Paralleling the growth of India’s economy has been the concomitant increase in India’s global engagement. While this has been most manifest in the growth of trade and financial flows, the movement of people has also become more important. Since the 1830s, international migration from India under British rule comprised largely of unskilled workers from poorer socio-economic groups who went to other colonized countries. Between 1834 and 1937, nearly 30 million people left India and nearly four-fifths returned. Post-Independence, migrants came from richer socio-economic groups, from wealthier parts of the country and, with the exception of the large migration to the Middle East, went industrialized.
The migrant stream to the United States in particular has been the most highly educated, both compared to other immigrants into the US, as well as to other Indian migrant streams abroad. Since the 1990s, increasing numbers of skilled emigrants from India have also been moving to Australia, Canada, New Zealand and Singapore.
The economic impact of international migration on India has been primarily shaped by two key channels — financial and human capital. The oil boom-induced Gulf migration in the early 1970s is when efforts at attracting inflows from Non-Resident Indians (NRIs) began. Since then financial remittance has emerged as an important part of India’s balance of payments. Remittances were virtually negligible in 1970, rose to $2.8 billion in 1980, stagnated during the 1980s and even dropped slightly to $2.4 billion in 1990. Since then they have climbed steeply to $11.1 billion in 1999 and over $50 billion — nearly 5 percent of GDP — in 2009.
Paralleling the inflows of remittances have been NRI inflows in the capital account. Although schemes to attract the latter were introduced in 1970, a decade later deposits barely exceeded one billion dollars. During the 1980s, while remittances languished, deposits accelerated. Following the onset of the 1991 reforms NRI deposits grew rapidly accounting for nearly 10 percent ($37 billion) of the accretion to India’s foreign exchange reserves in the last two decades.
This spurt has in part been due to the rapid growth in the stock of India citizens residing abroad, the degree to which their earning power has increased and policy changes including liberalization of the foreign exchange regime and gold imports (with the latter resulting in bringing remittances from the Middle East through official channels, rather than hawala markets), and of course India’s much better growth prospects.
In contrast to the large inflows in the current account and banking deposits in the capital account, NRI-FDI has been remarkably limited in part because of an unfavorable policy regime that penalizes NRIs from remitting the gains from FDI.
In addition to the obvious positive impact for recipient households, financial remittances have had considerable systemic effects on India’s balance of payments, allowing much greater trade deficits than would otherwise have been possible, stabilizing the rupee exchange rate and thereby giving India’s central bank greater monetary policy autonomy.
These inflows have been much more important for some states than others. The most obvious case is Kerala where remittances account for about a quarter of state net domestic product with wide ranging economic and social consequences. Given Kerala’s political economy, it is not surprising that most of this money fuelled a consumption boom (with no investments in manufacturing) and the resulting demand has driven growth in the service sector, most of which (such as construction) are non-tradeables. Recently however, these inflows have fuelled investments in the hospitality industry and a mushrooming of private institutions in health care and education.
A second channel through which international migration has affected India is its human capital. The effects of skilled migration have been ambiguous. On the positive side, the success of India migrants overseas has been good for India’s reputation. In addition, this segment of the diaspora has woven a web of cross-national networks, thereby facilitating the flow of tacit information, commercial and business ideas, and technologies into India. It has also facilitated “home sourcing”, as exemplified by the rapid growth of India’s diamond cutting and polishing industry. The Indian diaspora has also had important trade enhancing and investment effects.
On the other hand, the loss of significant numbers of the highly skilled has undoubtedly had negative effects as well, perhaps most manifest in reducing the supply of professionals with the managerial and technical capabilities to run institutions and organizations, be they colleges or hospitals, statistical systems or research laboratories. A prime example of these adverse effects can be seen in India’s higher education system. When the IITs and IIMs, as well as new science and technology research institutes were set up in the 1950s and 1960s many of the key personnel in these institutions were trained abroad and returned to India, inspired by the heady days of “nation building.” But by the late 1960s, more and more of India’s best and brightest began to go abroad, never to return. The small number who did were sufficient to maintain the high standards of a small number of institutions, but not their expansion, and the number of graduates from these elite institutions remained virtually unchanged for four decades.
Meanwhile, the replenishment of talent in universities and research institutes began to decline as fewer returned. Finally, when return migration picked up at the turn of the century, few saw public institutions as a viable career alternative. This has been an important reason why Indian universities (virtually all public) have deteriorated. As mediocrity has become entrenched, it has become even more impervious to change.
While there are many complex reasons for the travails of Indian higher education, these have been amplified by the manner in which the system has been a net exporter of talent. Any system that hemorrhages talent over the long run will struggle to survive, let alone prosper. There have been considerable cognitive effects as well. A stark example is the state of West Bengal, where three decades of communist rule has so politicized its institutions of higher education that the large number of excellent researchers from this state can be found all over the world, except in West Bengal.
The benefits — or costs — of international migration will depend largely on India’s domestic policies and politics rather than something intrinsic to this specific mechanism of globalization. Whether the India diaspora will lobby for the country of origin in foreign capitals or instead help raise funds for separatist movements, whether the “brain-drain” becomes a “brain-gain”, whether they invest in factories in the country of origin or one-way tickets for their compatriots to leave the country of origin, will by and large depend on what happens in India. It must be remembered that citizens leave their country for a reason. And when they leave, the factors that led them to leave do not disappear. How these factors are addressed will fundamentally shape migration’s effects on India.
Devesh Kapur is the Director of the Center for the Advanced Study of India (CASI), Professor of Political Science at the University of Pennsylvania, and the Madan Lal Sobti Professor for the Study of Contemporary India. In August 2010, Professor Kapur's new book on migration was published: Diaspora, Development, and Democracy: The Domestic Impact of International Migration from India. Email: dkapur@sas.upenn.edu
This article first appeared in Forbes India on August 24, 2010.
India in Transition (IiT) is published by the Center for the Advanced Study of India (CASI) of the University of Pennsylvania. All viewpoints, positions, and conclusions expressed in IiT are solely those of the author(s) and not specifically those of CASI.
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