Diaspora: Economic Impact

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Diaspora: Economic Impact

Although Indians have been migrating to other lands for thousands of years, large-scale migration only began following the end of slavery in the 1830s. Most migrants went to South or Southeast Asia; about 42 percent settled in Burma, another 25 percent in Ceylon, 19 percent in British Malaya, and the rest in Africa, the Caribbean, and the Pacific.

The vast majority of Indian emigrants went as indentured labor. Contract length varied with distance with short-term arrangements more common within South and Southeast Asia. The kangani system (the kangani, or "head man," was a professional recruiter, who often recruited whole gangs from a village) characterized migration to British Malaya and Ceylon (Sri Lanka), which constituted two-thirds of early Indian emigration. A variant of this practice, know as the maistry system, played a similar role in migration to Burma (Myanmar). British colonies (Burma, Ceylon, and Malaya nearby, as well as distant Trinidad and Tobago, Guyana, and Fiji) were the primary destinations for overseas migration. Dutch and French colonies in Reunion Island, Guadeloupe, Martinique, Mauritius, and Suriname also became home to considerable numbers of Indian migrants.

The migrants were mostly unskilled, from the lower castes, and hailed primarily from the United Provinces (present-day Bihar and east Uttar Pradesh), Tamil Nadu, Andhra Pradesh, and Maharashtra. As with the great trans-Atlantic flows of the nineteenth century, substantial wage difference (from five to eight times what they would earn in India) was the key driver. The risks were large, however. Mortality rates during passage were high. Contracts were routinely abused, and suicide rates were also high, which might partly explain the high return rates. Of the 30.2 million who left India between 1834 and 1937, 23.9 million returned, resulting in a net migration of 6.3 million. As with contemporary migration, migrants sent remittances home (using postal savings) and usually returned with considerable savings. The average cash savings brought back by indentured Indian migrants returning from Mauritius in late 1870s was equivalent to about four years of income at home.

The second wave of migration was the "free" or "passage" migration of traders, clerks, bureaucrats, and professionals, mostly to East and South Africa, and, in smaller numbers, to other British colonies where indentured laborers had settled earlier. This migration continued in small numbers into the first half of the twentieth century. Following the end of World War II, postwar reconstruction and an acute labor shortage created a large demand for unskilled and semiskilled workers in the United Kingdom. These labor shortages drew large numbers of Indians, mainly from Punjab and Gujarat. A modest number of professionals and traders also migrated during this period. These numbers were considerably supplemented by "twice migrant" East African Asians (especially of Gujarati origin) into the United Kingdom in the late 1960s and early 1970s.

Two unrelated events sparked the next major flow of emigration from the late 1960s onward. First, the sharp increase in global oil prices and the resulting economic boom created a large demand for overseas labor in the Middle East. The majority of Indian emigrants were unskilled or semiskilled, although in comparison to earlier migration waves there were considerable numbers of skilled migrants as well. Since the policies of the Middle East countries made permanent settlement extremely difficult, Indian migration to this region has been inherently temporary. Migrants to these countries, especially women, have also been vulnerable, with limited civil rights and protections. While most eventually returned home, some skilled migrants often moved on to countries like Australia and Canada.

Second, the liberalization of U.S. immigration law in 1965 led to a large emigration of highly skilled Indian professionals and students seeking to study in and eventually immigrate to the United States. The large demand for information technology workers in the United States in the late 1990s led to another wave of young professional immigrants. However, since most came with temporary work visas, a relatively larger, though still modest, fraction returned home. The Indian-origin population in the United States grew from around 10,000 in 1960 to nearly 1.7 million by 2000. This migrant stream has been the most highly educated, compared both to other immigrants to the United States, as well as to any other Indian migrant streams.

By the beginning of the new millennium, it was estimated that the Indian diaspora consisted of about 20 million people and spanned over 110 countries. There were 10,000 or more overseas Indians in 48 countries, and 11 countries had more than half a million persons of Indian origin. More than fourth-fifths of the diaspora lived in middle- and high-income countries, and more than 90 percent of those who lived in low-income countries were concentrated in just one (Myanmar). The diaspora from the first two waves of migration (in the second half of the 19^th and early 20^th centuries) has enjoyed mixed fortunes. On the one hand, this immigrant group on average is better off in terms of per capita income, when compared to both the society from which it emigrated, as well as in many cases that into which it settled. The latter holds true for many countries where there is a significant Indian-origin population (Malaysia and Trinidad are notable exceptions). On the other hand, the diaspora suffers from ethnic tensions in many countries and, periodically, has been politically disenfranchised in the Caribbean, East Africa, Fiji, Myanmar, and in South Africa under the apartheid regime. The large "generational distance" of this diaspora means that its economic and family ties to India are quite weak, but it continues to draw religio-cultural sustenance from its Indian roots.

