Kerala economy sees steady rise in expat remittances

Kerala's share in NRI deposits has remained relatively stable over the years despite global economic fluctuations.

ByDileep V Kumar

Published Jun 16, 2024 | 10:40 AM Updated Jun 16, 2024 | 10:57 AM

Kerala's economic growth fueled by expats

Kerala’s economy has witnessed substantial contributions from its expatriate community over the past two decades, with Non-Resident Keralites’ (NRK) deposits and remittances playing a pivotal role in the state’s financial and social landscape.

From 2000 to 2024, there has been a consistent rise in NRK deposits and remittances, reflecting the strong economic linkages between the state and its diaspora.

This has been highlighted in the Kerala Migration Survey (KMS) – 2023  report, that got released on 14 June during the Loka Kerala Sabha in Thiruvananthapuram.

Steady upward trend

In absolute numbers, remittance inflows have shown a steady upward trend year after year. This growth underlines the financial stability and increasing incomes of Keralites abroad, who send money back home to support their families and invest in local businesses.

Over the past 25 years, Kerala has experienced significant economic growth, driven largely by the steady increase in remittances from its expatriate community.

From 1998 to 2023, remittances have played a crucial role in boosting the state’s Net State Domestic Product (NSDP), per capita income, and government revenue receipts, highlighting the vital contributions of Keralites living abroad.

Total remittances to Kerala, 2000-2023

According to data, the consistent rise in remittances has coincided with substantial economic growth in Kerala.

The state’s NSDP has seen continuous growth, reflecting the positive impact of remittance inflows on the overall economy. This growth is further evidenced by the significant increase in Kerala’s per capita income, which reached ₹2,63,945 in 2023.

Government revenue receipts have also seen a remarkable rise, climbing from ₹7,198 crores (in 1998) to ₹1,32,724 crores (in 2023).

Remittances have historically contributed significantly to Kerala’s NSDP. Until 2008, remittances accounted for approximately a fourth of the state’s NSDP.

Although there was a slight decline to 19.2 percent in 2013 and 13.5 percent in 2018, recent years have seen a resurgence, with remittances contributing 23.2 percent to the state’s NSDP.

This trend underscores the sustained importance of remittances in Kerala’s economic framework.

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What RBI data shows

Quoting data from the Reserve Bank of India (RBI) on NRI deposits, the report reveals a consistent upward trend in total remittances received by Kerala from 1998 to 2023.

Macroeconomic impact of remittances on Kerala’s economy, 1998-2023

Remittances have surged from ₹13,652 crores in 1998 to a staggering ₹216,893 crores in 2023. While growth rates have varied over the years, the period between 2018 and 2023 witnessed the highest percentage increase, reflecting the resilience and unwavering support of Keralites abroad during challenging times.

Two significant spikes in remittance inflows were observed during the periods of 2018-2019 and 2022-2023. These years marked extraordinary circumstances that led to heightened financial support from the expatriate community.

In 2018-2019, the state experienced devastating floods that caused widespread damage and displacement. In response to this crisis, remittance inflows surged dramatically from ₹85,092 crores in 2017-2018 to ₹1,14,506 crores in 2018-2019.

The report estimates that the diaspora rallied to aid in relief and reconstruction efforts, sending more money than usual to help rebuild homes, infrastructure, and lives affected by the floods.

The second notable surge occurred in 2022-2023, as the world emerged from the grips of the Covid-19 pandemic. Remittance inflows saw a sharp increase from ₹1,44,640 crores in 2021-2022 to ₹1,90,734 crores in 2022-2023.

The report states that this period was characterised by several contributing factors.

“The spike in 2022-2023 could be attributed to post-pandemic recovery and a general rise in migration numbers. Few other factors like migrants liquidating their savings and returning back to Kerala during and after the Covid-19 pandemic, a switch to more formal channels of money transfer in the face of uncertainties caused by the pandemic in the informal channels and attractive policy tweaks like free competition between banks on fixing interest rates and removal of caps on NRI deposits could have also played a major role in the spike in remittances received by Kerala in 2022-2023,” reads an excerpt from the report.

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Steady share in India’s NRI deposits

Despite fluctuations in the global economy, Kerala’s share in the NRI deposits and remittances received by India has remained relatively stable over the years.

The report highlighted that this stability is marked by minimal fluctuations, except during the period from 2008 to 2016, when Kerala’s share dipped below 20 percent. Despite this temporary decline, Kerala’s contribution to the national income through remittances has remained substantial and noteworthy.

“Given that remittances constitute 3.3 percent of India’s GDP, it further underscores Kerala’s significant contribution to the country’s economic growth through remittances,” said the report.

Remittance utilization in Kerala

Another interesting area that the report gave insights is regarding the utilisation of remittances by migrant households in the state.

It revealed a strategic focus on housing, debt repayment, education, and savings. These patterns underscore the multifaceted impact of remittances on improving living standards and fostering human development within the state.

Median Amount to Use of Remittances, 2023

The analysis shows that migrant households allocate remittances primarily towards the renovation of houses and shops, which accounts for 15.8 percent of total investments.

This is followed closely by the repayment of loans from banks (14 percent), educational expenses (10 percent), and saving as cash in hand (9.9 percent).

These expenditure patterns highlight the diverse ways in which remittances are utilized to enhance household stability and future prospects.

Debt repayment emerges as a significant area of investment for migrant households. Over the past fifteen years, the median amount spent on paying off debts was ₹60,000, reflecting the priority given to financial stability and reducing liabilities.

Another interesting finding is that, in the last five years, migrant households have shown a growing interest in savings and investments in immovable properties like land. The median amount allocated for these purposes was ₹50,000, demonstrating a strong inclination towards securing long-term financial stability and wealth accumulation.

Expenditure on education has been identified as a major investment area, with a median spend of ₹10,000 per month. This significant allocation underscores the importance that Kerala’s migrants place on human development and educational advancement.

By investing heavily in education, migrant households are ensuring better future prospects for their children and contributing to the state’s overall development.

(Edited by Neena)

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