India's remittance income dips as oil's drop hits workers

Remittances to India fell for the first time in six years last year, raising concern that many families could be hit in the world's biggest recipient of money from its workers abroad.

An economic slowdown and falling oil prices in the Arabian Gulf region - the source of over half of India's remittances - are seen as major contributors to the drop in remittances.

Indians working abroad sent home about US$69 billion (S$95 billion) last year, down 2.1 per cent from US$70 billion in 2014, the World Bank said.

Other top recipients of worker remittances include China at US$64 billion and the Philippines with US$28 billion.

The dip in the money sent home to India "could have a major impact on consumption in the domestic economy in Kerala, Uttar Pradesh and Bihar, which have a large number of migrants (working abroad)", said Professor N.R. Bhanumurthy at the National Institute of Public Finance and Policy.

UNCERTAIN ECONOMY

People are feeling insecure so what happens is that they will not send money back home but will keep the salary in case they need it to tide over difficult times... I know of instances like this. But even if they lose their jobs, they will not go back to India. They will look for jobs elsewhere.

MR K.V. SHAMSUDHEEN, chairman of the UAE-based Pravasi Bandhu Welfare Trust, who lives in Dubai, on the impact of layoffs of foreign workers around the Arabian Gulf

A major worry is how long oil prices would stay low globally, as this has caused firms in the Gulf to put expansion plans on hold, while others have retrenched workers to downsize operations.

Over 20 million Indians work abroad in various jobs including in Singapore, the United States and Britain. The money they send home accounted for 4 per cent of India's gross domestic product.

Seven million Indians in this group, or about 35 per cent, work in the Gulf countries from Saudi Arabia to Dubai to Kuwait at various levels in sectors ranging from banking to construction and real estate.

Annually, the migrant Indians in the Middle East contribute up to US$40 billion in remittances.

Thus economic gyrations in these countries quickly ripple back to India.

One of Saudi Arabia's biggest construction groups, the Saudi Binladin Group, for instance, recently laid off 88,000 foreign workers including Indians, according to Gulf news reports. The group, the Saudi Gazette newspaper reported on Thursday, has delayed salaries to more than 35,000 workers.

"People are feeling insecure so what happens is that they will not send money back home but will keep the salary in case they need it to tide over difficult times," said Mr K.V. Shamsudheen, chairman of the United Arab Emirates-based Pravasi Bandhu Welfare Trust, who lives in Dubai.

"I know of instances like this," he added. "But even if they lose their jobs, they will not go back to India. They will look for jobs elsewhere."

Experts say while the impact on remittances may be limited so far, warning bells have begun to ring in India.

The Technical Advisory Committee of the Reserve Bank of India, the central bank, noted last month that "weak corporate sectors and slowing remittances are concerns that monetary policy needs to take into account".

On its own, the fall in remittances would not impact India's finances, said experts.

"I do not think it is a very big risk immediately. Having said that, it is certainly a worry on an incremental basis if seen in conjunction with any deterioration in either trade balance or capital flows," said Mr Suvodeep Rakshit, an economist at Kotak Securities.

Mr Rakshit said the government will have to start worrying if oil prices remain low for a long time. This could cause the oil exporting economies to shift away from traditional growth models and "then the (Indian) government may have to contend with employment of these workers", he added.

Saudi Arabia, the world's largest exporter of petroleum, unveiled plans last month to reduce its reliance on hydrocarbon exports. It has announced plans to sell shares in state oil giant Saudi Aramco and place the funds raised into an investment fund, media reports say.

And the Saudis also plan to radically shift key services like education, healthcare and airports to the private sector.

Prof Bhanumurthy said to reduce over-reliance on remittances, India's government should "spend more on rural segment and rural development programmes".

A version of this article appeared in the print edition of The Straits Times on May 23, 2016, with the headline 'India's remittance income dips as oil's drop hits workers'. Print Edition | Subscribe