Gulf crisis causes concern in Kerala

The Dubai financial crisis has fuelled fears among families of over two million migrants from Kerala working in the Gulf, with worries of massive job losses and its fallout on the state's economy, heavily dependent on remittances.

The crisis erupted last week when the Emirate said it would delay payment on debt issued by Dubai World, a leading investment firm, sending waves of panic across global markets.

While experts have forecast job cuts and a steep fall in remittances if the present trend continued, another view is that Dubai is resilient enough to overcome the current bad patch.

State finance minister TM Thomas Isaac says he is very "anxious" about the possible slowdown in construction activity in the Gulf, following the crisis which would badly affect migrant workers from Kerala.

"A majority of workers in the construction sector in the Gulf are from Kerala. We are really anxious about their future," he said.

"I think the world economic recession is finally taking its toll on the Gulf region also," he said.

On Dubai World asking its creditors for a 'standstill' on paying back its USD60 billion debt until May 2010, Isaac said it might be a way of politely saying they needed a six-month moratorium.

Irudarayarajan, a faculty member with the state's premier economic and social research institute Centre for Development Studies here has said, "We should not be too much worried about these things. Similar fears were expressed during the crisis in the Gulf last October, but nothing happened," he said.

During the last crisis, experts had predicted some five lakh people would return from the Gulf and that the Kerala economy would be hit hard, but no such thing happened, Irudayarajan said.

"Dubai is still alive, though construction activities are a bit slow. Basically the problems of Dubai will be relieved as other Emirates are doing well. A strong Abu Dhabi itself can bail out Dubai in a crisis," the economist said.

He does not think the crisis would affect either migration from Kerala or remittances from the Gulf. "Migration and remittances were not affected in the last crisis also," he said.

Irudayarajan said he had conducted a study on South Asian migration to the Gulf, which found that besides India, migration from Pakistan, Bangladesh, Sri Lanka and Nepal had increased in the last 10 months and people were still going.

Agreeing there would be some short-term problems with the crisis, he said it would be solved "at the end of the day." "What government should do is create a conducive atmosphere for people willing to return to their country, as there are enough job opportunities here if people are willing to work."

The Kerala government is as yet clueless about the crisis and its possible impact on the state. Finance minister Isaac reacted cautiously, saying the whole dimension of the crisis is yet to be known.

"It is crucial to understand the impact on major financial institutions who have lent money to Dubai World before we can gauge the extent of its impact on Kerala," he said, echoing the general feeling that the state would have to feel the pinch if the situation snowballs into a meltdown hitting the Gulf badly.

Apart from the possible impact of the crisis on Keralite workers in Dubai, an issue worrying the state is that one of its major port building projects at Vallarpadam in Kochi has ties with Dubai World's infrastructure associate, Dubai Port World Limited.

The Rs2,118-crore international transhipment container terminal project is being funded by DP World.

But Cochin Port Trust chairman N Ramachandran said the debt default request by Dubai World would not affect work on the Terminal. Work was progressing smoothly and the financial problems, if any, of Dubai World had no impact so far. "There is no crisis for funding from the DP World," he said at Kochi.

Incidentally, the crisis came at a time when the LDF government in Kerala expressed serious doubts about the fiscal position of TECOM International, a Dubai-based company with which the government plans to develop the Joint Venture IT Smartcity park in Kochi.

Chief minister VS Achuthanandan had the other day alleged that TECOM was delaying the project by raising unreasonable demands on freehold of land, which is outside the agreement signed between the developer and the government two years back.

Economists like Irudayarajan, are however still not ready to digest the forecast of a disaster.  

VK Vijayakumar, head of the economics department, Sree Krishna College, Guruvayur, says flow of remittances from the Gulf had actually shown an upward trend in the global recession in 2008.

Optimists argue that the Gulf had survived past crises like the Iraq-Kuwait war, oil crises and global financial recession and migration of workforce from nations like India had kept up.

Irudayarajan said Dubai has the strength to overcome the current bad phase. "We need not unnecessarily worry about the Dubai crisis. They will solve it," he added.