Gulf Remittances in the Age of Covid-19

3 Min
Gulf Remittances in the Age of Covid-19

India and the six-member Gulf Cooperation Council (GCC) states share a very strong historical relationship that has endured to this day. Their bilateral trade for 2018-2019 was US$121.34 billion ($170 billion) and remittances sent home to India by expatriate Indian workers in the GCC, of whom there are around 7.6 million, at US$37 billion ($52 billion). Of that number, about 2.5 million are from the state of Kerala, which accounts for about 19 per cent of the remittances that flow into India. But in the recent past, most new Indian workers in the GCC are from two states: Uttar Pradesh and Bihar.

India’s Oil Requirements and Remittances

India’s oil and energy requirements are primarily met by the GCC, which account for 34 per cent of India’s total oil imports. India’s dependence on the GCC nations for oil has slowly decreased over the past few years, however, with India looking at African countries like Nigeria, Iraq and the US. Remittances prove to be a more complicated issue than oil, however. Remittances from the GCC account for one-third of India’s total foreign currency inflows. That is an issue that India would do well to consider deeply, as it will be hard to replace these remittances should the GCC conflate the number of Indian employees in their jurisdiction with New Delhi’s energy purchases from their member states.

In recent years, India’s ties with the GCC countries have moved beyond remittances and imports of oil, with the GCC seeking investment opportunities in India, mostly in the infrastructure and power sectors. The Abu Dhabi Investment Authority recently signed an investment agreement with National Investment and Infrastructure Fund (NIIF) in India on water, transportation, energy and infrastructure. Also, Abu Dhabi National Oil Co and Saudi Aramco jointly invested in Ratnagiri, in Maharashtra, to build a refinery-cum-petrochemical plant worth US$44 billion ($62 billion) in an equal-share partnership. In the private sector, Dubai-based DP World and NIIF have set up a US$3 billion fund that will invest in India’s ports and logistics industry.

Post Covid-19

The GCC is experiencing a period of change, with countries like Kuwait considering a law on limiting foreign workers in the country. The parliaments in those countries are pressuring their respective governments to enact laws that will reduce their dependence on foreign workers. In Kuwait, 70 per cent of the population is comprised of foreign workers. The Kuwaitis aim to cut the number of expatriate workers in the country by 1.5 million at least, since they project their population to grow by 1.7 million shortly. There are plans to cap the composition of foreign workers based on their nationality. If that plan becomes law, it would hit the Indian diaspora particularly hard as at least 600,000 Indians would be deported.

In Oman, Muscat had ordered all expatriates employed in the public sector to be repatriated. In recent months, there has been a drop in the number of expatriates living in Oman. Expatriates there now account for less than 40 per cent of population, down from 45 per cent in 2017.

Impact of New Gulf Laws on India

If laws like these become a trend across the GCC, they will prove troublesome for India. It could lead to a situation wherein large numbers of Indian workers will be laid off, primarily affecting the states of Uttar Pradesh and Bihar, which already face high levels of unemployment. Urban unemployment rates in Uttar Pradesh, for instance, are currently at 16 per cent.

Those states, and the national government, will need to act quickly to avoid adverse economic repercussions. In recent years there has been a drop in the number of Indians moving from India to the GCC for employment. As a result, states like Kerala have been preparing for such a situation by introducing training schemes to provide people with skills needed in countries like Australia and Canada.

Recent reports suggest that non-oil companies in the UAE are cutting jobs at their fastest rate in a decade. This will pose a major challenge for India, as the loss of job will result in the loss of residency permits to stay in the country. Losing those permits, apart from posing an unemployment crisis now, will also pose a future problem if the workers seek to return to the GCC. This will also hit states and households dependent on foreign remittances. Kerala, for instance, receives five times more in remittances than it does from the central government under the devolution of India’s tax system.

A Future Balancing Act

The pandemic has exposed the GCC countries to a plethora of problems that will have a flow-on effect on India. India needs to prepare for the impending exodus, in case one occurs. This also comes at a time when India is facing economic turmoil locally, with falling GDP growth that preceded the lockdown due to the Covid-19 pandemic. Most importantly, India must maintain good diplomatic and business relations with the GCC to be the first to benefit when the fiscal situation begins to normalise. New Delhi will also need to keep a close view on geopolitical developments in the Persian Gulf and maintain a cordial relationship with Tehran, which recently has signed a 25-year agreement with China, since Iran is New Delhi’s gateway to Afghanistan and Central Asia, while simultaneously ensuring that ties with GCC remain robust.

(Courtesy: Future Directions International, Australia)