Sliding Oil Prices in West Asia Will Hurt NRI Remittances Too

Jolts in the West Asian economy likely to have an adverse impact on NRI remittances, writes Tina Edwin.

Jolts from West Asian Economy

• As govts of Gulf nations reduce subsidies to balance budgets, Indian workers will have less surplus to send back home.
  
• Fewer jobs available in West Asian countries but too soon to estimate how badly India will be impacted.
• Fall in remittances, after the sharp 50 percent contraction in India’s export earnings from petroleum products, would prove to be a double whammy for India.
  

India has the largest diaspora in the world and is also the largest recipient of remittances. But the collapse of oil prices and the consequent measures being taken by the West Asian nations to prevent a fiscal crisis are set to hurt both the diaspora as well as remittances.

About 50% of $72 billion remitted to India comes from the West Asian economies, with a bulk of it coming from the United Arab Emirates and Saudi Arabia. Equally, significant is that over half of India’s diaspora lives and works in the West Asian nations.

A vast majority of these people are engaged in activities that require little or no skills, mostly in the construction sector. Many of these workers face the prospect of losing their jobs as the projects are stalled. Many others with better qualifications and with better jobs face the prospect of their earnings shrinking as the terms of engagement are renegotiated amid slowing economic activity.

What Explains the Drop in Remittances

As governments of the Gulf nations impose taxes such as sales tax and reduce subsidies for electricity and petroleum to balance their budgets, the cost of living will rise. This will mean Indian workers will have less surplus to send back to their families or to invest in assets in India. The combined effect of all this would mean a drop in remittances received by India.

It is a little too soon to estimate how badly India would be impacted by the gradually deteriorating economic conditions in some West Asian countries and the austerity measures being introduced, but there are fewer jobs available in West Asian countries.

Many organisations have already begun rationalising costs by letting people go or by renegotiating the terms of engagement. In some cases, the cut in compensation packages is forcing many Indians to either return home or at least send back their families.

Slowdown of Economy in West Asia

The impact of the collapse in oil prices varies from nation to nation in the Gulf region. Saudi Arabia’s budget is mostly dependent on oil revenues – about 90% of the government revenues come from oil exports. In comparison, the UAE has systematically diversified over the past couple of decades and has reduced its dependence on oil. Dubai, an emirate of the UAE, gets less than 10% of its revenues from oil exports.

The diversification of the UAE’s economy, the construction boom and the financial centre in Dubai among others, saw the Indian population in the UAE grow from under a million people in 2000 to 3.5 million by 2015 – a rise of 282%.

Currently, 43% of all Indians in West Asia live in the UAE. The International Monetary Fund estimates that the slowdown in the UAE’s economy will be much smaller than what Saudi Arabia will experience.

Double Whammy for India

Saudi Arabia has the second highest concentration of Indians – over 1.9 million Indians. However, the number of Indians in the largest nation in the region has risen more slowly – at 94% between 2000 and 2015. West Asia, popularly referred to as the Gulf, is currently home to 8.2 million Indians, about 52% of the Indian diaspora. Other nations with a large Indian diaspora are Kuwait (1.1 million), Oman (0.8 million), Qatar (0.6 million) and Bahrain (0.3 million).

A fall in remittances, after the sharp 50% contraction in India’s export earnings from petroleum products, would prove to be a double whammy for India. It may be remembered that petroleum products are the largest contributor to India’s export earnings. It could put pressure on the rupee’s exchange rate, particularly if imports also begin to rise.

There are already signs that imports are recovering after months of negative growth. It could also mean that the government may need to start worrying about its current account deficit – an important indicator watched to assess the strength of the economy.

(The writer is a Delhi-based senior journalist.)

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