Home/ Market / Mark-to-market/  India remittances from gulf getting slippery due to oil prices

Remittances have been the bulwark of dollar inflows and have lent the required comfort in financing India’s current account deficit (CAD) for decades.

This reliable stream of dollar inflows has remained steady despite the country’s CAD widening by a big margin. According to World Bank data, remittances to India totalled $69 billion in FY17, an increase of 9% from FY16. While this is far better than the decline in the preceding two years, it is a far cry from the high double-digit growth remittances showed about a decade ago.

The share of India in overall remittances of the world too has slipped, albeit marginally, to 12% from 14% in FY12. Given that a large chunk of these remittances are from gulf countries, the movement in oil prices has a big influence on it, given that these economies depend on oil for growth.

Hence, earnings of the migrant workers from India reflected in the slowdown of these economies in the aftermath of the oil price fall in 2015 and 2016.

India benefits from the sharp fall in crude oil prices, but its citizens who migrate do not.

Hence, while the import bill of the country reduces, given the 30% drop in oil prices in the last two months, the distress is likely to show in the coming quarters through remittances. Oil producing countries such as Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates contribute to more than half of India’s remittances. In fact, in FY17, the share had gone up to 53% from 50% in FY13.

The impact of high oil prices is felt instantly in India’s oil import bill, while the salutary effects typically show up with a lag in remittances. Ergo, analysts expect CAD to narrow following the fall in oil prices. But remittances could show some stress later on.

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Updated: 20 Nov 2018, 06:37 AM IST
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