes to Rs 43288 crores in 2007 which represented just 19.6 percent of the total remittances to India (Zachariah and Irudaya Rajan, 2009). We strongly believe that due to changes in the age structure of Keralas population, the number of emigrants from Kerala may stabilize between 1.9 to 2.0 million. The recent Annual Report published by Ministry of Overseas Indian Affairs, Government of India, indicates that the number of workers granted emigration clearance to work abroad has come down in Kerala during the last two years and the proportion of such workers to total workers in India has come from 19.7 percent in 2003 to 18.6 percent in 2007 and back to 19.6 per cent in 2009 (Ministry of Overseas Indian Affairs, 2009). Though the remittances to India increased from 28.95 Billion US dollars in 2007 to US$51.5 billion in 2009, we believe that the share of Kerala has come down while remittances to other states in India are growing. Also note that deposits into Non-resident accounts in Kerala (see Table 9) have come down from Rs.

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33,304 crores in 2007 to Rs. 29,889 crores in 2008 a decline of 3415 crores in just one year. However, during 2009, there had been an increase of Rs 1976 crores thus taking the total deposits to Rs. 31865 crores in June 2008. Table 9: Trends in NRI deposits in Kerala (Rs in Cores) Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 NRI Deposits Increment in NRI Deposits 18724 21431 2707 24534 3103 28696 4162 30100 1404 29121 -980 30671 1550 33304 2632 29889 -3415 37019 7139 Source: State Level Bankers Committee (2009)

It is also seen that the ratio of NRI deposits to domestic deposits have more than halved itself during the period March 2002 through June 2008 implying the declining importance of remittances to Kerala as a whole (Figure 1). However to make this statement more strongly we do require all components of remittances to Kerala as according to RBI only local withdrawals from NRI deposits are treated as part of remittances, the major component of remittances being remittances for family maintenance which does not always go through banking channels.

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Figure 1: Ratio of NRI deposits to Domestic deposits, 2000-09

1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00
Ratio of NRI Deposits to Domestic Deposits

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: State Level Bankers Committee (2009) Table 10 Actual remittances to India and estimated remittances to Kerala, 1990-91-2008-09 Year Remittances to Remittances to Estimated India (in Million India (in Rs Remittance to Kerala of US $) Crores) (Rs in Crores) 1990-91 2068 3712 1991-92 3783 9382 3025 1992-93 3852 11226 3882 1993-94 5265 16514 6084 1994-95 8093 25417 7069 1995-96 8507 28660 9521 1996-97 12367 43969 10761 1997-98 11830 43765 10817 1998-99 10280 43242 13652 1999-00 12256 53132 14438 2000-01 12854 58811 15732 2001-02 15398 73363 17362 2002-03 16387 79229 18465 2003-04 21608 99165 19797 2004-05 20525 91971 21251 2005-06 24493 108565 22828 2006-07 27941 126088 24526 2007-08 40778 163709 30122 2008-09 46088 221222 43288
Source: Remittances to India: Reserve Bank of India, Handbook of Statistics of Indian Economy 2008; Remittances to Kerala: Estimated. Please see text for the methodology *Estimated by blowing up the data on remittances during first quarter of 2008-09 to the entire year (ie., net private transfers during Q1 of 2008-09*4); ** Low estimate; *** High estimate ; NA-Not available

