The share of remittances from the Gulf Cooperation Council (GCC) region in India’s inward remittances is estimated to have declined from more than 50 per cent in 2016- 17 to about 30 per cent in 2020-21, according to the Reserve Bank of India’s fifth round of Survey on Remittances.
Amid the steady migration of skilled workers, Advanced Economies (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, as per the findings of the Survey (for 2020-21 reference period) published in RBI’s latest monthly bulletin.
The US surpassed the UAE as the top source country, accounting for 23 per cent of total remittances in 2020-21.
This corroborates with the World Bank report (2021) citing an 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, said RBI officials Soumasree Tewari and Ranjeeta Mishra in an article “Headwinds of Covid-19 and India’s Inward Remittances”.
Maharashtra top recipient
The officials noted that 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 (with about 35 per cent of the total share in remittance receipts) surpassing Kerala (about 10 per cent).
They assessed that apart from the host country dynamics, reducing wage differentials, changing occupational patterns in these States with increasing white-collar migrant workers to the GCC region and entry of low-wage semi-skilled workers from other States and Asian countries may have led to this compositional shift.
By contrast, migration from Uttar Pradesh, Bihar, Orissa, and West Bengal to the Gulf countries has increased in recent years. According to the Ministry of External Affairs data, more than 50 per cent of the approved emigration clearances for the GCC region in 2020 were for these States.
With the dominance of low-wage unskilled labourers, however, their share in remittances has remained significantly low while the share of Maharashtra and Delhi has increased significantly in 2020-21 to about 35 (from about 17 per cent in 2016-17) and about 8 per cent (from about 6 per cent), respectively, as per the article.
Nevertheless, Maharashtra, being one of the worst affected States with the largest number of Covid-19 affected population and prolonged lockdown phases impacting the mobility of return migrants and economic and business operations, witnessed the sharpest decline in remittances (by 12.8 per cent) in 2020-21, the authors said.
While NRI deposits are empirically found to be driven by the exchange rate and interest differentials, the trend in NRE (Non-Resident External) account, which is typically used for parking income from abroad by non-resident Indians in Rupees (INR), witnessed a sharp spike in the consecutive waves of the pandemic, according to the report.
For example, NRI deposits rose by $7.826 billion in the April-December 2020 period against $5.862 billion in the year-ago period.
Apart from favourable yields, deposits in the NRE accounts increased significantly during this period as returning overseas migrants, amidst layoffs and heightened uncertainty regarding their return and future employment, prospects repatriated their savings into these accounts.
While overseas remittances for family maintenance, representing a major chunk of India’s inbound remittances, moderated with the loss of overseas employment opportunities, local withdrawals from non-resident rupee-denominated deposit accounts increased implying the drawdown of savings to tide through the crisis, the authors said.
India remained the top recipient country (with $89.4 billion inward remittances), 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.
Bank group-wise share
The impact of the slowdown in remittances has been quite diverse across banks. While public sector banks (PSBs) and cooperative banks (CoBs) suffered a loss of business, reflected in the lower number of transactions, private sector banks (Pvt.Bs) and foreign banks (FBs) improved their market share as private banks retained their market leadership followed by PSBs and FBs.
In 2020-21, the share of Pvt.Bs in overall banks' total remittances stood at 52.8 per cent. The share of PSBs and FBs was at 39.4 per cent and 7.8 per cent, respectively.