RBI study shows remittance flow down to around 30% in 2020-21
The share of GCC countries in India’s inward remittances fell in 2020-21 (FY21), reflecting the slower pace of migration and the presence of the Indian diaspora in the informal sectors during the period of pandemic, according to the Reserve Bank of India.
The share of GCC in the global flow of remittances to India has fallen from over 50% in 2016-2017 to around 30% in 2020-2021, according to the RBI study.
Advanced economies, particularly the United States, United Kingdom and Singapore, have emerged as a major source country of remittances, accounting for 36% of total remittances in 2020-21 amid steady migration of skilled workers, according to the findings of RBI’s fifth survey round. Remittances Survey.
The United States overtook the United Arab Emirates as the top source country, accounting for 23% of total remittances in 2020-21.
The RBI report highlights the World Bank report (2021), which cites an economic recovery in the United States as one of the main drivers of remittances from India, as it accounts for almost 20% of the total remittances.
According to the World Bank, remittance flows to low- and middle-income countries fell slightly to $540 billion in 2020, down 1.6% from $548 billion in 2019.
India remained the top recipient country (with $89.4 billion of inbound remittances), accounting for 12% of total global remittances, registering a marginal decline of 0.2% in 2020 and growth by 8% in 2021.
RBI officials Soumasree Tewari and Ranjeeta Mishra noted in an article titled “Covid-19 Headwinds and Remittances to India”, that the share of traditional recipient states of Kerala’s remittances, Tamil Nadu and Karnataka, which had strong dominance in the GCC region, almost halved in 2020-21, accounting for only 25% of total remittances since 2016-17, while Maharashtra became the top receiving state (with about 35 percent of the total share of remittances) surpassing Kerala (about 10 percent).
“Besides the dynamics of the host country, the reduction in wage differentials, the evolution of occupational patterns in these states with the increase in the number of white collar workers in the GCC region and the entry of semi-skilled workers into low pay from other states and Asian countries may have led to this change in composition,” they argued.
On the other hand, migration from Uttar Pradesh, Bihar, Orissa and West Bengal to the Gulf countries has increased in recent years. According to data from the Ministry of External Affairs, more than 50% of emigration clearances approved for the GCC region in 2020 were from these states.
However, with the predominance of low-wage unskilled workers, their share in remittances has remained very low while the share of Maharashtra and Delhi has increased significantly in 2020-21 to around 35 (from around 17% in 2016-17) and around 8.0% (from around 6.0%), respectively, the RBI officials wrote.
Nevertheless, Maharashtra, being one of the worst affected states with the highest number of people affected by Covid-19 and prolonged lockdown phases impacting the mobility of returnees and economic and business operations, has experienced the largest drop in remittances (by 12.8%) in 2020-21, the authors said.
The article also concludes that the majority of remittances continue to be sent by private sector banks, followed by public sector banks, although foreign banks have seen a marginal increase in remittances, in especially from Singapore.
“While India is the second cheapest market to receive remittances in the G20 after Mexico, the cost of some transfer corridors has always been higher than others,” he said. declared.
The trend of the NRE (Non-Resident External) account, which is generally used for parking income from abroad by non-resident Indians in rupees (INR), has seen a sharp increase in consecutive waves of the pandemic, according to The report.
For example, NRI deposits increased by $7.826 billion during the April-December 2020 period from $5.862 billion a year ago.
Deposits in NRE accounts have increased significantly over this period as returning overseas migrants—amid layoffs and heightened uncertainty about their return and future job prospects— repatriated their savings to these accounts.
While overseas remittances for family maintenance, which account for a large share of India’s inward remittances, have moderated with the loss of employment opportunities abroad, Local withdrawals from nonresidents’ rupee-denominated deposit accounts increased, implying a reduction in savings to weather the crisis, the authors said.