In recent years, international migration and the establishment of a significant diaspora have had considerable political, economic, and cultural effects on India. This is particularly true of the migrant streams of the post-independence period. During this time, international migration and the diaspora's engagement with India have progressed through three distinct phases. Initially, optimism in independent India's future led many of those who went to study abroad to return and help build domestic institutions, especially public institutions in higher education and research and the public sector. By the mid-1960s, the optimism had begun to fade and, as opportunities opened up first in the United States and later in the Gulf countries, as well as in Canada, Australia, and New Zealand, one-way high-skilled migration, or the so-called brain drain, increased significantly. This pattern continued into the early 1990s. Although migration has not abated during the most recent phase, circulatory and return migration has increased, drawn by (and fueling) India's improving economic prospects. Unlike the generation immediately following independence, however, the principal institutional mechanism of return has been the private, rather than public, sector.

Financial remittances, which emerged as an important part of India's balance of payments since the mid-1970s, constitute the diaspora's most visible economic contribution to India. By the late 1990s, remittances were about six times net capital transfers from international capital markets and official sources such as the World Bank. Before this time, India's policy makers operated under conditions of foreign exchange scarcity. Attracting inflows from nonresident Indians (NRIs) has been a part of official policy since 1970, when the first plan to attract NRI flows was devised. Inflows from NRIs have come through both the current account (remittances) and the capital account (NRI deposits), in contrast to the Chinese diaspora, which invests directly in the country of origin. The rate of foreign direct investment (FDI) by the Chinese diaspora is nearly twenty times that of the Indian diaspora, while remittances by the Indian diaspora have been about seven times those from the Chinese diaspora. Until the early 1990s, most NRI remittances came from the Middle East. Since then, North America has also become a prominent source. Both remittances and NRI deposits surged in this period and, by the end of 2003, NRI deposits were one-third of India's foreign exchange reserves, or about one-sixth of the total deposits by resident Indians in commercial banks. For the most part, NRI capital flows have been relatively stable.

Financial remittances have had multiple effects, ranging from increased consumption levels to providing social insurance, both for households and at the national level, by mitigating the effects of external shocks. They have also had considerable distributional consequences, affecting income inequalities across states, social groups, and households. In Kerala, the largest recipient state, remittances account for nearly a quarter of state net domestic product and appear to have had considerable policy incentive effects as well, by reducing pressures for policy change. The use of remittances to build places of worship appears to have contributed to both an increasingly competitive dynamic of religious consumption and support for more extreme groups.

By the 1990s, India's human capital–rich diaspora, especially in the United States, emerged to become an international business asset for the country. Indians' success in the Silicon Valley provided broader and improved global perceptions of Indian technology and talent. These global "reputation" effects also translated into political leverage in both source and destination countries, with positive spillovers for Indo-U.S. relations. In addition to information technology, diasporic networks (mostly Gujarati Palanpuri Jains) have also played an important role in India's rising status as a world leader in the diamond industry.

The Indian diaspora and migration have also had considerable political and social consequences. Negative political effects have manifested themselves through financial contributions and moral support for extremist political parties, reactionary social and religious groups, and separatist movements. Whether financially backing hard-line Hindutva organizations, insurgencies in North-East India, Sikh separatism in the 1980s, or militant Kashmiri groups, the diaspora has periodically fished in troubled Indian waters. Conversely, support for the diaspora led India to covertly back the separatist Sri Lankan Tamils in the 1980s.

Perhaps the most important effects of migration have been the subtle and dynamic effects of "social remittances" on reshaping individual preferences and social norms at both local and national levels. There is anecdotal, though little hard evidence, that Indian political leaders, both local and national, are paying more attention to the policy preferences of the Indian diaspora. So many Indian elites now have global family portfolios that their preferences are changing as well, affected by their overseas family networks.

In the cultural sphere, the diaspora has had influence ranging from music (such as bhangra-rap) to literature (especially in English). But its effects are most evident in India's most potent contemporary cultural force, namely Bollywood films, which have consciously sought to cater to the tastes of the diaspora.

Official government policy has taken note of such changes. Until the 1980s, government policies and the diaspora's attitudes reflected mutual apathy and disdain. The Indian government did little to press for better treatment of the diaspora when it faced discrimination or expulsion (as in Uganda). India's fears of the outside world were reflected in not only its policies toward international trade and FDI, but also in an apathy, bordering on resentment, toward its more successful diaspora. In the 1990s the transformation of the ideological climate in India and the success of the diaspora, especially in the United States, instilled much greater self-confidence in both. The diminished defensiveness that resulted has been an important reason for the growing links and stronger bonds that have transformed relations between the two. In 2003 the government of India organized the first Pravasi Bharatiya Divas, officially sealing India's recognition of its diaspora. Members of the diaspora were granted dual citizenship, although this privilege was confined to those living in a select group of rich countries, excluding virtually all of the diaspora that had migrated prior to independence. Whether and in what ways this changes the diaspora's self-identity and its relationship with India remains to be seen. However, given India's demographics and those of industrialized countries, international migration from India will continue to grow—and with it the diaspora's effects in reshaping both India and the countries of its destination.

Devesh Kapur