It has been reported this week that India tops global charts with respect to inward Dollar remittances sent by non-resident Indians working overseas. At an estimated all-time high of $125 billion, remittances to India are more than double the $50 billion recorded by China. Taking some credit for such remittances, Prime Minister Narendra Modi had earlier this year assured H-1B visa holders in the United States that he would help shape policies and agreements that would shape the “lives, dreams and destinies” of Indians awaiting the renewal of such visas.
Successive governments have long been in the business of demanding overseas employment opportunities for Indians, equating it to demands for normal market access under multilateral rules for trade. Here, however, is the downside. While Indians working overseas and contributing to the economic growth of other economies, mostly more developed than India, send home increasing amounts of money, China continues to earn vast sums of foreign exchange exporting manufactures. India’s merchandise exports have, on the other hand, shrunk during 2023 from US $452 billion to $429 billion. A decline of around 5%.
In short, the Indian economy is still unable to make a mark in the export of goods, while it increasingly benefits from the export of human capital. Homeward remittances sent by Indians working overseas continue to help the country manage its balance of payments and keep the deficit on the external account in check.
Rise of ‘remittance’ economy
It was in Kerala in the 1970s that economists first took note of the economic benefits of human capital export. As demand for skilled labour began to rise in the post-oil boom economies of the Gulf, skilled labour from Kerala was quick to grasp the opportunity. As a state that had invested in education and skill development but had not been able to create local employment opportunities in the industrial economy, Kerala was saddled with skilled but unemployed youth. The state had a historical and geographical connection to the Gulf that it exploited successfully.
While the Dollars kept coming in, Kerala was also berated as a ‘remittance’ economy – a feature of other industrially less developed economies like Nepal and the Philippines. Unable to export value-added manufactures, such ‘remittance’ economies export labour. Within India, less developed states like Bihar and Uttar Pradesh have become remittance-based economies with migrant labour from the more developed peninsular states sending money home.
Representaional image. Photo: flickr.com/Wen-Yan King/CC BY-NC-SA 2.0 DEED
With merchandise exports, especially of manufactured goods, not picking up and services exports, especially of skilled labour services, doing well, India made a virtue of a necessity. By the end of the 1990s, securing a multilateral regime for labour services exports became a mantra for India’s trade policy. Both in multilateral trade negotiations, under the auspices of the World Trade Organisation, and in bilateral trade agreements, India kept demanding rules-based access for services exports, including labour services.
Then came the year 2000 and the Y2K opportunity that showed the world that India could also export technically skilled manpower and not just construction labour. So the economic base of the services export economy moved beyond Kerala to include neighbouring states that had invested in engineering and computer software training. Andhra Pradesh and Telangana became important sources of software services personnel. The H1B visa route to the United States became a passport to prosperity for thousands of young men and women.
The share of trade in services boomed, increasing from an average of 3% of national income (gross domestic product) in the 1990s to an average of over 10% by the early 2000s, and the share of inward personal remittances of overseas Indians increased from an average of 1% of GDP in the 1990s to over 3% of GDP in the early 2000s. In absolute terms, remittances have increased from an average of around $5 billion in the 1990s to over $65 billion in the early 2000s. This number has just hit $125 billion.
In short, even as India’s merchandise exports remain stagnant, even declining at times, her ability to earn Dollars from the export of skilled and highly skilled labour remains robust. While economists have for long associated such a structure of a remittance-based economy with economic backwardness, successive governments have interpreted this as evidence of growing global demand for Indian talent. Not to be left behind the media too keeps its focus on what the government is able to do to secure more visas for Indians seeking employment overseas.
A system germinated under colonial rule
Over a century ago, India became an important source of what was termed as ‘indentured labour’ – virtual slaves shipped out from Bihar, Bengal and villages along the Coromandel Coast to distant islands from Fiji in the Pacific to Surinam in the Atlantic to work on sugar and rubber plantations. A century later Indian labour travels voluntarily overseas in search of employment and income, with the government helping secure visas. If the British imperial government facilitated the export of labour then, now the government of democratic India seeks to do the same, albeit under different contractual conditions.
In fact, for many years, the quality of life of Indian sweated labour in the Gulf was not very different from that of the indentured labour of colonial times. The poverty-stricken labour of British India that was shipped off to plantation islands of the Pacific and the Atlantic also went there on the assurance of a better life and income that could be taken back home. It was in search of such ‘remittances’ that they too went to be virtually enslaved. The human indignities that many Gulf labour faced till the government of India stepped in and demanded better living conditions for them were no different from those faced by indentured labour.
Mahatma Gandhi and the leadership of the Indian National Congress opposed the indentured labour system and ensured that it was brought to an end and the conditions of living of overseas Indians improved. A century later democratic India too intervenes similarly but continues to value the remittances that accrue to the Indian economy in return for the export of labour, sweated and skilled. Many who had gone in search of income have since opted to settle down in their host countries. This too is not very different from the decision of the children of indentured labour across the Commonwealth who opted to continue to live in the host country.
Earlier this year external affairs minister S. Jaishankar informed parliament that a total of 16,63,440 Indian citizens had “renounced their Indian citizenship” in the period 2011-22, and added, “The number of Indian nationals exploring the global workplace has been significant in the last two decades. Many of them have chosen to take up foreign citizenship for reasons of personal convenience.”
Historians and novelists have written eloquently and poignantly about the inhuman and exploitative nature of the colonial indentured labour system of the late 19th to early 20th Century. Ironically, though, today’s politicians, officials and economists celebrate labour export and the foreign exchange earned as a benefit of globalisation. Unable to provide adequate gainful employment opportunities at home India continues to justify seeking overseas employment opportunities for its people.