Built on sand: Kerala’s remittance economy faces a tough test

By: Ausaf Sayeed

For decades, the Gulf has been Kerala’s distant but essential lifeline—an economic umbilical cord that has financed the construction of homes in Thrissur, the education of students in Kozhikode, and the steady pulse of consumption across the state. The ongoing Middle East crisis—triggered by the Feb 28 US-Israel strikes on Iran, the retaliatory Iranian missile and drone attacks on American installations across the Gulf, and the subsequent disruption of shipping through the Strait of Hormuz—has placed that lifeline under acute strain. For Kerala, whose roughly 35 million people are more demographically and financially entwined with the Gulf than any other Indian state, the conflict has been anything but distant.

The scale of the exposure is not in doubt. According to the Kerala Migration Survey (KMS) 2023, about 2.2 million Keralites are working abroad, of whom 80.5% are based in the Gulf Cooperation Council (GCC) countries. Of the roughly 10 million Indians in the Gulf, close to one in five is a Malayali—one of the densest single-region migrant corridors in the world.

The consequence is that every escalation in Middle East registers in Kerala as a personal crisis in thousands of households, rather than as a distant geopolitical event. Families in Kollam, Malappuram and Thrissur described sleepless nights as interceptions lit up the skies over Abu Dhabi, Dubai and Manama. Cancelled airspace and disrupted travel prevented many from returning home for Vishu and Easter, and the fear that residency visas could lapse forced agonising decisions—whether to send spouses and children back to Kerala, hold out where they were, or abandon years of work and come home altogether.

The economic shock has been most evident through the remittance channel, which is structurally larger in Kerala than in any other Indian state. KMS 2023 placed Kerala’s total inward remittances at Rs 2,16,893 crore in 2023—a 154.9% increase over the 2018 figure—equivalent to 23.2% of the state’s net state domestic product, the highest such share in India.

Reserve Bank of India data cited in 2025 placed Kerala’s share of all India-bound remittances at close to a fifth, with NRI deposits in Kerala banks crossing Rs 3 lakh crore for the first time. Nearly three-quarters of emigrant households now receive monthly transfers, and the money flows predominantly into housing, loan repayment, education, and healthcare, underwriting an entire architecture of private spending from Kasaragod to Thiruvananthapuram.

Analysts have warned that a sustained conflict could shave 20% off annual inflows— a shortfall of roughly Rs 50,000 crore. Paradoxically, the first weeks of March 2026 saw remittances spike 20-30% above normal, as Gulf Malayalis—uncertain whether they would have jobs, bank access or flights in the weeks ahead—wired their savings home in anticipation of a deeper rupture. Bankers were unanimous in reading these transfers as fear, not prosperity.

Meanwhile, return migration has been layered rather than uniform. Some Malayalis flew back on evacuation flights or during airspace disruptions, treating the exit as a pause; others—confronted by unpaid leave, shuttered construction sites and the non-renewal of contracts in hospitality, logistics and retail—have found the decision made for them. Keralite workers in Dubai’s five-star hotels and Jebel Ali’s logistics corridors describe being told to stay on without pay until new contracts materialise, an untenable choice between income abroad and an uncertain job market at home. A counter-trend is visible in healthcare: Demand for nurses and medical professionals has, if anything, risen, and Malayali health workers have been retained or recalled to manage emergencies in Gulf hospitals—a reminder that the diaspora is not monolithic.

The domestic fallout has penetrated daily life well beyond balance-sheet abstractions. As the Hormuz disruption cascaded through India’s energy supply, the central government redirected liquefied petroleum gas toward domestic consumers; in early March, restaurants in Kochi publicly trimmed their menus while hostels, old-age homes and institutional kitchens across the state struggled with fuel scarcity.

The Kerala Travel Mart Society warned that the shortage was pushing the state’s tourism sector to the brink. The timing could scarcely have been worse: Kerala’s 2025 tourism year had closed with record foreign arrivals of 8,21,999—an 11.3% rise over 2024—and an all-time high of 25.88 million total visitors, a recovery the sector had engineered over years of patient investment.

Cancellations of Gulf-origin bookings for ayurveda centres and resorts, together with the halting of flights through Gulf hubs, arrested that momentum within weeks. Kerala’s gold and jewellery trade, whose fortunes are closely tied to Gulf-based buyers, saw its overseas outlets nearly standstill, and freight and insurance costs for fisheries and agricultural exports rose sharply.

What the crisis has laid bare, above all, is the structural vulnerability of a development model premised on exporting labour to a single volatile region. Economists have warned for years that Kerala’s over-reliance on Gulf remittances represents a systemic risk; this conflict has activated it. Whether the present disruption is sufficient to compel genuine diversification—into domestic industry, skill upgradation oriented toward non-GCC destinations, and the productive channelling of returnee savings and expertise—remains an open question.

What is not in doubt is that the Malayali diaspora built Kerala’s prosperity through extraordinary resilience and sacrifice. The state now owes that diaspora, and the generations to follow, an economy sturdy enough to stand on its own when the Gulf is in flames.

(The writer is the former secretary in the ministry of external affairs, former ambassador of India to Saudi Arabia and Yemen, and former high commissioner to Seychelles)