Lower remittances may upset RBI plan

Having quit his low-paid job with a contractor in Qatar, electrician Kurian Joseph scrabbles for work each day in his hometown in Kerala.

He’s a casualty of the global oil price collapse. Stories like Joseph’s expl-ain why remittances from Indians working abroad slumped 27 per cent in the fiscal year through March to $48 billion — the lowest since the 2008 global financial crisis.

Making $250 (nearly Rs 17,000) a month, and faced with a pay cut as construction jobs in Qatar became scarcer, Joseph realised he could no longer afford monthly instalments on his house and son’s education. In January, after 15 years in the Gulf, he decided to go home. “Working conditi-ons became bad after the oil crisis hit construction. Our company could not sustain its large work fo-rce,” Joseph, 56, said from Changanassery, a town strung along Kerala’s main north-south road.

“I am told the company is planning to retrench workers. Many of my friends are planning to return.”

Most of India’s remittances come from the oil-rich Gulf, where some 70 lakh Indians have been working, but more and more are being forced to come home. Earlier this year, 1,000 Indian professionals were laid off by Qatar Petroleum.

The prospect of further falls in remittances is a hindrance for the RBI, as it seeks to “bullet-proof” the economy against sudden capital outflows.

Whereas India’s external balances are in a far better shape than three years ago, when a sudden burst of portfolio investment outflows put the rupee in a tailspin, there are still risks of external shocks.

Chances of US interest rates going up, Britain voting to leave the European Union, and China’s economy worsening all pose risks for emerging markets like India.

Portfolio investment is typically the most volatile source of inflows, but last year’s $18 billion drop demonstrated how unreliable remittances can be. Taking note, an RBI panel warned last month that the likely impact on remittances should be factored into any monetary policy decisions.

Having covered 50 per cent of India’s trade deficit in the previous two years, remittances only covered 40 per cent in 2015-16 even though the trade gap had shrunk significantly. “Essentially an improvement in the trade balance is being offset by worsening private transfers,” said Pronab Sen, country director for the UK-based International Growth Centre’s India programme.

Economists expect a balance of payments surplus close to $25-30 billion for 2015-16, as FDI inflows into the country remain rob-ust, and foreign exchange reserves stood at $361 billion on May 13.