West Asia crisis may slow remittances in near term

Region accounts for 48 per cent of the total inflows into India.

Remittances to India, especially from the West Asian countries, may decelerate in the near-term as the region continues to witness political turmoil following mass uprising against the governments in Tunisia and Egypt.

The Jasmine Revolution in Tunisia, which capsized the local government a few weeks back, saw popular uprising against unemployment and corruption.

This was followed by riots in Egypt, which, according to the United Nations, have left as many as 300 people dead. Protests were also witnessed in Jordan and Yemen.

The unrest in West Asia might widen India’s current account deficit and posed a threat to inflation. In addition, it could slow the inflow of money from these countries to India, analysts and bankers said.

“A key fallout of the continued unrest in the Middle East could be a decline in remittances. Given the high unemployment in these economies, migrant workers may be retrenched,” Citigroup Global Markets analysts Rohini Malkani and Anushka Shah said.

Remittances from the region were estimated at $26 billion or 48 per cent of India’s total remittance inflow of $55 billion, they said.

Economic slowdown, rising unemployment and high inflation in the West Asian countries are also likely to take a toll on remittance inflows.

In the United Arab Emirates, considered to be the largest destination for remittances to India, the unemployment rate was estimated at 2.4 per cent, analysts said.

In Saudi Arabia, the third-largest market for remittances to India, unemployment is pegged at 10.8 per cent, coupled with a 5.7 per cent year-on-year rise in inflation.

“Remittances could undoubtedly be affected if the current turmoil in the Middle East results in prolonged economic dislocation,” said Sajjid Chinoy, India Economist with JP Morgan.

Bankers also echoed a similar view and expect unemployment, coupled with political unrest, to slow inflows to India.

“An impact is expected. To what extent, we have to wait and see,” a top official of a Mumbai-based government bank told Business Standard.

A senior Reserve Bank of India official in charge of remittances declined to comment.

Analysts, however, feel the slowdown in remittance inflows is likely to be temporary.

“Remittances would benefit if oil prices stay high through much of 2011, along with a more sustainable recovery in the US over the next few quarters,” Chinoy said.