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Covid-19, oil price shock may lead to remittances falling 20% this year: Expert

Kerala and Punjab are two of the largest remittance recipients among Indian states, and are likely to bear the brunt of the fall in remittance flows, Dilip Ratha, who heads the global migration think tank KNOMAD, told The Sunday Express.

Written by Anil Sasi | New Delhi | September 27, 2020 1:08:14 am
Rupee slips 48 paise to 76.08 against US dollar in early trade amid coronavirus scareThe fall in remittances, according to Ratha, will add to the fiscal difficulty of states as households will either not have the additional income through remittances or will receive lower amounts.

India is likely to see a fall of at least 20 per cent in remittances from overseas workers this year, the biggest projected drop since at least 1980, according to Dilip Ratha, World Bank lead economist on migration and remittances.

India, the world’s top recipient of remittance transfers and a leading supplier of labour to West Asia, got $83 billion as money sent from workers abroad last year — or nearly 3 per cent of the Gross Domestic Product — significantly higher than the $49 billion that came into the country by way of Foreign Direct Investment in 2019.

Kerala and Punjab are two of the largest remittance recipients among Indian states, and are likely to bear the brunt of the fall in remittance flows, while others such as Gujarat, Maharashtra, Karnataka, and Tamil Nadu could also be hit, Ratha, who heads the global migration think tank KNOMAD, told The Sunday Express.

“Since Kerala and Punjab are two of the largest remittance recipients, a large number of households in these states 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 fact, other states like Gujarat, Maharashtra, Karnataka, and Tamil Nadu also have large numbers of migrants abroad and probably receive large amounts of remittances,” Ratha said.

Explained

Ripple effect likely

The dip in foreign remittances will have a direct impact on household savings and consumption expenditure, which is likely to add to the Covid-linked stress on the economy, and prolong the recovery process.

World Bank data projects that flows of remittances from Europe and the United States are likely to be weaker than those from the six GCC (Gulf Cooperation Council) countries.

According to Fitch Ratings, the pandemic and oil price shock have driven sharp economic contractions and fiscal deteriorations worldwide, including in the Gulf region. Migrant workers are likely to bear the brunt of job losses, and the sectors in which they work are likely to be particularly affected. Construction pipelines are being truncated due to spending cuts and the hospitality sector is struggling from the fall in global tourism. Remittances to the Asia-Pacific region will drop 12 per cent in the second half of 2020 compared with the same period last year, Fitch Ratings said in a report.

While oil prices have staged a partial recovery from the lows it hit in April, the impact of Covid-19 on the global economy and consumer behaviors has reduced long-term world oil demand by 2.5 million barrels per day, according to S&P Global Platts Analytics.

Given that the GCC region is particularly vulnerable to falling oil revenues as the Covid-led recession gets more prolonged, job cuts are likely to impact foreigners first in that region.

The fall in remittances, according to Ratha, will add to the fiscal difficulty of states as households will either not have the additional income through remittances or will receive lower amounts. Therefore, he said, with consumption curtailed, there will be both direct and indirect impact on tax revenues of states.

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