UP is the new Kerala in terms of remittances from Indians in the Gulf

The northern state houses 21 of the top-50 districts from where most low-skilled Indians go overseas for employment, followed by Bihar with seven; Kerala has only one

In the list of top-50 districts from where most low-skilled Indians go for employment abroad, only one from Kerala figures—Kottayam. The list compiled by the ministry of external affairs is instead dominated by Uttar Pradesh (UP) which has 21 districts and Bihar with seven (See table: States in list of top 50 districts sending ECR emigrants, 2019).

The home addresses of low-skilled emigrant Indians have begun to change fast. Instead of Kerala and Tamil Nadu, the list is now dominated by those from North Indian states. What began as a narrow stream a few years ago is now a strong current. 

“The change has also begun to affect the state-wise remittance profile,” says Garima Kapoor, economist and vice-president of Elara Securities. “Uttar Pradesh is the new Kerala,” she says about her study on remittances. It will also affect a sizeable segment of the retail business of banks and NBFCs in India. 
 

Table: States in list of top 50 districts sending ECR emigrants, 2019

State	Number of districts
Uttar Pradesh	21
Bihar	8
West Bengal	5
Rajasthan	4
Tamil Nadu	3
Telangana	3
Andhra Pradesh	2
Kerala	1
Maharashtra	1
Odisha	1
Punjab	1
TOTAL	50

Low-skilled migrants are those who have Emigration Check Required (ECR) stamped on their passports—those who have not cleared at least the class-10 school examination level. Since those who acquire a skill certificate usually do so after their tenth class result and therefore do not come under ECR requirements, it is safe to presume that the low educational threshold is also an indication of a low level of vocational training. 

Table: Year-wise ECR destinations for Indians

Country	2014	2016	2019
UAE	224,043	163,716	76,112
Oman	51,319	63,236	28,392
Saudi Arabia	330,002	165,335	161,103
Kuwait	80,420	72,384	45,712
Bahrain	14,207	11,964	9,997
Qatar	75,997	30,619	31,810

Table: State-wise Emigration Clearances, 2019

Key State	Number of applicants	Key State	Number of applicants
Uttar Pradesh	116,251	Rajasthan	28,982
Bihar	55,423	Tamil Nadu	27,783
Maharashtra	7,666	Kerala	19,173
Punjab	14,665

Employment for these low-skilled workers from India had begun to boom in the 1970s in Saudi Arabia, United Arab Emirates, Kuwait, Bahrain, Qatar and Iraq, loosely labelled as the Gulf countries. As the workers sent money from these destinations, the remittance flow into India soared. Even in 2019, as per World Bank data India is the largest global recipient of remittances.  

As late as 2018, RBI data shows 50 per cent of these remittances went to Kerala, Maharashtra and Karnataka. For Kerala the percentage was about a fifth of the total inflow into India (see table: State-wise remittances in 2018). UP accounted for only 3.1 per cent and Bihar even less at 1.3 of the inflow. 

Table: State-wise remittances in 2018\

State	% share in total remittances	as % of state GDP
Kerala	19.0	13.85
Maharashtra	16.7	3.53
Karnataka	15.0	5.74
Tamil Nadu	8.0	2.84
Uttar Pradesh	3.1	1.11
Bihar	1.3	1.42

These percentages would now change. In the process they shall have a larger implication for the financial sector. The banking network in states like Kerala was built to track household income. Non bank finance companies like Muthoot and Manappuram reached out to every village lane to finance consumer loans against gold deposits. They also offered gold products sponsoring a massive cocktail of retail financing. 

With the migration economy of Kerala may be in the last phase, a lot of those business could shift, says Kapoor. “The changing structure of migration has implications on NRI and local deposit accretion of banks, demand for gold & gold loans, consumer durables, real estate and consumption”, she adds. For banks, the changing profile of remittances will necessitate a change in strategy to grab the business from the new remittance hot spots. An RBI analysis of how the remitted money is utilised by the family back home had showed 59 per cent was used for consumption, with 20 used to build up bank deposits. About 8 per cent of the money was used to build property or invest in financial assets. For banks and NBFCs it will now be important to learn how the emigrants from UP and Bihar will want to lay out their earnings. 

Given the large network of NBFCs and private banks in Southern states it is not surprising that more than 74 per cent of the money transfers have taken place on their platforms. Of the 17 per cent business of state owned banks, the figures are mostly from those in the south, Indian Bank and Canara Bank. As the centre of the money transfer shifts to North India these equations would drastically change. Muthoot Finance for instance has a branch network of 1361 in Kerala and Tamil Nadu. Its combined presence in West Bengal, Bihar and UP is less than a quarter of those numbers. A key metric would be the cost of remittances. An RBI paper estimates the costs for India are still on the higher side, above the World Bank suggested benchmark of 5 per cent for every envelope. Migrants from the new states will be even more cost conscious and this could give a fillip to informal channels, the hawala route with agents setting up bases in the hinterland. Given the linkage of these channels with crime it could be a new headache for these state governments. 

In the calendar year 2019, MEA data shows 31 per cent of the ECR applications came from UP. Bihar followed with 15 per cent. Kerala accounted for only 5 per cent and Tamil Nadu at 7.5 per cent. Drilling down into the district wise profile, it is the eastern part of Uttar Pradesh from where most of the applications arrive. Remember the ECR application has to be verified by the local police station where the applicant is born. So the district and the state wise profiles of the applicants are not distorted by their migration patterns. 

The financial institutions would also have to account for the different spending and investing tastes of the population. Gyan Mohan, Director and CEO of Adi Chitragupta Finance, the only RBI recognised micro finance institution in Bihar says “the attraction for investing in gold is far less than that for education linked money among our target population”. Punjab National Bank whose business operations straddle more of North India hardly refers to gold loans in its business pitch.

The dip in the ranks of ECR applicants from the southern states has several reasons. Some of it has to do with the rising education profile of the young population from these states. The MEA does not maintain a similar set of data of people who leave the country, state wise, who do not need the ECR stamp. So it is not possible to make a comparison. Yet there are anecdotal comparisons. The US government for instance maintains six visa issuing offices in India of which three are in South India. The other reason is the declining birth rate of the region. The decadal population growth for Kerala has averaged below 5 per cent between 2001 to 2011 compared with 17.7 per cent for India. And some could be due to the vanishing business prospects of the Gulf as the world forswears off oil. Of the 14 districts of Kerala, the Centre for Development Studies at Thiruvananthapuram estimates there was a negative migration from half of them in the decade 2008-18. The picture from UP is almost the reverse. 

In the past four decades, because of oil and its related industries, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE had received about 59 per cent of the total migrants from India. Sixty-two per cent of the remittances into India, the RBI  data shows, came from these countries. The same Elara note shows that there has been a high correlation of 84 per cent between oil prices and remittances to India. So the higher the oil prices, the more was the money that the emigrants mailed back to India. As oil prices now plummet, the remittances would be expected to decline though it has not begun yet. RBI data for remittances in the January to March 2020 period increased to $ 20.6 billion, up by 14.8 per cent from their level a year ago.