Gulf remittances to India fall by 2.2%

• Remittances from the Gulf Cooperation Council (GCC) region to India declined for the first time in six years, falling by 2.2%, according to a report from CRISIL.
• But despite decline, the remittances are more than India’s trade deficit with GCC. The trade deficit with GCC has narrowed by 77% in last three years due to falling oil prices
• More than half of India’s remittance income comes from the GCC.
• Remittances to India from the GCC amounted to $35.9 billion in 2015-16 down from the $36.7 billion seen in the previous year.
• UAE is the biggest source of GCC remittances into India, accounting for 38.7 per cent, followed by Saudi Arabia with a 28.2 per cent share.
• India is the largest recipient of remittances worldwide. According to the World Bank, total remittances to India last year fell to $69bn from $70bn in 2014.
• Remittances make up 3.7 per cent of India’s GDP, compared with 28 per cent in Nepal, 9.7 per cent in Sri Lanka, and 6.5 per cent in Pakistan.

Analysis:

• This decline in remittances is because of the fall in oil price. The decline in oil prices and economic slowdown have been steady in the past one year in Gulf countries.
• This fall in oil prices also leads to the decline in export to gulf countries by 18.7 % because India is also the major exporter of petroleum products to these countries.
• However, the growth slowdown in GCC remittances was marginal (down 2.2%) despite a 47% slump in oil prices in 2015. This indicates that these economies—especially Saudi Arabia and the United Arab Emirates (UAE), which are the largest two remitters within GCC—are relatively less dependent on oil income.
• In 2015, World Bank study which finds that the elasticity of outward remittances from GCC countries with oil price decline is small, at around 0.1. but , if oil prices continue to remain too low for too long, the sovereign wealth of these nations would deplete faster and the elasticity may not remain that low in future.
• There is possibility now that remittance flows are expected to recover this year, after a bottoming out in 2015, with growth driven by continued economic recovery in the United States and the euro area, and a stabilization of the dollar exchange rates of remittance-source countries. This suggests that even if there is some downside to remittances flowing into India from GCC, the rest of world will make up for it.
• Also, India’s dependence on remittances and the resultant vulnerability is much lower than some of its Asian peers who receive similar proportions of remittances from GCC countries.

By: Vishal