Even though some slowdown in remittances by non-resident Indians (NRIs) could be experienced in the near-term, the Reserve Bank of India (RBI) stated that available information indicated inward remittances to India had not been impacted significantly by the global economic crisis.
“This could be attributed to a number of factors such as depreciation of the rupee, hike in interest rate ceilings on NRI deposits since September 2008 and uncertainties in oil-prices, which might have induced the workers to remit their money to India as a hedging mechanism due to its relatively better growth prospects,” RBI stated in its annual report 2008-09, which was released on Thursday. According to the World Bank estimates, India received significantly higher remittances to the tune of $52 billion in 2008 compared with $38.7 billion in 2007.
According to an earlier study by the RBI, region-wise, North America accounts for nearly 44 per cent of the total remittances to India, followed by the Middle East (24 per cent) and Europe (13 per cent). However, the RBI stated that “in view of the recessionary conditions in the advanced economies and sharp moderation in growth in the Middle East, some slowdown in remittances could be experienced in the near-term”.
Workers’ remittances to India have imparted significant resilience and strength to India’s balance of payments in the past, particularly in conditions of notable capital outflows or adverse external shocks. “There is a perception that global recession and the weakening employment prospects in the host countries could affect India’s inward remittance flows”.
The surge in workers’ remittances to India, responding to oil boom in the Middle East during the 1980s and the information technology revolution in the 1990s, has put India among the top remittance receiving countries in the World.
Remittances have helped in offsetting India’s merchandise trade deficit to a large extent. “The relative stability in such transfers, compared to other capital account items, such as NRI deposits, foreign direct investment and portfolio investment, has also enabled the containment of the current account deficit at modest levels in the face of pressures on other accounts,” the report said.
In the aftermath of the global meltdown, however, it is feared that recession-induced rising job losses in the U.S. and Europe could impact migrant workers more severely.
Even if there is no lay-off, workers may often have to accept lower wages as employers worldwide are seeking to cut costs in an attempt to cope with the financial crisis.
Fears have also been expressed about reverse migration of Indian labourers working in Gulf countries, which could result in a decline in inflows of remittances and NRI deposits to India. “The construction industry in the Gulf region is facing a difficult time due to global meltdown and has left millions of construction workers with uncertain future,” RBI added.
Keywords: RBI annual report