BackShrinking remittances may push Kerala into recession: Thomas Isaac
Remittances from the Gulf countries, estimated to be over Rs1 trillion every year by state-level banks, constitute 35% of Kerala's gross state domestic product
PremiumThis black hole when it comes to data is precisely why the government goes for knee-jerk reactions every time there is a crisis instead of developing a proper contingency plan, he lamented.
An analysis of data from the State Level Bankers’ Committee (SLBC), a consortium of banks, showed the growth in deposits has almost halved in the past three years.
The growth of remittance fell from 40% in 2013 to 15% by 2014. In 2015, it grew somewhat better—by 22%—but then, as bankers point out, the slight improvement may have been due to the rupee depreciating by 4.5% in 2015.
This meant fewer people are buying land or gold, considered to be favourite acquisitions of the non-resident Keralites.
Isaac admits that such knock-on effects are “increasingly becoming a reality."
Interestingly, the rise in the number of Gulf returnees also seem to have caused panic within the Left front government, forcing it to think of newer ways to raise money quickly and become more friendly to private investors. “We are in a slight hurry. We will not be looking at just redistribution alone anymore. We are not even going to wait for private investment. The government will raise money on its own," Isaac said.
For instance, the state government plans to try to raise ₹ 25,000 crore from the existing diaspora population in two years via chit funds, which in turn will be used to invest in projects that will create jobs, Isaac said.
It plans to tap Kerala State Financial Enterprises (KSFE), a state-owned non-banking firm that recently got clearance from the Reserve Bank to start chit business, for this initiative.
The state has also decided to put together a separate anti-recession package of ₹ 12,000 crore through its own efforts, said Isaac. It is also hoping to get as much as ₹ 4000 crore once the centre implements the Goods and Service Tax (GST).
But outsiders are not convinced that the efforts could avert the bigger impact of the crisis, namely unemployment.
D. Dhanuraj of Center for Public Policy Research (CPPR), a Kochi-based think tank on economic and policy affairs, said unlike past crises such as the Dubai real estate crash in 2009, the present oil crisis is going to have a long-term impact and requires long-term solutions.
“How long can you run all these rehabilitation packages? Finally, the market has to absorb these returnees," he said.
“I don’t know whether it will be a recession or not, but it is going to be a doomsday scenario because of several reasons. One, you may not find employment immediately after returning. Two, you are used to a particular lifestyle as a Gulf Malayalee; so, you may not be able to adjust to the new reality which may lead to social tensions. And then, being a very regulated economy, even if you may want to invest in something you may not be able to do that. The question really is not about what the government will do, but what the returnee will do in a state like Kerala," said Dhanuraj of CPPR.
Elizabeth Roche in Delhi contributed to this story.
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