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Thursday, October 22, 2020

Dilip Ratha: ‘Fall in remittances will add to fiscal difficulty of states … there’ll be direct & indirect impact on tax revenues’

We have seen that flows from the Gulf Cooperation Council (GCC) countries to neighboring countries have been resilient in the months of June and July.

Written by Anil Sasi | New Delhi | September 28, 2020 3:05:02 am
Dilip Ratha

While the Covid-19 pandemic and the resultant global economic slide is projected to impact remittance flows to developing economies, resulting in hardships to poor households that have been reliant on remittances, India is expected to be badly hit. Dilip Ratha, head of KNOMAD and World Bank lead economist on migration and remittances explains in a interview to Anil Sasi. Edited excerpts:

Given the pandemic and the resultant slowdown, how do you see the impact of a crash in remittances on countries such as India?

We have seen that flows from the Gulf Cooperation Council (GCC) countries to neighboring countries have been resilient in the months of June and July. It is likely that we will see similar resilience in flows to India from the GCC countries. But overall, given the high level of unemployment of migrant workers in major host countries and weaker earnings of migrants, remittance flows are expected to decline significantly. Flows from Europe and the United States are likely to be weaker than those from GCC countries. We are projecting a fall of about 20 per cent in remittance flows to India.

That would cause a lot of hardships to poor households that have been reliant on remittances. It is likely that a large number of households will fall into poverty.

How bad would this be in terms of the impact to states such as Kerala or Punjab?

Since Kerala and Punjab are two of the largest remittance recipients among Indian states, a large number of households in these states rely on remittances and they are likely to experience disruptions to their financial lifelines, affecting their ability to consume, afford healthcare, and education. We do not have state-level data on remittance flows and it is difficult to be precise in the case of Punjab.

In fact, other states like Gujarat, Maharashtra, Karnataka, and Tamil Nadu also have large numbers of migrants abroad and probably receive large amounts of remittances. There is a great need for data on migration and remittances disaggregated by state, and if possible, there is also a need for data on migration within states in India. The poverty-reduction impact of migration is much greater in the case of internal migration, and therefore disruptions to internal migration, in that sense, is going to be disproportionately harder on internal migrants. There is also a huge need for improving data on inter-state mobility and migration within states in India.

With respect to movement of migrants, Kerala has close to two million migrant workers in the West Asia region. While a few thousand have come back home, do you envisage more returnees once the travel restrictions are eased?

Indeed, the economic situation in the GCC countries is highly uncertain. This is because of disruption to economic activity due to Covid-19, and also because of the decline in oil prices. With the economy slowing down, unemployment levels are rising and we expect more Indian migrants to return from the GCC region back to their homes in India, including to Kerala… This is a phenomenon that requires more attention from policy makers because returning migrants not only need to be supported in terms of quarantine on arrival, but they will need to be supported through social programmes like cash transfers and jobs placement initiatives.

What is the kind of drop expected at the level of states and how badly would it impact state finances, given that the GST revenues are already strained?

The fall in remittances will add to the fiscal difficulty of the state in the sense that households will either not have the additional income through remittances or will receive lower amounts. Therefore, there will be both direct and indirect impact on tax revenues of the state as consumption will be curtailed as a result of lower household finances.

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