Remittances from Gulf countries dropped sharply in FY21 due to Covid: RBI

Source: The post is based on the article “Remittances from Gulf countries dropped sharply in FY21 due to Covid: RBI” published in Business Standard on 17th July 2022.

What is the News?

According to an RBI article, 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.

What are the key takeaways from the article?
Source: TOI

Share of Remittances from Gulf Countries Declining: The 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.

– This decline in remittances from the Gulf countries reflects a slower pace of migration and a larger presence of the Indian diaspora in informal sectors which were hit the most during the pandemic period. 

Advanced economies as a source of Remittance: 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% of the total payments in 2020-21.

Major Remittance source country for India: Remittances from the US have surpassed that of the UAE, with the US accounting for 23% of total remittances in 2020-21. Remittances from the UAE now account for 17-18% of India’s total inward remittances.

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 emitters. 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 Remittance Share: Maharashtra has emerged as the top recipient state surpassing Kerala. Maharashtra now accounts for almost 35% of the total remittances in 2020-21.

– 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.

Reasons for this compositional shift in remittances: The article highlights the following factors responsible for the compositional shift in inward remittances: 1) Host country dynamics, 2) reducing wage differentials, 3) changing occupational patterns in these states with increasing white-collar migrant workers to GCC region and 4) entry of low-wage semi-skilled workers from other states and Asian countries.

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