India is by far the largest recipient of remittances in the world. According to the World Bank, the country received $87 billion in 2021, showing a growth of 4.6%. China and Mexico are next, with $53 billion each.
India’s overall inbound remittances remained resilient even during the pandemic. But, later, there was a big change. An RBI article, citing the results of a central bank survey, said that the share of remittances from the Gulf Cooperation Council or the GCC region in India’s inward remittances is estimated to have declined from over 50% in 2016-17 to around 30% in 2020-21.
In a context of constant migration of skilled workers, advanced economies, in particular the United States, United Kingdom and Singapore, have become major sources of remittances, accounting for 36% of total remittances in 2020 -21.
The United States overtook the United Arab Emirates as the top source country, accounting for 23% of total remittances. The World Bank has also stated in its recent report that the economic recovery in the United States is one of the important drivers for the growth of remittances in India.
The decline in remittances from the Gulf countries can be explained by several reasons. India’s migration to GCC countries has slowed down over the past five years due to the economic downturn. Then, low oil prices, stricter labor laws, the introduction of nationalization policies, higher work permit renewal fees and taxes played a role.
The share of Kerala, Tamil Nadu and Karnataka, which had strong dominance in the GCC region and were big contributors to remittances, almost halved in 2020-21. They have only represented 25% of total remittances since 2016-2017, while Maharashtra has become the first recipient state, overtaking Kerala.
The authors of the RBI article say that the changing composition of migration from India to advanced economies including the US, UK, Canada and South Africa, dominated by cols highly skilled whites bodes well for total remittances.
S Irudaya Rajan, President of the International Institute for Migration and Development, says many GCC returnees have not received salaries. Covid has helped Gulf countries to strongly embrace labor nationalization. Remigration is accelerating after Covid, and remittances will increase, says Rajan.
The decline in the number of foreign workers in the GCC is a worrying trend. Rich Gulf countries trying to diversify away from oil revenues favor their citizens over migrants.
The World Bank says GCC countries will need more skilled workers. And the demand for low-skilled foreign workers will decline in the future. The slow issuance of visas and work permits by GCC countries has also become an obstacle to emigration.
The World Bank forecasts that remittances to India will increase by 3% in 2022 to reach $89.6 billion, reflecting a decline in the overall stock of migrants, as a large proportion of returnees from GCC countries await their return. . India should start investing in training its workforce for higher skilled jobs in the GCC countries. The pandemic has only accelerated the change in the underlying dynamics of remittances.