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What will be the direction of movement of remittances to India and Kerala in the near future? The answer to this question will crucially depend on the following set of factors: (a) the economic conditions in the host countries such as the Middle East, the USA, and the UK where most Keralites have migrated to, and where over 90 per cent of the remittances to the state originate from. Among these three regions, Middle East is the most important region where most of the total remittances to Kerala have originated from; (b) the exchange rate of the Indian Rupee vis--vis the US Dollar; (c) Rate of interest on NRI deposits; (d) Perceptions about the relative strength of Indian banks in the light of the global financial crisis etc compared to the banks abroad. We elaborate on each of these factors. (a) Economic conditions of the host countries: Most of the NRKs are located in one of the seven Gulf countries. Of these seven, the largest numbers are in Saudi Arabia and in the UAE. The economies of all these countries, according to IMF assessment, are in good shape although there are liquidity concerns in the banking sectors of Saudi Arabia, UAE and Qatar. But the governments of these three countries have taken a number of steps to improve the liquidity position of their respective banking systems. So there appears to be no immediate cause for concern in the health of the commercial banking systems of these countries. The International Energy Agency (IEA) found that even after recent investment, production from the oil fields (worlds largest 800 oil fields) was declining at an annual 6.7 per cent and that this rate was accelerating. Many of the fields experiencing the sharpest decline in production lie in developed countries, including in areas such as the North Sea and Alaska. This meant that the west would become less and less of an influence in terms of production, while the Persian Gulf countries would become more important. According to IEA, most of the projected increase would come from members of OPEC, whose world share would jump from 44 per cent to 51 per cent by 2030. This means the Gulf countries will continue to grow with a steady source of income from oil exports. In the short and medium terms, given the large Current Account surpluses that these countries enjoy, we do not expect any adverse impact on their growth performance and therefore we assume that there are no immediate deleterious effects on the employment position of Keralites located in these countries. It must be mentioned, that house rentals in the UAE had been rising at a rate of 20 per cent. This has forced many Keralites to send their families back to Kerala to whom they regularly remit cash for family maintenance. However, if the reduction in oil price and its sustained low level reduces investments in gulf countries, then it can have negative impact on job opportunities and the income of migrants from Kerala. We have not seen so far any indications of such a reduction in investment there, though such an eventuality cannot be ruled out. We, therefore, expect the remittances from the Gulf region to be positive but with reduced rate of growth over the next few years or so. In the case of the other two regions, namely the USA and in the UK, the economies are already in recession and there are a number of job losses. (However most of the Keralites working in these two regions is in the public health system of these countries and they are therefore unlikely to lose jobs.) (b) Nominal exchange rate of Indian Rupee vis--vis the US Dollar: The exchange rate of the Rupee has depreciated by almost 18 per cent since January 2008. 13

This factor can encourage more repatriation of funds from abroad. Since we do not have the composition of NRI deposits (into dollar denominated FCNR and otherwise) we are not in a position to unequivocally say that remittances will increase as a result of depreciation per se. But given the usual inverse relationship between the exchange rate and remittances, the Rupee depreciation is likely to yield positive net remittances. (c) Rate of interest on NRI deposits: This has been revised upwards by 50 base points since September 2008. Consequently with the depreciating Rupee, one would expect to have positive impact on remittances; (d) Perception about the relative strength of the banking system: Although the NRI deposit component of remittances is only about 50 per cent or so, there is a general feeling that Indias commercial banks have very little or no exposure to the toxic assets and is therefore perceived to be safe. We, therefore expect, remittances to be positive but with a reduced rate of growth during the short and medium terms. However, we need to be careful to monitor the changes in level of investments in the Gulf countries, possibly due to the movements in oil prices. MITIGATION MEASURES No immediate reduction in remittances is envisaged. However, there can be problems if there is a reduction in investment activity in the middle-east countries. This needs to be monitored by the Government of Kerala. One long term measure is to facilitate the upgrading of skill sets of those who seek to migrate to these countries. These programmes can help migrants (and potential migrants) position themselves at vantage points for re-entry into the global value chains, as and when conditions improve in the labour markets of their host countries. In the long run, there is a need to generate more employment and income within the state to minimize the impact of potential crises in future. Public investments are inadequate to give a momentum to the economic development, and hence a strategy to attract private investments on a sustainable basis is unavoidable. The state should foster the development of industries by inviting more resources for direct investment from potential investors, especially those from the non-resident Indian communities References Centre for Development Studies. 2008. Global Financial Crisis and Kerala Economy: Impact and Mitigation Measures. Report submitted to the Government of Kerala. Irudaya Rajan, S 2004. From Kerala to the Gulf: Impacts of Labour Migration. Asia Pacific Migration Journal, Volume 13, No.4, Pp. 497-509. Irudaya Rajan. S and P R Gopinathan Nair. 2006. Saudi Arabia, Oman and the Gulf States. Pp. 222-233, In Brij V Lal. 2006 (ed). The Encyclopedia of the Indian Diaspora. Editions Didier Millet. Singapore/Paris.

