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India in Transition

How Can India Soften the Blow from Remittance Dip?

Rupakjyoti Borah
June 15, 2020

India has begun one of the biggest repatriation efforts (Vande Bharat Mission) to rescue its citizens stranded in different parts of the world as a result of the coronavirus outbreak. As of now, around 45,000 people have been repatriated. While this, in itself, is a mammoth task given the scale involved, another huge challenge lies ahead after it brings these people back home. New Delhi will have to grapple with a huge dip in the remittances coming into the country as expatriate Indians have been at the receiving end of job cuts in their home countries. According to a World Bank report, remittances to India are expected to drop by a massive 23 percent from $83 billion in 2019 to $64 billion this year as a result of the pandemic. In 2018, remittances formed 2.9 percent of India’s total GDP. The squeeze will be especially felt in the case of Indian expatriates working in the Gulf countries. Dipping oil prices have already led to some of these countries outlining plans to cut down on their expatriate work forces. 

Economic Impact on India
As per data released last year by the UN Department of Economic and Social Affairs (DESA), in terms of the country of origin of international migrants, India stood right at the top with 17.5 million persons living beyond its shores. From this number, approximately 8.5 million are employed in the Gulf, who incidentally account for more than half of the total remittances sent to India. Remittances are important for families of migrants back in India to provide for food, education, medicine, and other needs. Hence, this dip in remittances will directly impact the Indian economy, since remittances are an additional and significant source of income for most of the families of migrants back in India.

This drop in remittances comes even as New Delhi tries to kick-start its economy in the wake of the lockdown imposed due to the pandemic. These overseas Indians, who are now being brought back, will need to be gainfully employed within the country, which will be a big task as employers all around the world, including in India, are cutting down on jobs at the moment as the market looks glum. Besides, India first needs to find avenues to keep its own domestic workforce employed.

The economic impact will be more severe in Indian states like Kerala—the state which receives the highest amount of remittances. This was critical when the state reeled under severe floods in 2018. In addition, the Indian airline industry will also suffer, especially as some of the carriers had been profiting from the passenger traffic between India and the Gulf countries.

The coronavirus outbreak will also affect Indian expats in the US, the country hardest hit by the pandemic in terms of number of deaths. A record number of people have been rendered unemployed in the US, which will hit the Indian expatriate community as well, more so in an election year, since President Trump will be under pressure to provide jobs to American citizens first. It has also been estimated that there are nearly two million NRIs (non-resident Indians) in the ten countries that have seen the maximum number of coronavirus cases.

How Can India Reduce the Hit?
While India will be unable to make up for the fall in remittances in the short-term, what it can do is find ways to gainfully employ some of these overseas workers in high-value sectors. This will also provide New Delhi with an opportunity to reverse a part of the brain drain that has taken some of the best minds away from Indian shores in the past.

How can New Delhi achieve this? While it will likely take longer than the time necessary to eradicate COVID-19, this will first involve scaling up domestic capacity in sectors like automobiles, oil and gas, construction, and ports. A detailed study will have to be made as to which sectors have seen the maximum job cuts among expatriate Indians and efforts will have to be made to create more jobs in these sectors within the country itself. 

Second, other South Asian nations like Pakistan and Bangladesh have also been impacted by this dip in remittances. New Delhi has already pledged a contribution of $10 million toward a “SAARC (South Asian Association for Regional Cooperation) COVID-19 Emergency Fund,” which was first proposed by Prime Minister Narendra Modi during his video conference with leaders from the other SAARC nations in March. New Delhi could coordinate its efforts with other SAARC nations when dealing with this drop in remittances and how to reemploy expatriate workers.

Third, India will have to leverage its strength in the IT sector. Special sops could be given to states that can create jobs in the IT sector to absorb Indians who have lost their jobs abroad. Last year, the IT-BPM (Information Technology and Business Process Management) sector in India generated business worth approximately $177 billion and employed nearly 4.1 million people.

Fourth, a huge number of Indians work outside India in the construction sector. If they are to find employment within India, the infrastructure sector will require a big boost. Here, projects like Sagarmala would aim at the “comprehensive development of India’s coastline, navigable waterways, and the maritime sector” and be hugely beneficial. In this initiative, New Delhi would also need to team up with friendly countries like Japan, which could help India with some of the much-needed funds for such projects. Japan is already pumping a huge amount of money into India’s infrastructure sector.

One thing that will work for India at the moment is the low oil prices. In FY20, India’s oil import bill is expected to drop by 10 percent as crude oil prices have slumped. For FY21, it has been projected that the import bill could slip down even further to $64 billion. If oil prices remain as low as they currently are, New Delhi could save a huge deal on its oil import bill. It would do well to use this money to help tide over the dip in remittances. 

Hiccups Ahead
This will all be easier said than done because for now, the country is caught up in the fight against the coronavirus pandemic. This will also involve coordination between the central and state governments. While the current focus is rightly on battling coronavirus, in the long-term, New Delhi should prepare a blueprint to tackle the exodus of Indians to other countries, especially in the case of highly-skilled workers.

These skilled expatriate workers, who have now returned to India from their countries of work, could help enhance India’s entrepreneurial activity as it looks to restart the economy. Some of these workers, such as nurses, are very important, especially in these times. On the other hand, some of the low-skilled expatriate workers suffer from pitiful working conditions in the countries in which they worked; the government would also do well to formulate a long-term plan for these workers. 

At the moment, the dip in remittances will hit the Indian economy hard, but at the same time, it also provides a once-in-a-lifetime opportunity to gainfully employ these expatriate workers within the country. PM Modi has recently given a call for an “Atmanirbhar Bharat” (self-reliant India), and in this mission, the role of these expatriate Indians, who have now come back home, will be key. This dip in remittances could well turn out to be a blessing in disguise.

Rupakjyoti Borah is a Senior Research Fellow with the Japan Forum for Strategic Studies, Tokyo. His books include The Elephant and the Samurai: Why Japan Can Trust India (2017) and Act-East Via the Northeast: How India’s Northeast is Strengthening the Kizuna (Bond) Between India, Japan and ASEAN? (2019). He has been a Visiting Fellow at the Japan Institute of International Affairs (JIIA), the Australian National University (ANU), and the University of Cambridge.

India in Transition (IiT) is published by the Center for the Advanced Study of India (CASI) of the University of Pennsylvania. All viewpoints, positions, and conclusions expressed in IiT are solely those of the author(s) and not specifically those of CASI.

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