KOCHI, 10 May 2008 — Families of non-resident Keralites (NRKs) in the state are feeling the pinch of steadily appreciating rupee, according to a new study.
The study by K.K. George and S. Remya of the Center for Socio-Economic and Environmental Studies (CSES) points out that the appreciation of rupee had been especially steep during the last one and a half year — between July 2006 and December 2007 — when its value increased by 15.3 percent against the greenback.
The rupee appreciated between 7.1 and 9.1 percent against the currencies of west Asian countries where around 89 percent of Kerala emigrants live. According to researchers, this is because all GCC countries except Kuwait have their currencies pegged to the US dollar.
For the first half of 2007-08, the loss due to rupee appreciation has been Rs.27.66 billion whereas the total loss suffered by Kerala expatriates because of the rising rupee during the four-and-a-half year period starting 2003-04 amounted to Rs.86.60 billion.
“The annual loss suffered by the people and state economy on account of rupee appreciation exceeded the total grants given to the state by the central government from 2003-04 to 2006-07,” said George.
Majority of the NRKs have taken loans for education, housing and for meeting the visa and airfare expenses and now they are finding it increasingly difficult to repay, the study says. “If the NRKs have to maintain the current standard of living and meet other commitments back home, they will have to increase their remittances, meaning the breadwinners living abroad will be forced to cut expenses there.”
The recent strikes by Kerala workers in Bahrain and UAE, the study says, are pointers to the financial problems faced by non-resident Keralites due to the appreciation of rupee and inflation in the host countries. Given the strict regulations in those countries against protests and absence of labor unions, demands for higher wages are unlikely to be accepted.
Besides, Keralites face growing competition in the Gulf labor markets from workers of other countries — Bangladesh, Pakistan, Sri Lanka, Indonesia and the Philippines. The currencies of some of these countries including Pakistan and Sri Lanka have depreciated making it lucrative for labor from those countries to seek job in the Gulf. A number of non-resident Indian (NRI) workers are likely to lose job if they insist on higher wages, the study says.
“The decrease in wages in the Gulf due to rupee appreciation may eventually lead to decline in outflow of labor from the state. The trend, it appears, has started taking hold,” the study says.
The federal government, which is very sensitive to the needs of the exporters, has been indifferent to the problems of overseas workers, especially those living in the Gulf. There was no subsidy given to NRIs while a hefty amount of Rs.163500 million was given to exporters as interest subsidy and other concessions.
Remittances from NRIs, despite their importance in India’s balance of payments, form less than four percent of the country’s GDP, but in case of Kerala, it is different story.
“It appears that despite their importance in Kerala’s economy, the NRKs have not been able to carry sufficient clout and wield influence on the state government,” it says.
The appreciation of rupee against euro and pound sterling was relatively small. However, the rupee started appreciating against these currencies also since April 2007.
The study estimates that the total remittances to Kerala stood at $4197 million (Rs.192840 million) in 2003-04 and $5359 million (Rs.242690 million) in 2006-07. The remittances during 2004-05 amounted to $3781 million (Rs.169900 million).
In 2005-06, remittances were at $4585 million (Rs.202990 million). Between April-September, 2007, the remittances came down to $3550 million (Rs.144150 million).
The NRK remittances were 18.3 percent of the Gross State Domestic Product (GSDP) of Kerala in 2006-07 as against the Indian average of 3.7 percent. Remittances from NRKs exceeded the income generated by the entire primary sector.
The remittances were over two times the income generated from manufacturing sector and exports. Even by international standard, Kerala can be placed among the top twenty remittance-receiving developing countries.
The study found that rupee appreciation had made a very negative impact on bank deposits. The rate of growth in NRK deposits, which had been the major driving force behind the growth in deposits of commercial banks in the state, came down for the first time to single digit.
In 2004-05, the NRK deposits actually declined. There was decline in deposits during the first two quarters of 2007 also.
