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C.J. Punnathara

KOCHI, July 26

A SEA change is overtaking Kerala's money order economy — the multi-billion dollar business comprising of NRI remittances and fund transfers from people employed outside the State's borders.

As the levels of remittance flows into Kerala surged during the last decade, ''the average propensity to consume declined even as the income increased steadily,'' a recent study by the Centre for Development Studies, Thiruvananthapuram has observed.

While the remittances from the Gulf, Europe and the US swelled rapidly during the nineties, there was a marked shift from ostentatious consumptive expenditure among Kerala's middle class to a steady pattern of savings among these very same beneficiaries.

In the background, the international labour migration began to acquire momentum and the average annual remittances soared from Rs 536 crore during the eighties to Rs 10,835 crore during the nineties. This prompted the rate of savings in the State to increase steadily and to reach levels comparable to several South East Asian countries, the CDS study noted.

Remittances had surged to such levels that it accounted for an average of 22 per cent of the State's net domestic product throughout the nineties. Significantly, remittances were more than the State's total Government expenditure during this period. It was also more than twice the value added from manufacturing, the study pointed out.

By 1999-2000, the study estimated that remittances had surged to Rs 14,157 crore, which accounted for 23 per cent of the net State domestic product. And, much of these increased remittances were finding their way to bank accounts as savings.

As the pace of remittances grew, there was a runaway growth in savings maintained with banks in Kerala.

Even as the incomes of the households in the State continued to grow, there was an increased propensity to save among the State's population.

Till the nineties, the savings rate of the State was just around 21 per cent, which was on par with the national average.

But during the last decade, the savings rate soared to over 50 per cent, more than double the national average. This is amply reflected in the growth in savings maintained in the State's banks, the study said.

Bank savings in Kerala grew from Rs 284 crore in 1972-73 to Rs 2,149 crore in 1982-83. It grew further to Rs 12,112 crore in 1992-93 before surging to Rs 38,619 crore in 1999-2000.

Much of the growth in savings during the eighties and nineties was fuelled by the inflow of remittances. But it was the spurt in remittances, followed by the shift from consumption to savings of the last decade that propelled the State's savings to touch Rs 38,619 crore.

While pointing out that the rate of savings has surged to levels comparable to the Asian Tigers of the last decade, the study says that much more remains to be done to fuel Kerala into the accelerated pace of economic development.

One of the formidable challenges facing Kerala today is its inability to convert the savings in the economy into productive investments, the study pointed out.

This is reflected in the very poor credit-deposit ratio of the state, which reigned at just 40 per cent throughout the last decade.

But the striking development, the study observed is the exposure of well over two million Keralites to an outside world through international migration.

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