OIL & GAS

Crude price revival is unlikely to lift India’s remittances instantly

The disruption caused by covid-19 has left a deep scar on India’s remittances inflow. India’s secondary income receipts, which mainly represents remittances, fell by around 8% year-on-year (y-o-y) in Q2FY21, according to official data.

At the end of the September quarter, remittances to India stood at $1.8 billion. For the first half of FY21, the decline was to the tune of 6.7% y-o-y.

Tanvee Gupta Jain, chief India economist at UBS Securities India Pvt. Ltd, said she expects improvement in remittances to India in FY22. However, she cautioned of some near-term downside risks. “The biggest uncertainty is the evolution of the pandemic, the implementation and effectiveness of vaccines and the impact on global growth. There is also a risk of disruption to labour markets being deeper than earlier envisaged, thus affecting employment and/or incomes of migrant workers and hence remittance flows to India,” she said.

However, despite some favourable factors such as rising crude oil prices and a depreciating rupee, economists foresee only a gradual recovery in India’s remittances in fiscal year 2022.

The correlation between changes in remittances and oil prices over 1983-2020 stands at more than 76%, according to an analysis by JM Financial Institutional Securities Ltd. For India, a lion’s share of around 55% comes from the Middle East, followed by the US, and Canada. The ongoing recovery in crude oil prices bodes well for the economic outlook of the middle eastern countries. From its 2020 low of $19.33 per barrel, Brent crude oil prices have significantly improved to $56 per barrel.

Further, the correlation between remittances and exchange rate (a depreciating rupee) is as high as 87%, showed JM Financial research. The Indian rupee depreciated by more than 2% against the US dollar in 2020.

Source
Livemint
Show More

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button
Close
Close