The Non-Resident Indian still looms large over India. Or at least its foreign reserves. The global economy may not be on the most solid ground, and low oil prices might be hurting the diaspora, yet India was still the world’s top remittance receiver in 2016. According to World Bank figures put out in its annual migration and remittance brief, India received $62.7 billion in remittances in 2016, just ahead of China and more than double the next nation on the list.
India has held this position for several decades now, with remittances first rising after liberalisation in 1991 and becoming a firm part of money inflows into the country ever since. In the last decade, remittances have been particularly significant because they were not affected by the global economic downturn in 2008, continuing to rise in the following years. But the drop in oil prices, among other factors, seems to have had its impact.
The World Bank reports that remittance flows to developing countries have declined for two successive years, the first time this has happened in recent memory. India has led the way, with a decrease of 8.9% in remittances in 2016 compared to the previous year, although this was not enough to dethrone it from the top spot globally.
The World Bank report attributed this to lower oil prices, fiscal tightening in the Gulf Cooperation Council countries – which play host to more than seven million Indian citizens – and various nationalisation programmes in those countries intended to reserve jobs for locals.
“Moving forward, remittance growth in the region is projected to remain muted, because of low growth and fiscal consolidation in GCC countries,” the report said. The World Bank in fact points out that, though this fall might not have a huge impact on India, since remittances are under 3% of its GDP, they could be a major cause for concern in specific parts of the country.
“There are subnational variations in the impacts of remittances. For the Indian state of Kerala, remittances are estimated at 36.3 percent of the net state domestic product and contribute significantly to household consumption,” the report said. Indeed, some evidence over the last few years has suggested that the drop in oil prices is starting to hit Kerala, although the impact is yet to be fully understood.
Still, the scale of Indian remittances despite the drop remains huge. A simple way to understand this is to compare it to the amount India received in Foreign Direct Investment in the same period. Though remittances have declined in the last two years, they still amount to nearly $20 billion more than FDI in 2016 – a reminder that, for all the government’s focus on bringing in foreign investment, it ought to provide equal attention to the plight of its diaspora that continues to send money home and shore up the country’s foreign reserves.