Will Kerala’s Economy be Hit by Coming Decline in Persian Gulf Labor Demand

Kerala needs more job training programs as lower oil revenues reduces foreign labor demand in the Persian Gulf says Ignatius Chithelen

(Photo: courtesy Kerala Tourism.)

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By Ignatius Chithelen

January 23, 2026

There are roughly ten million Indians working in the Persian Gulf countries, whose economies rely on exports of crude oil and natural gas. These migrants, in the United Arab Emirates, Saudi Arabia, Qatar, Kuwait, Oman and Bahrain, are mainly laborers, including in construction; also office employees and software engineers. They earn two to five times more than those in comparable jobs in India and pay no income tax.

The migration helps ease India’s massive unemployment. Also, the workers send a major part of their salaries to their families, which boosts income and consumer demand in India. In fiscal year 2024-2025, such funds from the gulf accounted for about 40 percent of $136 billion in foreign remittances received by India.

About a third of the migrants are from Kerala. Since the 1970’s, the remittances and savings of Keralites in the gulf have been a major driver of the state’s economic growth and job creation. In fiscal year 2023-2024, for instance, such fund inflows totaled $26 billion, accounting for a fifth of the state’s income.

The fund inflows boost consumer demand and investments in construction, mainly residential real estate, and in tourism, healthcare and other service businesses, as economist K.P. Kannan notes. However, as he also points out, unemployment remains high in Kerala, like in the rest of India. So, the state’s economy depends on at least three million Keralites, roughly a tenth of its population, continuing to be employed in the Persian Gulf.

The demand for foreign labor in the Kingdoms fluctuates a great deal based on major changes in oil prices. In 2020, when oil prices collapsed to an annual average $40 a barrel during the COVID-19 pandemic, millions of migrant laborers were fired and sent home. This led to a sharp decline in remittances from the gulf countries to India. The drop in income severely hurt Kerala’s economy, compounding the hit from the pandemic. Then, as oil prices recovered in 2021 and onwards, demand for foreign labor climbed back up.

Currently, the number of Indians employed in the Persian Gulf is above the pre-pandemic level. But, in about a decade, such hiring will likely start declining. By 2040, according to forecasts by U.S. investment bank Goldman Sachs, oil demand will peak at around 113 million barrels per day, up from 100 million barrels today. This is mainly due to more automobile owners switching to electric vehicles, especially in China. Meanwhile, on the supply side, global recoverable oil reserves will remain abundant, more than 1,500 billion barrels.

Given flat demand and excess supply, there is a high probability that oil prices will be in a long-term decline, though there could be short-term spikes due to geo-political and other factors. Already, futures prices in the late 2030’s are about a third lower than the current $65 price per barrel, though on small trading volumes.

(Photo: An ayurveda resort in Kerala. Courtesy Wikimedia Commons.)

A sustained drop in oil prices will result in major revenue declines for the Persian Gulf exporters. So, they will likely hire far fewer foreign laborers, including Indians. This will worsen India’s unemployment and be a big hit to Kerala’s economy.

Some economists argue that demand for Indian labor in the Persian Gulf will stay around the current levels, even with declining oil prices, due to new businesses being set up in the region. Indeed, anticipating a sharp decline in oil revenues, the Kingdoms are spending trillions of dollars to try to diversify their economies away from dependence on oil exports. Saudi Arabia Vision 2030, for instance, expects investments to total $3.2 trillion.

Currently, such spending, on solar and other renewable plants, technology and artificial intelligence centers and tourist attractions, has led to additional demand for foreign labor, especially construction workers, including from India. However, the new businesses will be highly automated. So, once they are operational, the Kingdoms are unlikely to require the current number of foreign laborers, especially as oil revenues decline.

For the past fifty years, Indian laborers in the Persian Gulf, notably from Kerala, have contributed more than a trillion dollars to India’s economy. This has been a major factor in reducing India’s current account deficit and foreign debt as well as fueling Kerala’s economic growth.

Yet, the Indian Government has not used the resulting budgetary savings to finance the set up of crucial job-creating businesses. The Kerala Government too has not done this by using the tax revenues generated by the spending of migrant laborers. For instance, India acutely needs a cold-chain network - including refrigerated trucks and warehouses - to prevent the rotting of vegetables, fruits, food grains, dairy, meat and other farm products. More than a third of food produce in India is wasted, causing an estimated annual loss of $26 billion. In the case of Kerala, a cold chain will also help boost exports of commercial crops and sea food.

In Kerala, there have been little, if any, major investments in jobs-related skills training and technical and other internship programs for high school and college graduates, in collaboration with employers. This will help improve their chances of finding a job in India, while demand for foreign labor declines in the Persian Gulf. At the least, the Kerala government owes such programs to the children and grandchildren of the migrant workers who enriched the state, by laboring for decades in the gulf Kingdoms.

Ignatius Chithelen is the publisher of Global Indian Times and author of Six Degrees of Education.