Huge drop in remittances from Gulf countries in FY21 due to Covid-19

New Delhi: The share of inward remittances from Gulf nations dipped sharply during 2020-21 on account of the economic stress created by the COVID-19 pandemic, said an RBI article. 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 article said citing an RBI survey.

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 Reserve Bank of India conducted the fifth round of the Survey on Remittances for the year 2020-21.

"...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 Reserve Bank of India.

Overall, notwithstanding headwinds of COVID-19, India's inward remittances have proven to be a resilient source of current account receipts, the article published in the RBI's July bulletin said.

The decline in remittances from the Gulf countries during 2020-21 reflects a slower pace of migration and a larger presence of Indian diaspora in informal sectors which was hit the most during the pandemic period. As a result, the proportion of small size transactions in total remittances increased in 2020-21.

The US surpassed the UAE as the top source country, accounting for 23 per cent of total remittances in 2020-21.

This corroborates with the World Bank report (2021) citing an economic recovery in the US as one of the important drivers of India's remittances growth as it accounts for almost 20 per cent of total remittances, the article said.

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, Orissa 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.

The article also concludes that the majority of the remittances continue to be routed through private sector banks, followed by public sector banks although foreign banks have witnessed a marginal increase in remittances transactions, particularly from Singapore.

It also noted that stressed income conditions are discernible from small size transactions gaining a share in total remittances during the pandemic period.

"Notwithstanding, India is the second cheapest remittance receiving market in the G20 group after Mexico, the cost for certain remittance corridors has been consistently higher than others," it 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.