Remittances make up the lion’s share of foreign exchange inflows to India but could be poised for some downward pressure due to the bearish outlook of oil markets in recent weeks.
The immediate impact of falling oil prices could reverse the widening of India’s current account deficit (CAD), but over the long term a decline in remittances may be triggered, Mint has reported. Long term fall in remittances might negatively affect CAD.
As per a World Bank report, India’s share of remittances has declined from 14 per cent of global remittances in FY12, to only 12 per cent in FY17. However, remittances have grown in absolute terms at a rate of nine per cent over the previous year. This is still a far cry from the days of double-digit remittance growth a decade ago.
The bear market in oil had caused a decline in remittances to India in 2015 and 2016, as earnings of Indians in Gulf countries were reduced due to the pessimistic economic outlook in those countries. India is heavily dependent on Gulf remittances to sustain its foreign exchange inflows, as remittances from these countries make up half of India’s total remittances.
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