Remittances may fall most this year in past 4 decades due to Covid, oil price shock, says expert

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September 27, 2020 11:26 AM

The decline in remittances from workers abroad will add to the fiscal difficulty of states since households will either not have the additional income via remittances or will receive lower amounts, said Dilip Rathe, World Bank lead economist of migration and remittances.

The Covid outbreak and oil price shock have lad to sharp economic contractions and fiscal deteriorations globally, including in the Gulf region, according to Fitch Ratings.

Remittances from overseas workers may contract by at least 20 per cent this year, the biggest projected decline since at least 1980, said Dilip Rathe, World Bank lead economist of migration and remittances, The Sunday Express reported. The country, which has been the top recipient of remittance transfers and a leading supplier of labour to West Asia had received $83 billion — close to 3 per cent of the GDP — in remittance from workers abroad last year. This was way higher than $49 billion India saw via FDI in 2019.

The Covid outbreak and oil price shock have lad to sharp economic contractions and fiscal deteriorations globally, including in the Gulf region, according to Fitch Ratings. Migrant workers may see get impacted due to job losses while the sector in which they work are likely to be particularly hit. Construction pipelines are being truncated because of lower spending while the hospitality sector is struggling due to the decline in tourism worldwide. Remittances to the Asia-Pacific region will fall 12 per cent in the second half of 2020 vis-a-vis the year-ago period, Fitch Ratings said in a report. While oil prices have recovered partially from the lows it hit in April, the pandemic impact on the world economy and consumer behaviors has shrunk the world’s long-term oil demand by 2.5 million barrels per day, as per S&P Global Platts Analytics.

Also read: Self-reliant India will be force multiplier for global economy: PM Modi tells UNGA

Ratha, who heads the global migration think tank KNOMAD told the English newspaper that Kerala and Punjab are two of the largest recipients of remittances in India and may see the impact of the decline in remittances even as other states including Tamil Nadu, Gujarat, Karnataka, Maharashtra could also be hit. Ratha said that a large number of households in Punjab and Kerala may see “disruptions to their financial lifelines, affect their ability to the consumer, afford healthcare, and education.” However, it is tough to understand the precise impact since there is no data around remittances on state-level, he said.

According to Ratha, the decline will add to the fiscal difficulty of states since households will either not have the additional income via remittances or will receive lower amounts. Hence, amid reduced consumption, states will have direct and indirect impact on their tax revenues, he added.

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