What's the significance of the US overtaking UAE in remittances to India?

India is by far the world’s largest recipient of remittances. According to the World Bank, the country received $87 billion in 2021, showing a growth of 4.6%. China and Mexico come next, with $53 billion remittances each.

India’s overall inward remittances remained resilient even during the pandemic. But, off late, there has been a big shift. An RBI article, citing the results of a survey by the central bank, said the share of remittances from the Gulf Cooperation Council or GCC region in India’s inward remittances is estimated to have declined from more than 50% in 2016- 17 to about 30 per cent in 2020- 21.

Amid steady migration of skilled workers, advanced economies, particularly the US, the UK and Singapore emerged as big sources of remittances, accounting for 36% of total remittances in 2020-21. 

The US surpassed the UAE as the top source country, accounting for 23% of total remittances. World Bank too in its recent report said that economic recovery in the US was one of the important drivers of India’s remittances growth.

The decline in remittances from the Gulf countries was due to several reasons. Migration from India to the GCC countries slowed in the last five years due to economic slowdown. Then the sluggish oil prices, stricter labour laws, introduction of nationalisation policies, higher work permit renewal fees and taxes played a role.

The share of Kerala, Tamil Nadu and Karnataka, which had strong dominance in the GCC region, and were big remittance contributors, has almost halved in 2020-21. They now account for just 25% of total remittances since 2016-17, while Maharashtra has emerged as the top recipient state surpassing Kerala.

The authors of the RBI article argue that the compositional shift in India’s migration towards advanced economies, notably, the US, the UK, Canada and South Africa dominated by high-skilled white-collar workers augurs well for total remittance inflows.

S Irudaya Rajan, Chairman, International Institute of Migration and Development says lots of returnees from GCC were not paid salaries. Covid helped Gulf nations take up workforce nationalisation strongly. Re-migration is picking pace after Covid, and remittances will go up, says Rajan.  

The decline in the number of foreign workers in GCC is a worrisome trend.  Rich Gulf countries which are trying to diversify away from oil revenue are favouring their citizens instead of migrants.

The World Bank says GCC countries will require more skilled workers. And demand for low-skilled foreign workers will come down in the future. The slow pace of visa and work permit issuance by GCC countries has also become a hurdle to outmigration.

The World Bank projects remittances to India to grow 3% in 2022 to $89.6 billion, reflecting a drop in overall migrant stock, as a large proportion of returnees from the GCC countries await return. India should begin investing in training its workforce for more skilled jobs in the GCC countries. The pandemic has merely accelerated the change in the underlying dynamics of remittances flow.