Risk of lower inflows from the Middle East region, amid steep decline in crude prices and economic slowdown has been affecting remittances.
India’s Current Account Deficit (CAD) came in lower at 1.3% of the Gross Domestic Product (GDP) in the third quarter ended December 2015. However, amidst this cheering news is a dampener as well—remittances.
Remittances, or private transfers, is money sent by Indians living overseas into India.
As per the data provided by the Reserve Bank of India (RBI), remittances fell by Rs 7,318 crore ($1.1 billion) in the third quarter-ended December 2015. Total remittances for the said quarter stood at Rs 1.03 lakh crore ($15.3 billion). Remittances in the same quarter for the financial years 2010 and 2011, too, fell by $2.8 billion and $1 billion, respectively.
Analysts say that the fall in oil prices is the primary reason behind this sequential fall in remittances into India.
Suvodeep Rakshit, Madhavi Arora and Upasna Bhardwaj of Kotak Economic Research, in a report dated March 21 said that there are imminent risks to remittances from oil exporting countries.
Samir Tripathi of ICICI Bank Global Markets, in a March 22 report said, “Even though the remittances have remained resilient in the recent quarters, there is a risk of lower inflows from Middle East region amid the steep decline in crude prices and economic slowdown.”
Remittances are an important factor in minimising India’s CAD by lowering the gap between dollar inflows and outflows.
According to the World Bank, India was the top recipient of remittances for the year 2015.
Two of the top three countries that contributed the highest remittances into India were the oil-rich UAE and Saudi Arabia. The highest contributor was the UAE, at Rs 87,816 crore ($13.2 billion). The United States of America (USA) came in second with Rs 76,500 crore ($11.5 billion). Saudi Arabia was at third place, at Rs 73,180 crore ($11 billion).
In all, India received Rs 4.84 crore ($72 billion) in remittances in 2015, surpassing China that collected Rs 4.3 lakh crore ($64 billion) and the Philippines at Rs 1.8 lakh crore ($30 billion).
Although, the fall in crude oil prices has helped India cut its oil import bill by over a half, from nearly Rs 7 lakh crore in financial year-ending March 31, 2015, to Rs 4.7 lakh crore expected in the next fiscal beginning April 1, 2016.
The CAD, in the quarter ended December 31, 2015, stood at Rs 11,309 crore ($7.1 billion) as against $8.7 billion in the second quarter-ended September 2015. As a percentage of the GDP, CAD fell from 1.7% in the second quarter to 1.3%.
Analysts say that the reason for this fall was largely due to the lower imports and marginal reduction in exports which led to a trade deficit of $34 billion (Rs 2.26 lakh crore) as compared to $37.4 billion (Rs 2.49 lakh crore) in Q2FY16.
Kapil Gupta and Prateek Pareek of Edelweiss, in a report dated March 21, 2016, said, “NRI remittances slowed to $15.8 billion – $600 million lower than last 10 quarters run rate of $16.4 billion.”
According to the RBI, the number of remittances to India in 2014-15 was at $69.8 billion (nearly Rs 4.69 lakh crore) while it was at $69.6 billion (nearly Rs 4.68 lakh crore) in 2013-14.
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