Context: As per a World Bank Group report titled COVID-19 Crisis Through a Migration Lens, global remittances are projected to shrink by 20%  owing to migrants losing jobs and wages because of the COVID-19 pandemic.

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  • The ongoing economic recession caused by COVID-19 is taking a severe toll on the ability to send money home.
    • The pandemic and declining oil prices are likely to reduce remittances from the U.S., the U.K., and EU countries to South Asia, resulting in a projected fall of 22% in remittances to $109 billion.
    • The sharpest decline was for Europe and Central Asia where Russia is a strong source of income and the ruble had weakened against the U.S. dollar. 
    • Sub-Saharan Africa and South Asia were next in terms of projected declines.
  • In India, remittances for 2020 are projected to fall by 23% to $64 billion. 
    • They grew 5.5% in the previous year.

Significance of Remittances

  • It helps in maintaining key macroeconomic indicator i.e. CAD (Current Account Deficit) even in the times of crisis.
    • The 34% growth in remittances to the country in 2008, when the financial crisis broke, reflects this reliability.
  • Remittances are a vital source of income for developing countries. 
    • Remittances play a key role in lower and middle income countries in alleviating poverty besides aiding higher spending on education and lowering child labour in disadvantaged households.
    • Higher remittances improve nutritional outcomes and in turn food security, by increased expenditure on food, which translates into increases in food intake and dietary diversity.
    • Poor households are more responsive to it, as they are the one who tend to allocate most of any incremental income to food purchases, because of Engel’s law that opines that poorer people spend higher proportions of their total income on food.
    • All in all, It helps families afford food, healthcare, and basic needs
  • For India, the threat to remittances is twofold. 
    • First, More than 50% of the remittances come from the Middle East. These economies are built on oil revenue and the recent fall in crude oil prices is not favorable for them, and may lead to increased risk of layoffs of migrants.
    • On the other hand, the positive side of falling crude prices is a decline in the country’s oil import bill. 
    • This means that CAD won’t add up to much for financing, Even so, it won’t be easy to finance CAD
    • Foreign portfolio flows have so far been in the negative territory due to outflows from domestic equity and bond markets. 
    • Foreign direct investment is also expected to get adversely impacted from the covid-19 outbreak.
  • Another segment at the receiving end of the remittance impact could be NRI deposits of banks.
    • Since NRIs will be earning less, the flow towards these deposits could diminish. 
    • This could impact the deposit growth of banks, especially for those that rely on NRI deposits.

Road Ahead

  • Quick actions should be taken to make it easier to send and receive remittances that can provide much-needed support to the lives of migrants and their families. 
    • These include treating remittance services as essential and making them more accessible to migrants.
  • With regard to layoffs of migrants, Government to Government interaction can be undertaken to safeguard their interests.
    • Also those who wish to return, the government should arrange for their economic rehabilitation.


Image Source: Mint