Remittances from abroad

As per an RBI article, share of inward remittances from Gulf nations dipped sharply during 2020-21 on account of the economic stress created by the COVID-19 pandemic. The United States has pipped United Arab Emirates (UAE) as the top source country, accounting for 23 per cent of overall remittances in the financial year 2020-21.

Details –

• The Reserve Bank of India conducted the fifth round of the Survey on Remittances for the year 2020-21.
• This survey was conducted with objectives —
  • 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.

Key highlights –

• Share of inward remittances from Gulf nations dipped sharply —
  • • As per the survey, share of India’s inward remittances from Gulf countries has likely declined from more than 50% in 2016-17 to about 30% in 2020-21.
    • The decline in remittances from the Gulf countries during 2020-21 reflects a slower pace of migration.
    • It also highlights the fact that there is a larger presence of Indian diaspora in informal sectors which was hit the most during the pandemic period.
• Advanced economies have emerged as important sources for remittances —
  • • During this period, advanced economies like the US, the UK and Singapore emerged as important sources for the country for remittances.
    • These countries account for 36 per cent of the total payments in 2020-21.
• Remittances from the US have surpassed that of UAE —
  • • According to the survey, remittances from the US have surpassed that of UAE, with the former accounting for 23% of total remittances in 2020-21.
    • Remittances from UAE now account for 17-18% of India’s total inward remittances.
• Signs of financial distress among remitters —
  • • The signs of financial distress among remitters were evident in the increase in smaller denominated transactions (less than $200) in 2020-21.
    • The increase in small size transactions may be due to the reduced sending capacity of the overseas remitters.
    • On the other hand, it might also be indicative of more frequent financial support required by their low-income beneficiaries during the pandemic period.
• State-wise share —
  • • The share of the traditional remittance recipient states of Kerala, Tamil Nadu and Karnataka, has almost halved in 2020-21.
      • These states had strong dominance in the Gulf countries.
    • These states accounted for only 25% of total remittances compared to over 42% in 2016-17.
    • Now, Maharashtra has emerged as the top recipient state surpassing Kerala. Maharashtra now accounts for almost 35% of the total remittances in 2020-21.
• Factors behind this compositional shift —
  • The survey highlights following factors responsible for the compositional shift in inward remittances —
    • host country dynamics;
    • reducing wage differentials;
    • changing occupational patterns in these states with increasing white collar migrant workers to GCC region
      • A white-collar worker is a person who performs professional, desk, managerial, or administrative work.
    • entry of low-wage semi-skilled workers from other states and Asian countries.
• Post-Covid, the migration pattern to the GCC countries has changed significantly with a sharp contraction in the number of emigration clearances (ECs) issued.
  • • ECs are issued to unskilled or semi-skilled workers and women seeking overseas employment.

Remittances –

• Remittances are the second major source of external financing for low and middle-income countries after foreign direct investment.
• Its effect on household income and contribution to financial asset building to improve people’s quality of life is well recognised.
• Remittances from overseas workers have helped countries like India to live with a current account deficit.
• Money sent by non-residents has helped the economy during past crises, including the aftermath of the Lehman Brothers collapse.
  • For India, remittances peaked at 4% of GDP in 2009.

Remittances and the pandemic –

• Unprecedented global recession triggered by COVID-19 had created serious doubts about the flow of inward remittances in India.
• World Bank, in its report on Migration and Remittances, had expected India to be one of the worst affected countries as far as inward remittances were concerned. This was due to the fact –
  • Before pandemic, India was the top recipient country.
  • India’s host country basket was vulnerable to the twin effect of economic slowdown and slump in oil prices.
• Defying the early projections, however, India remained the top recipient country, accounting for 12 per cent of total global remittances.
  • In FY21, remittances amounted to $87 billion, nearly 2. 75% of GDP.
  • It recorded a marginal decline of 0.2 per cent in 2020 and a growth of 8 per cent in 2021.