Globalised Kerala warily watches economic meltdown (Letter from Kerala)October 26th, 2008 - 11:17 am ICT by IANS
With its economy more globalised than that of any other state in India, Kerala is warily watching to see how the economic crisis that has hit the world will affect it. So far there is no serious cause for concern. However, the state government has asked the Centre for Development Studies (CDS), Thiruvananthapuram, to study and report on the likely impact of the global meltdown.The government is acting on the premise that to be forewarned is to be forearmed. The directive to the CDS to provide an interim report by October end indicates that it is approaching the issue with a sense of urgency.
Kerala earns a good deal of foreign exchange for the country by exporting various commodities. It exports each year cashew worth Rs.25 billion, spices worth Rs.23 billion and marine products worth Rs.20 billion. Lately tourism has also emerged as an important source of revenue. The earnings from foreign tourists are estimated at about Rs.20 billion.
The US, Europe and Japan are the main importers of Kerala produce. They also account for the bulk of the foreign tourists. A decline in their economies can, therefore, result in shrinkage of state’s earnings.
However, Kerala’s current prosperity is the result of export of labour rather than that of commodities. Nearly 2.5 million out of the state’s 30 million people are working abroad, according to the government’s Non-Resident Kerala Affairs (Norka) department.
Keralites have been going abroad in search of jobs long before the advent of the present phase of globalisation, characterised by large-scale movement of capital and labour across national borders. Before World War II, Singapore and Ceylon (now Sri Lanka) were the popular destinations of jobseekers. Since the oil boom of the 1970s, the Gulf region has been attracting people in increasing numbers.
The CDS has been studying the impact of international migration on Kerala’s economy for a decade now. Its 2003 survey found that 89 percent of all those who went abroad in search of work were in the Gulf states. Five percent were in the US and one percent each in Britain and Singapore.
According to the World Bank, Indians working abroad sent home $27 billion last year, making the country the topmost recipient of migrant remittances. As much as 24 percent of the money they send home reaches Kerala, although the state accounts for only 3.5 percent of the country’s population.
Non-resident Keralites are the state’s main providers. Their remittances add up to seven times what the centre gives the state each year. These remittances make up nearly a quarter of the state’s net domestic product.
Since the large majority of NRKs are in the Gulf states, what happens to the economy of that region matters much more to Kerala than what happens in the US and Europe. America’s sneeze may not give Kerala a cold, but an emirate’s sneeze may.
People still remember the nightmarish experience of 1991 when the Iraqi invasion forced several thousand Keralites in Kuwait to flee, leaving behind all their belongings. Luckily, most of them recouped their losses under the compensation package worked out after US forces ousted the Iraqis.
Going by the International Monetary Fund’s report on the economy of the Gulf region, Kerala has no immediate cause for worry.
According to the IMF, the region has remained “largely resilient” to the international credit crisis. It expects only a slight slowdown in the regional growth rate, from 6.5 percent this year to six percent in 2009.
The country that matters most for Kerala is the UAE, where 37 percent of all NRKs work. Next in importance is Saudi Arabia, where 27 percent of them work. Both the countries have acted swiftly to soften the impact of the global financial debacle.
To calm the market and remove anxiety about the financial system, the UAE government has guaranteed all bank accounts for a period of three years. The other members of the Gulf Cooperation Council are expected to follow suit.
Saudi Arabia’s vast oil wealth has not insulated it fully from the global crisis. An official report earlier this week revealed that a credit crunch was on.
Both the UAE and Saudi Arabia have taken steps to improve liquidity. Last week the UAE announced a rescue package of 70 billion dirhams (about $19 billion) and immediately put 25 billion dirhams into the banking system. The Saudi central bank made deposits worth up to $3 billion with banks.
In the final analysis, the Gulf states’ ability to overcome the global crisis will depend upon oil prices. After touching a record high of $147 a barrel in July, prices fell more than 50 percent as the crisis developed. Kerala’s hopes rest on the success of the reported plan of the Organisation of Petroleum Exporting Countries (OPEC) to cut production in order to stabilise prices between $70 and $90.
(B.R.P. Bhaskar is a veteran journalist and commentator. He can be contacted at email@example.com)