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, the Reserve Bank of India (RBI) said in its monthly bulletin. This corroborates with the World Bank report (2021)citing 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.
Remittances from the UAE now account for 17-18 per cent of India’s total inward remittances, the RBI said in an article on the impact of COVID on remittances. In FY21, remittances amounted to $87 billion, nearly 2.75% of GDP.
“The share of remittances from the GCC 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,” the RBI adds.
Amid the steady migration of skilled workers, AEs, particularly the US, the UK and Singapore emerged as an important source country of remittances, accounting for 36 per cent of total remittances in 2020-21, the central bank notes.
The impact of COVID-19-led stressed income conditions was discernible as small size transactions gained share in total remittances in 2020-21, the RBI says in its bulletin. It further states that the divergence was also reflected in the bank-group wise transactions as public sector banks lost market share while private banks retained their dominance in remittances business
Remittances are the second major source of external financing for low and middle-income countries after foreign direct investment.
According to the World Bank Report on Migration and Remittances (World Bank, 2021b), remittance flows to low and middle-income countries declined marginally to $540 billion in 2020, only 1.6 per cent below the $548 billion in 2019.
India, being the top recipient country, was expected to be one of the worst affected as its host country basket was vulnerable to the twin effect of economic slowdown and slump in oil prices, the central says.
Defying the early projections, however, India remained the top recipient country, accounting for 12 per cent of total global remittances, recording a marginal decline of 0.2 per cent in 2020 and a growth of 8 per cent in 2021, it adds.
Remittances have exceeded foreign direct inflows in several countries, including India, the Philippines, Pakistan and Bangladesh, accounting for about three per cent of GDP in low-income and 1.6 per cent of GDP in middle-income countries, the RBI notes.
The United Arab Emirates (UAE), the United States of America (USA) and Saudi Arabia have been the three major destinations of Indian migrants for the past two decades. Out of the total migrants from India, 48.6 per cent were in the UAE, the USA and Saudi Arabia as of the end of 2020, it adds.
“The compositional shift in India’s migration towards AEs, notably, the US, the UK, Canada and South Africa dominated by high-skilled white-collar workers augurs well for total remittance inflows,” the central bank states.
However, the potentiality of the severe adverse impact on India’s low-wage low-skilled workers from the successive waves of the pandemic and the uneven economic recovery in the low and middle-income countries may have long-term implications for remittance inflows, RBI cautions.
While India’s inward remittances remained resilient defying the crisis at the macro level, there have been significant changes in the geographical and socioeconomic composition of remittances, driven by the home and host country crisis dynamics and the severity of the impact across different working classes.
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, RBI states in its bulletin. It adds that Maharashtra now accounts for almost 35 per cent of the overall remittances in 2020-21.