In March, Dhananjay Datar, promoter of the $50 million
United Arab Emirates-based Al Adil Trading Co., celebrated the 25th anniversary
of his business. He hired a Boeing 737 and circled Dubai
for several hours as 50 guests popped champagne and ate cake. After touchdown,
he presented his wife, Vandana, with a $2 million Rolls Royce Phantom.
Around the same time, other Boeing 737s were ferrying
laid-off Indian workers back from Dubai to Thiruvananthapuram, Kozhikode and
Kochi, principal cities in the southern Indian state of Kerala. They hope to
return, but at the moment it doesn’t seem likely.
Some 200,000 to 500,000 Keralites working in the Gulf are
likely to return home by midyear, state finance minister T.M. Thomas Isaac told
the State Assembly recently. This is a considerable chunk of the estimated two
million-plus Keralites working abroad, nearly 90% of them in the Gulf. The 2001
census put Kerala’s population at 31.8 million. Non-resident Keralites (NRKs)
send back close to $8 billion in remittances annually, more than double the
state’s tax revenues. The impact of the reverse exodus — both economically and
socially — could be devastating, according to experts.
Indian workers at a shopping mall in Dubai, United Arab Emirates.
“There will naturally be a considerable negative impact on
Kerala, as the remittances will stop and the number of unemployed will increase
simultaneously,” says Rajesh Chakrabarti, assistant professor of finance at the
Hyderabad-based Indian School
of Business (ISB). “Socially, adjusting to the returnees will be a problem.
They would be quickly perceived as liabilities as opposed to assets, affecting
both them as well as the residents.”
The reasons for the reverse migration have been
well-documented. The Gulf economy has been suffering after the crash in oil prices.
Dubai has been hit particularly
hard because it was the region’s key financial center, and finance has taken a
backseat amid the global economic slowdown. “It is mainly the real estate and
property segments along with bankers who have been hard-hit,” says Datar of Al
Adil Trading. “The other businesses are not doing too badly. They may be down
by 15% to 20%.” Adds Faisal Shamsudheen, a Dubai-based journalist-turned-PR
manager who lost his job in the crisis: “Construction and banking are the worst
hit. Mass redundancies are happening by the day in the private sector and
semi-governmental organizations.”
The bulk of the NRKs were working in construction. “The Gulf
has been a significant employer in blue-collar jobs and the worker class,” says
Narayanan Ramaswamy, executive director, KPMG Advisory Services. “That influx
will come into India.”
People have left other Indian states for jobs in the Gulf, but in much lower
numbers. (Labor migration from states such as Uttar Pradesh and Bihar
has more often been to richer states such as Gujarat and
Punjab.) Kerala will bear the brunt.
Kerala’s Main Export Commodity
“The main commodity which Kerala exports to the Gulf
countries is manpower,” says Ajay Kumar, chairman of the Kerala State IT Mission
and secretary of IT. “They have been engaged in the construction, real estate
and tourism sectors, which have been badly hit by the global slowdown.”
Ramaswamy notes that Kerala’s rule by a Left alliance may
create additional problems. “One of the things this will definitely cause,
especially in an economy like that of Kerala, with its Communist flavor, is
more unrest,” he says. “Jobs will be affected. Unions will protest. If this
continues for the medium to long term, it will also lead to law-and-order
problems.”
Though some observers sense disaster, authorities don’t seem
particularly concerned yet. “The Dubai
government is still in a denial phase and continues to repeat that there is no
mass exodus of Indian workers,” says Shamsudheen. The Center for Development
Studies (CDS), in Thiruvananthapuram, said in a report this year that there was
no cause for worry. The main conclusion of the report, the Kerala Migration
Monitoring Study 2008, is that “as of December 2008, there is neither any
indication of a significant slowdown of emigration from the state nor any
large-scale increase in return emigrants to Kerala.” Authors S. Irudaya Rajan
and K.C. Zachariah acknowledge, however, that the situation may have changed in
2009. But not all return migration is related to the recession, they say.
Indian workers at Sonapur camp in Dubai.
