Understanding the Current Landscape
It is well-established that remittance income plays a crucial role in Kerala's economy. In fact, the remittances received annually generate a revenue equivalent to that of the state's government. However, recent trends indicate that remittances have been declining over the past few years.
The Decline in Remittances
The primary reason for this decline is the shifting dynamics in the oil markets. For more than eight decades, people from Kerala who live in the Gulf region have been major contributors to remittances. The Gulf oil cartels, which enjoyed dominating global oil prices for decades, saw their profits take a hit when the United States made significant strides in shale oil production. This led to a considerable drop in remittances to Kerala.
Another point of interest is the trajectory of the cash inflow from abroad. Significantly, rather than investing in appreciating assets, a substantial amount of this money was spent on depreciating assets such as land, houses, automobiles, and gold. If this expenditure had been invested in assets that grow in value over time, we might have seen economic growth akin to states like Tamil Nadu and Karnataka.
Potential Consequences of a Decline in Remittances and Migration
With nearly 40% of incoming remittances to India originating from Kerala, the reduction in this income stream would have a noticeable impact on India's trade deficit, the situation where the cost of imports exceeds the value of exports.
The absence of remittance and migration would exacerbate the situation in Kerala. The cash crunch would be severe, and political parties might face financial hardships. Inter-state migrants to Kerala would face tougher competition from locals, leading to potential labor market imbalances. Households that rely on remittances for their livelihood would need to find alternative employment sources. The economic pressure on the government to create more employment opportunities for those who did not emigrate would increase.
Strategies for Kerala's Future
Given these challenges, Kerala has an opportunity to become internally self-sustaining. The state needs to diversify its economy and take calculated risks in high-risk, high-reward areas such as entrepreneurship, skill training, and investments in science and technology. Such a shift can help Kerala become more resilient and less dependent on external remittances and migration.
Entrepreneurship and skill training can provide the framework for indigenous economic growth. By investing in these sectors, Kerala can create a robust and diverse economy that can withstand geopolitical tensions and market fluctuations. Additionally, fostering a culture of innovation and scientific exploration can lead to new industries and job opportunities, further cementing the state's self-sufficiency.
In conclusion, while the decline in remittances and migration pose significant challenges, they also present an opportunity for Kerala to take proactive steps towards self-sufficiency and long-term economic stability. By diversifying its economy and embracing high-risk, high-reward areas, Kerala can ensure a sustainable and prosperous future.