COVID, cheap oil, slow migration push down remittances from Gulf
Signs of financial distress among remitters evident from the increase in smaller denominated transactions in 2020-21, says RBI report
The share of inward remittances from Gulf nations dipped sharply during 2020-21 on account of the economic stress created by the COVID pandemic, said a Reserve Bank of India (RBI) report.
The share of India’s inward remittances from Gulf countries has likely declined from more than 50 per cent in 2016-17 to about 30 per cent in 2020-21, the RBI survey showed.
The report says that the fall in remittances from the Gulf region can be attributed to the fact that the Indian diaspora working in informal sectors in the region seems to have been impacted the most due to lockdown restrictions, subdued crude oil prices and slower pace of migration in recent years.
As a result, the proportion of small size transactions in total remittances increased in 2020-21.
Small denomination transactions
The signs of financial distress among remitters, says the report, were evident in the increase in smaller denominated transactions (less than $200) in 2020-21.
“While the increase in small size transactions may be due to the reduced sending capacity of the overseas remitters, it might also be indicative of more frequent financial support required by their low-income beneficiaries during the pandemic period,” says the report
There is also some in the currency exchange trade who say that remittances could be on the lower side because many Indian expats on their summer breaks are back home. “Many would have already exhausted available funds to remit because of other spending needs,’ Gulf News quoted an official as saying. “With their July paydays, the tendency would be to retain. Summer is typically a slower phase for remittances.”
To analyse the factors contributing to the resilience of remittances and to understand to what extent the pandemic has changed the underlying dynamics of remittances flow, the RBI conducted the fifth round of the Survey on Remittances for the year 2020-21.
According to the survey, remittances from UAE now account for 17-18 per cent of India’s total inward remittances.
“…the share of remittances from the GCC (Gulf Cooperation Council) region in India’s inward remittances is estimated to have declined from more than 50 per cent in 2016-17 (last surveyed period) to about 30 per cent in 2020-21,” said the article prepared by the officials in the Department of Economic and Policy Research, RBI.
The central bank, however, said the views expressed in the article are those of the authors and do not represent the views of the RBI.
Share of southern states halved
The share of the traditional remittance recipient states of Kerala, Tamil Nadu and Karnataka, which had strong dominance in the GCC region, has almost halved in 2020-21, accounting for only 25 per cent of total remittances since 2016-17, while Maharashtra has emerged as the top recipient state surpassing Kerala.
“Apart from the host country dynamics, reducing wage differentials, changing occupational patterns in these states with increasing white collar migrant workers to GCC region and entry of low-wage semi-skilled workers from other states and Asian countries may have led to this compositional shift,” it said.
By contrast, migration from Uttar Pradesh, Bihar, Odisha and West Bengal to the Gulf countries has increased in recent years. According to the Ministry of External Affairs data, more than 50 per cent of the approved emigration clearances for the GCC region in 2020 were for these states.
With the dominance of low-wage unskilled labourers, however, their share in remittances has remained significantly low while the share of Maharashtra and Delhi has increased significantly in 2020-21, it said.
On the other hand, advanced economies like the US, the UK and Singapore emerged as important sources for the country for remittances, accounting for 36 per cent of the total payments in 2020-21, the RBI survey said.
Policy measures need to be undertaken that expand the scope of the Money Transfer Service Scheme (MTSS) in high-cost corridors, it said, and added that remittance service providers need to adapt to the changing times by investing heavily in digital technologies.