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How economic downturn in Gulf states has resulted in a drop in remittances into India

economic downturn in Gulf states

India, the largest remittance-receiving country worldwide, witnessed a near 9% drop in NRI pay-in flows to $62.7 billion in 2016 over the previous year.

Eight long dhows, with price tags in the range of Rs 6 -9 crore each, would have sailed off the shores of Beypore, Kerala, if buyers from Qatar had not cancelled the orders a few months ago.

In 2010, Qatar had successfully bid to host the 2022 FIFA World Cup. The Qatari government ingeniously decided to house visitors on dhows anchored on the emirate’s waterfront. Dhows are wooden ships with triangular sails, made by traditional carpenters in Beypore.

“Qatar had plans to order some 100 wooden long boats. Some of the orders had come to us also… But these started getting cancelled after crude prices fell and Qatar-Saudi Arabia relations soured,” rues Abdulla Baramy of Baramy Ship Builders.

Since its founding in 1954, Beypore-based Baramy Ship Builders has built close to 110 dhows for buyers in the UAE, Kuwait, Oman and Qatar. But their order book has shrunk over the past few years — almost in line with the dipping fortunes of their buyers. “We make small boats for local fishermen these days. We also do odd repair jobs,” shrugs Baramy.

remittance to india

The economic slump, arising out of an unprecedented fall in crude oil prices and simmering geopolitical tension in the Persian Gulf, are sending shock waves across the Arabian Sea. The fair winds that ferried labour and material between Arabia and India have slowed down considerably.

Consequentially, NRI remittances to India from the GCC or the Gulf Cooperation Council countries — comprising Bahrain, Kuwait, UAE, Oman, Qatar & Saudi Arabia — have slid alarmingly.

overseas indians in gcc

India, the largest remittance-receiving country worldwide, witnessed a near 9% drop in NRI pay-in flows to $62.7 billion in 2016 over the previous year, as stated in a World Bank report. Much of this shortfall has been attributed to the economic downturn in GCC states. As per RBI scrolls, inward remittances have fallen from a peak of Rs 4.38 lakh crore (in 2014-15) to Rs 3.66 lakh crore last fiscal, a 12% decline.

“It is a case of an overall economic slowdown in the Gulf; lower oil prices have resulted in an economic slowdown in that region,” says Madan Sabnavis, chief economist at CARE Ratings. “The slowdown in that region has also resulted in paycuts and job losses. The IT slump may have impacted remittances from North America too.”

Send Money Home

How important are remittances for India? Not much, if you are only considering the proportion of remittances to the GDP. Inward remittances account for just 3% of India’s GDP. But, at a sub-national level, remittances play an important role. Take Kerala, which receives the lion’s share of its remittances from the Gulf region. Remittances account for over 36% of Kerala’s state domestic product and contribute significantly to household consumption.

That apart, remittances become critical in times of high trade deficit, which is not a worry at this point in time, reckon economists. Trade deficit is when the cost of country’s imports exceeds the value of its exports.

“Remittances provide a cushion in times of higher trade deficit. The impact of lower remittances would have been higher had global commodity and raw material prices been higher,” says Devendra Pant, chief economist at India Ratings. “If there’s a slowdown in India, our current account deficit may creep up. Without adequate remittances, the rupee could come under pressure as well.”

emigration clearances

Beyond that, states with high migration rates (Kerala, Tamil Nadu, Punjab and Karnataka) have workforce from low migration states taking up unskilled or semi-skilled jobs. States like Kerala, Tamil Nadu, Karnataka and Punjab have migrant labourers from Uttar Pradesh, Bihar, West Bengal and Odisha earning their livelihood. If Indians in GCC cut the value of their money orders, there would not be enough jobs for inland migrants ( see Say Hello to Replacement Migration ).

“If the Gulf starts sending back our citizens, we will be in trouble. Unemployment rates will go up. People from states with low migration rates, who go for employment to states like Kerala, could be hurt financially,” Pant warns.

The Dependency Factor

As per External Affairs Ministry data, nearly 85 lakh Indians work or reside in GCC countries. In the first seven months of this year, over 2.77 lakh Indians relocated to the Gulf in search of jobs. The UAE has absorbed most of these jobseekers (about 1.10 lakh Indians), followed by Saudi Arabia (59,911), Oman (42,095), Kuwait (40,010) and Bahrain (7,591).

Uttar Pradesh, with over 62,438 persons, tops the Gulf migrants list, followed by Bihar (50,247), West Bengal (25,819) and Tamil Nadu (24,003). Number of Gulf migrants from Kerala has reduced considerably over the past few years.

“The demographic profile of people going to the Gulf is changing,” says S Irudaya Rajan, professor at the Centre for Development Studies (CDS), Thiruvananthapuram. Rajan has spearheaded several research studies on labour migration. “Not many people from Kerala or Tamil Nadu are going to the Gulf anymore. Till some time ago, they were being replaced by people from UP, Bihar and West Bengal.

Now, they are being replaced by non-Indians — mostly people from Vietnam, Philippines, Bangladesh, Nepal and Sri Lanka.” GCC (along with North America and Europe) made India one of the largest receivers of remittances in the world. In 2015 alone, India received $34.67 billion from the UAE, Saudi Arabia, Kuwait, Qatar and Oman. Data for Bahrain is not in the public domain. Close to 35% of net remittances to India flow in from the GCC.

Bulk of migrants going to GCC from India are semiskilled or skilled labourers. About 30% of Indian expatriate workforce is white-collar professionals, populating the services and IT sectors.

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