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Irudaya Rajan, S and Prabha, Remya G. 2008. India. Asia Pacific Migration Journal. 17 (3/4), pp.277-86. Irudaya Rajan, S and Prakash B. A. 2009. Migration and Development Linkages ReExamined in the Context of the Global Economic Crisis. Invited paper for the Civil Society Days of the 3rd Global Forum on Migration and Development, 2-3 November, Athens. Irudaya Rajan, S, Varghese, V.J and Jayakumar, M.S. 2009. Overseas Recruitment Practices in India: A Critical Assessment. International Labour Organization and Ministry of Overseas Indian Affairs, Government of India. Irudaya Rajan, S and D Narayana. 2010. The Financial Crisis in the Gulf and its Impact on South Asian Migrant Workers. Report Submitted to the Asian Development Bank and the Ministry of Overseas Indian Affairs, Government of India. Irudaya Rajan S and K C Zachariah. 2010a. Kerala Emigrants in the Gulf. Chapter 4, Pp.19-23 in Migration and the Gulf. View Points of the Middle East Institute, Washington. USA. Irudaya Rajan S and K C Zachariah. 2010b. Remittances to Kerala: Impacts on the Economy. Chapter 10, Pp.42-45 in Migration and the Gulf. Viewpoints of the Middle East Institute, Washington. USA. Irudaya Rajan, S and K C Zachariah. 2010c. Global Financial and Economic Crisis on Migration and Migrant Workers in India with Special Focus on Kerala. Report prepared for the International Labour Organization. Ministry of Overseas Indian Affairs. 2008. Annual report 2007-08. Government of India, New Delhi. Patnaik Prabhat (2008) The Present Crisis and the way Forward, in Kerala State Planning Board, Speeches Delivered by theUN Panel Members on Global Financial Crisis in the UN General Assembly on 30-103008 at New York, State Planning Board, Thiruvananthapuram; State Level Bankers Committee (2009), Agenda and Background notes for State level review meeting, Trivandrum, SLBC, Circle Office, Canara Bank Stiglitz Josepph E (2008) Towards a New Global Economic Compact-Principles for Addressing the current Global Financial Crisis and Beyond, in Kerala State Planning Board, Speeches Delivered by theUN Panel Members on Global Financial Crisis in the UN General Assembly on 30-103008 at New York, State Planning Board, Thiruvananthapuram; Zachariah, K.C., E.T. Mathew and S. Irudaya Rajan. 2003 Dynamics of Migration in Kerala, Dimensions, Determinants and Consequences, Orient Longman Pvt. Limited, Hyderabad.

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Zachariah K.C. and S. Irudaya Rajan. (2007). Migration, remittances and Employment: Short-term Trends and Long-term Implications, Centre for Development Working Paper 395, Thiruvananthapuram. www.cds.edu Zachariah, K C and S Irudaya Rajan. 2009. Migration and Development: The Kerala Experience. Daanish Publishers, New Delhi. Zachariah, K.C and S Irudaya Rajan. 2010a. Migration Monitoring Study, 2008. Emigration and Remittances in the Context of Surge in Oil Prices. Centre for Development Studies Working Paper 424, Thiruvananthapuram. www.cds.edu Zachariah, K.C and S Irudaya Rajan. 2010b. Impact Of The Global Recession On Migration And Remittances In Kerala: New Evidences From The Return Migration Survey (RMS) 2009. Centre for Development Studies Working Paper 432, Thiruvananthapuram. www.cds.edu

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