Kerala braces for a spike in NRI remittances

s remittance flows to India are likely to increase by 2.5 per cent in 2015, Kerala is expected to contribute the biggest chunk — in the range of 25 to 30 per cent — of these fund flows. This means that the fund flow from migrant workers from Kerala is likely to bring in an additional Rs.3,400 crore in the current calendar year, economists say. However, the craving for gold and hunger for real estate is likely to keep these funds from entering any productive channels in Kerala, they added. India is likely to get an incremental flow of fresh remittances of Rs.11,612.8 crore in 2015. Last year, in 2014, the country received $70.4 billion.

The recent report of the World Bank says that stronger remittance growth in India reflects improving economic prospects in the United States and continued fiscally supported economic resilience in the Gulf Cooperation Council (GCC) countries.

According to the Reserve Bank of India, about 35 per cent of remittances to India originate in North America and another 35 per cent in the GCC countries.

The recent depreciation of the Indian rupee may have boosted investment-oriented remittances to India, says the World Bank report. But the story of Kerala is different. It is still a remittance economy.

The impact of remittances in Kerala is reflected in household consumer expenditure, NRI deposits and realty activities. Eminent economist M.A. Oommen says successive governments failed to tap this money for productive purposes. According to him, the distorted investment pattern continuing in the State is doing more harm to Kerala. “There is an urgent to need to develop a vibrant commodity sector.”

Successive governments in Kerala have failed to make productive use of the massive inflow of foreign remittance from mid 1970s’. From 1991, the inflows accelerated, thanks to the dismantling of controls, liberalising the foreign exchange market.

The proportion of non-food items, especially durable consumer goods is substantially high in Kerala. As per the 2011 Census, Kerala accounts for 2.76 per cent of India’s population. But the State logs 14.79 per cent of durable consumer goods consumed in the whole country. The exponential rate at which vehicle population is increasing in Kerala is a direct impact of remittances.

What remains after consumption is saved. NRI deposits are an indicator of this savings. As per the Economic Review of the Kerala State Planning Board for 2014, in 2012-13 the NRI deposits in the banking sector of Kerala was Rs.66,190 crore. It registered 41.84 per cent increase in 2013-14 to reach Rs.93,883 crore. Assuming that the same percentage increase continues, the NRI deposits in 2014-15 will be Rs.1,33,163.65 crore.

While some funds find way as investments of remittances in mutual funds, a large chunk reaches in the hands of private moneylenders and informal credit markets.

Airing a contrarian view, Jose Sebastian, Associate Professor of the Gulati institute of Finance and Taxation, says that it will be wishful thinking to expect all NRI deposits to be invested in Kerala. “The State has inherent limitations from the point of view of industrial investment like paucity of land which makes land very costly for manufacturing activities.”

According to him, there is no point in encouraging manufacturing activity which will cause environmental pollution like air, groundwater and earth. Kerala is an environmentally fragile place. “We, therefore, have to attract investment in tourism, information technology, biotechnology and education,” he said.

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Printable version | Mar 6, 2021 2:41:36 PM |

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