Beyond Remittances: Redefining Kerala’s Gulf Dependency in a Shifting Global Economy

Beyond Remittances: Redefining Kerala’s Gulf Dependency in a Shifting Global Economy

Since the oil boom of the 1970s, Kerala’s economic lifeline has been intricately tied to the Gulf Cooperation Council (GCC) countries. Migration offered a much-needed escape valve from domestic unemployment, and remittances transformed once-impoverished rural economies into pockets of prosperity. Over the decades, the Gulf dream became not just an economic strategy but a social aspiration embedded deep in the Malayali psyche. However, as of 2025, the landscape is shifting. Technological changes, aggressive labour nationalization policies in the Gulf, and global economic uncertainties are shaking the foundations of Kerala’s Gulf-dependent economic model. This article explores how deeply this dependence is entrenched, the emerging challenges, and the pressing need to pivot towards a more resilient and diversified future.

The migration wave from Kerala to the Gulf began during the 1970s oil boom, when countries like Saudi Arabia, the UAE, and Kuwait embarked on massive infrastructure development, requiring cheap and reliable labour. Kerala, with its high literacy and surplus of unemployed youth, was perfectly positioned to meet this demand. One successful migrant often brought others from his village or family, creating a chain migration pattern. By 2023, over two million Malayalis worked abroad, with a staggering 90% of them residing in the Gulf. Remittances from these migrants accounted for nearly 19% of Kerala’s State Domestic Product (SDP), highlighting the economic significance of this exodus.

The impacts of this migration were transformative. Household incomes soared, poverty levels plummeted, and per capita expenditure rose. Migration-induced prosperity led to a visible improvement in housing, education, and consumption patterns, especially in districts like Malappuram, Kozhikode, Kannur, and Thrissur, which became hotspots of Gulf migration. Rural Kerala was modernized by foreign earnings. Modern villas rose where thatched roofs once stood. The gold jewellery market boomed, and private educational institutions flourished. On the surface, it was a success story.

However, the remittance economy is not without complications. The massive inflow of foreign funds created a consumption boom, especially in real estate, automobiles, and retail sectors. But this prosperity was built on unstable foundations. Economists have long warned of the “Dutch Disease” effect, where an overreliance on remittances leads to a loss of competitiveness in the tradable sectors like manufacturing and agriculture. In Kerala’s case, local production remained stagnant, and industrialization faltered. A significant portion of the remittances was directed toward unproductive consumption rather than productive investments. Furthermore, remittance-induced inflation made land, housing, and even marriages more expensive, adversely affecting non-migrant families.

More worryingly, the very Gulf economies that Kerala depends on are undergoing rapid structural changes. Policies such as Saudization and Emiratization are pushing companies to hire local citizens over foreign workers. This shift is reducing the number of employment opportunities for low-skilled and semi-skilled Malayali workers. Technological advancements, including AI and automation, are transforming sectors like construction and retail—traditional strongholds for Malayali migrants—by reducing the demand for human labour. Additionally, geopolitical uncertainties and climate risks are making the Gulf a more volatile destination. The 2020s have already seen numerous Keralites being repatriated due to visa issues, job losses, or health emergencies like COVID-19.

During the pandemic, over 800,000 Keralites returned home, many of them for good. This created new challenges. The state, already grappling with unemployment, now had to reintegrate returnees who had spent decades abroad, often with little local work experience or relevant skills. Older migrants found it difficult to adapt. Many younger ones aspired to go abroad again, but to less favourable destinations with riskier conditions and lower pay. This phenomenon is creating what economists now term “migration fatigue.”

Kerala’s future demands a bold reimagining. The returnees, often dismissed as liabilities, can become vital assets. Many possess international work experience, savings, and global exposure. With the right policy environment, they can be transformed into entrepreneurs and knowledge workers. The government must invest in skill development tailored to global standards. Kerala’s education system also requires an overhaul. Thousands of graduates are produced each year in arts and commerce, while the actual job demand lies in STEM fields, health care, and skilled trades. Public-private partnerships in upskilling programs and digital education platforms can bridge this gap.

One promising area is the health and care economy. Kerala’s ageing population will require thousands of trained caregivers, and the global market—especially countries like Japan and Germany—is already facing a shortage of healthcare workers. With proper certification and language training, Malayali caregivers can tap into this growing international demand. Nursing, which has been a stronghold for Keralite women abroad, should be further encouraged with modernized curricula and mobility support.

At the same time, Kerala must promote innovation at home. Micro, Small and Medium Enterprises (MSMEs) need stronger institutional backing. Local industries like agri-tech, coir products, and bio-economy ventures can flourish if provided with credit, market access, and infrastructure. Rather than importing processed food with remittance money, Kerala can focus on building self-sufficient supply chains and food-processing clusters.

Tourism is another underutilized strength. Kerala’s backwaters and houseboats are well-known, but the future lies in niche tourism—wellness tourism, monsoon trekking, ayurvedic rejuvenation, heritage trails, and medical tourism. Post-pandemic tourists seek meaningful experiences, not just sightseeing. Kerala can cater to this segment by enhancing connectivity, cleanliness, and multilingual digital infrastructure.

The experience of other countries provides valuable lessons. The Philippines, for example, has successfully diversified its emigrant profile with skilled nurses, teachers, and seafarers. Their government has proactive policies for training, deploying, and reintegrating workers. Vietnam, on the other hand, built a strong export manufacturing base despite a large overseas diaspora. Tamil Nadu has managed to reduce outward migration by building strong domestic industries in textiles, IT, and automobile sectors. Kerala can adapt elements from each of these models to suit its own unique context.

Looking ahead, Kerala’s economy could follow three possible trajectories. In an optimistic scenario, the state invests heavily in skilling, tech incubation, and reintegration of returnees, gradually weaning off remittance dependency. In a pessimistic one, it continues to cling to the Gulf model while external conditions worsen, leading to economic stagnation and youth unrest. A more realistic baseline would see a gradual reduction in remittances, with slow and uneven policy responses that struggle to keep pace with the demographic and economic shifts.

To safeguard its future, Kerala must adopt a comprehensive five-pillar resilience strategy. First, establish a Migration Resilience Fund to buffer against sudden drops in remittances. Second, create Returnee Entrepreneurship Zones that offer fast-tracked licenses, mentoring, and tax breaks. Third, launch a Skill Forward Kerala initiative in collaboration with private ed-tech and global certification bodies. Fourth, float Diaspora Bonds to tap into overseas Malayali wealth for infrastructure and education. And finally, empower Youth Economic Missions at the district level to generate localized employment opportunities, reducing the pressure to migrate.

Kerala’s Gulf dream was once a lifeline. It turned villages into towns and brought prosperity to countless families. But dreams must evolve. In today’s globalized and uncertain world, depending on external economies is no longer sustainable. Kerala must now invest in its own people, build homegrown industries, and equip the next generation not for emigration, but for innovation. The remittance economy must give way to a production economy. The time to act is now.