Share of Gulf remittances shrink; America now No 1

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New Delhi: A change of trend in India’s remittances over the last decade has saved the country a possible shock from Dubai World’s heavy indebtedness. Data from the Reserve Bank of India (RBI) suggest that despite possible wage cuts and job losses in Dubai—the most indebted member of the United Arab Emirates—a likely dip in remittances from the Middle East may not hurt India much, as remittances from North America and Europe are rising steadily.

Data with the central bank shows North America, which contributed just about a third of all remittances to India in 2005—then at par with the Middle East---accounts for 44% of remittances to India.

In contrast, inflows from the Middle East dropped from 35% to 24% between 2005 and 2009, as the region’s need for unskilled and semi-skilled labour, which peaked during the oil boom in late 1990s, eased. But the growing need for skilled workers in North America more than compensated for the fall in remittances.

The six years between 1997 and 2002 saw a decisive shift in the pattern of remittances. In 1997-98, North America accounted for 37% remittances to India, while Asia, including the Middle East, recorded 31%. By 2002-03, North America’s share went up to more than a half of the total remittances to India, while that from Asia dropped to 22%, says RBI’s report on currency and finance.

"Indians have a sizeable presence in the US and they are a highly well-off ethnic group there. Many Indian IT and IT-enabled services companies are present in the US, employing workers of Indian origin," said a leading Mumbai-based economist.

But remittances from the struggling US and EU economies may fall modestly this year due to the economic slowdown, although it may not be a sharp fall. The World Bank has predicted in July this year that remittance flows to South Asia, which stayed robust during the economic slowdown, are expected to decline modestly by 4% but may enter positive growth territory in 2010-11.

The top recipients of migrant remittances among developing countries—India, China and Mexico—that collectively received $328 billion in 2008 are expected to receive 7.3% less in 2009, says the RBI, quoting World Bank data. India received $52 billion in 2008, up 34% from the previous year.