Remittances from the Gulf nations to India declined for the first time in six years due to sliding oil prices, according to a Crisil report.
It fell by 2.2 per cent in 2015-16 but the slide had also resulted in a contraction of oil imports, which offset the drop.
“Falling oil prices have had a sweeping impact on the oil producing economies of GCC (Gulf Cooperation Council), severely denting their oil revenues and spending by both governments and households,” according to the report.
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“This has had a negative impact on remittances from the region, which declined for the first time in six years, falling 2.2 per cent.” More than half of India’s remittance income comes from the GCC. Remittances to India from the GCC amounted to $35.9 billion in 2015-16 down from the $36.7 billion seen in the previous year.
However, the report points out that India’s imports from the GCC have fallen sharply, down 34.5 per cent in financial year 2015-16.
“This has helped alleviate some stress from lower remittance and export income,” according to Crisil.
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“In fact, India’s trade deficit with the GCC has fallen a whopping $46 billion, or 77 per cent, in three years, to $14 billion because of rapidly declining imports.”
“So while the big news is that remittance incomes from GCC have dropped, what is less known is that, even at the current level (around $36 billion), remittances have been stickier and more than funded the goods trade deficit—leaving a surplus of $22 billion,” according to the report. The fact that GCC remittances to India contracted only 2.2 per cent despite a 47 per cent slump in oil prices shows that these economies, especially Saudi Arabia and the United Arab Emirates (the two largest remitters in the GCC), are less dependent on oil income.
Vulnerability“India’s dependence on remittances and the resultant vulnerability is much lower than some of its Asian peers who receive similar proportions of remittances from GCC countries.”
Remittances make up 3.7 per cent of India’s GDP, compared with 28 per cent in Nepal, 9.7 per cent in Sri Lanka, and 6.5 per cent in Pakistan.
“If oil prices remain weak for an extended period, economic activity in GCC will come down sharply as the fiscal stress mounts,” according to the report. “This can certainly impact GCC remittances to India.” While oil prices are expected to remain low for some time to come, they have likely bottomed out for now, according to Crisil.