According to the CDS, the number of emigrants from Kerala in
2008 was 2.16 million, up from 1.84 million in 2003. The number of return
emigrants was 1.1 million in 2008, up from 890,000 in 2003. So return
emigration rose only 210,000, compared with an increase of 320,000
outward-bound. “I don’t think there is a crisis,” says Rajan, who is chair
professor in the research unit on international migration and a fellow at CDS.
“A few hundred people may have lost their jobs. But what are they among the two
million (Indians) in the Gulf?” Shamsudheen also points out, however, that
these figures were calculated before the economic crisis struck the region.
And some data can be misread. Take remittances, the
lifeblood of the Kerala economy. According to K.V. Shamsudheen, chairman of the
Pravasi Bandhu Welfare Trust, a UAE-based charitable organization working for
the welfare of expatriate Indians, NRKs have remitted more than $42 billion to
Kerala in the last 35 years. Weekly newsmagazine India Today reports that
non-resident external deposits with Kerala banks, which were $6.73 billion in
June 2008, are expected to cross $7.39 billion by June this year. Adds Binoy
Augustine, manager of the Tiruvalla branch of Federal Bank, which has one of
the largest numbers of NRK accounts in the state: “In the past two months, we
have seen a surge in NRI remittances thanks to the favorable exchange rates.”
This boom in remittances is considered good news; it’s business as usual.
Coming Home Permanently
Others, however, say that returning NRKs are closing their
accounts in the Gulf because they are coming home permanently. The spike is
also attributable to the more expensive dollar, which makes it attractive to
convert to rupees, and the migration of accounts from foreign banks, perceived
as risky, to Indian public-sector banks. Such a surge cannot continue.
A Planning Commission report submitted recently to the Union
government suggests as much. Remittances could decline by 20%, the report says.
As workers abroad return to India,
“they may bring back their accumulated savings and a one-time increase may take
place. During 2009-2010, private transfers can be between $35 billion and $50
billion.”
A World Bank study reaches a similar conclusion. “Cash
remittances to developing nations sharply slackened in the last few months of
2008 because of the global financial distress, and they are projected to
continue their slowdown this year,” the report says. “Their lower growth in
2009 will likely be a result of the global crisis, the downward impact of the
oil price collapse on the Gulf economies and the uncertainty about exchange
rates…. The growth of remittance flows is expected to slow significantly from
6.7% in 2008 to 0.9% in 2009, but could recover in the medium term to 6.1%
growth in 2010.”
Indian workers at Sonapur camp in Dubai.
Although Kerala may suffer the most, the decline could hurt
the entire economy. India
gets the highest remittances of any country in the world ($27 billion in 2007;
$32 billion in 2008). This is estimated to add 3% to GDP. “The slowing down
will hurt particularly as it comes coupled with the reversal of portfolio
capital flows,” says Chakrabarti. “Together, this could hurt both the exchange
rate, making the rupee weaker, and the asset markets, particularly the real
estate market.” The euphoria following the formation of a new, stable
government may dilute this effect. The rupee is strengthening and foreign
portfolio investments have resumed. But remittances have always been long-term
money, while foreign investments in Indian equity, as the last year shows, can
be fickle. Total foreign direct investment in India
in 2008-09 (April to March) was around $27 billion, while portfolio investments
stood at a negative $15 billion as foreign institutional investors pulled out.
The government won’t acknowledge the potential for a crisis.
In Dubai recently for the
inauguration of a new campus of the Ghaziabad-based Institute
of Management Technology, former
commerce and industry minister Kamal Nath rejected a suggestion that the
government work out a loan or grant scheme for Gulf workers who had lost their
jobs. This has been a demand of the Pravasi Bandhu Welfare Trust, which earlier
appealed to Prime Minister Manmohan Singh to have the government provide $2,000
each to workers who had to return after losing their jobs. Nath instead said India
had plenty of jobs.
“The government can’t fund any rehabilitation or relief
packages for its expatriate Indian community,” Nath said, according to the Abu
Dhabi-based newspaper The National. “However, Indians facing losses should
return and find new opportunities back home. Industries like IT continue to
grow in India,
and business is looking positive.”
But, as in other parts of the world, job losses have been
considerable in India.
Nath’s optimism notwithstanding, having special schemes to provide jobs for
returnees may invite problems. “To the extent that some of the returnees will
have prior experience and skills, the government may be able to help them find
employment, but any ‘special efforts’ directed at them will also cause social
heartburn,” says Chakrabarti. “So efforts, if any, should be kept low-key.”
Adds Ramaswamy of KPMG: “The government should take some measures. But this
business of providing direct employment could just be more emotional talk. The
way they should provide employment is to hasten some of the infrastructure
projects and start investing in capital-intensive projects.”
Financing for Repatriated Entrepreneurs
Those are big-ticket items. The Kerala government,
meanwhile, is thinking small. It has announced a $200 million entrepreneurship
package for repatriates. This, finance minister Isaac says, is not a dole
program. The money will go to the state-owned Kerala Financial Corp., which
will borrow six or seven times that amount from the market. The principal will
be used to finance entrepreneurs.
Kumar of the State IT Mission
says the technology sector offers employment potential. “There is hope in the
IT sector, which seems to be growing despite the economic slowdown. The growth
in IT in Kerala is likely to be much more than the national average.” Because
of pressures on costs, IT companies will move to Tier 2 and Tier 3 cities, he
predicts. Kerala has enough of those and an additional edge because of “the
best social infrastructure and highest physical quality of life.” The
government has a three-pronged plan to make Kerala an IT destination: Build
infrastructure, develop human resources and focus on marketing the state.
“There is a hidden opportunity for Kerala,” Kumar notes.
There is a problem, however. Keralites work hard when they
go out of the state to seek their fortune; at home, they seem to lack the same
discipline. “Keralites are ready to do any job once they cross the state
border,” says Rajan of CDS. “But (at home) there is a kind of self-created
social unemployment.” Opportunity exists nonetheless.
“There is a scarcity of workers in Kerala. If you notice, in Thiruvananthapuram
city alone there are thousands of workers from other parts of India
and even from Nepal.”
The Kerala crisis raises issues that are larger than the
impact on the state. India
was supposed to benefit from a “demographic dividend.” India’s
young workers would provide muscle as other countries turned gray. Has this
theory — and therefore India’s
growth prospects — suffered a setback? “It is temporary,” says Chakrabarti of
ISB. “The jobs crisis is global, across countries. In the end, India
will still be among the fastest-growing countries in the world. Hopefully, by
2011, 2012, the dust will settle, and by then India
will also be able to get back on track for growth.”
A related issue is protectionism, particularly in the labor
market. Western countries have begun making noise about this as they try to
preserve jobs for their own nationals. But Chakrabarti is optimistic. “These
protectionist tendencies will be short-term,” he says. “But if the slowdown
becomes a very long one, the protectionist pressures may cross certain
political thresholds, which may lead to the world going the protectionist way
for decades to come.” Adds Ramaswamy: “Protectionism is an emotional response
and can only be a short-term phenomenon because the world has moved a long way
from where we were during the last recession. The impact of the Gulf slowdown
on India is
only an indirect one, so we don’t need to be overly concerned. Even the people
who are coming back will return to the Gulf once the economy picks up.”
It has happened before. During the Iraqi invasion of Kuwait,
there was an exodus of Indian workers from the war zone. “It was a fast
turnaround for Kuwait
after the Gulf War, considering the devastation and exodus the country saw with
the Iraqi invasion,” says Shamsudheen, the PR manager. “Almost all Kuwait
returnees went back after the country was liberated, and there were more opportunities
with the reconstruction projects.”
