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By Sunil Kumar Singh
May 23, 2016 | 13:35 | Dubai
The Gulf Cooperation Council (GCC) lost some charm for India last fiscal, both as a destination for exports and a source of remittances, but a hard look at the numbers suggests the situation isn’t as bad as it appears, a report by India-based CRISIL has noted. On a positive note though, while falling oil prices have curbed India’s exports to GCC, imports from GCC have also fallen steeply. In fiscal 2016, imports from these countries fell at a faster clip of 34.5%. This has helped alleviate some stress from lower remittance and export income. In fact, India’s trade deficit with the GCC has fallen a whopping $46 billion, or 77%, in three years, to $14 billion because of rapidly declining imports, the CRISIL report ‘A gulf in remittances, but don’t fret yet’ said.
So while the big news is that remittance incomes from GCC have dropped, what is less known is that, even at the current level (around $36 billion), remittances have been stickier and more than funded the goods trade deficit – leaving a surplus of $22 billion (see Chart 1).
India’s goods exports to the GCC declined 18.7% in fiscal 2016. To be sure, the decline in exports has been led by falling oil prices. A quarter of the exports to the region, incidentally, are petroleum products. Falling oil prices have had a sweeping impact on the oil producing economies of GCC, severely denting their oil revenues and spending by both governments and households. Indeed, at the all-India level, remittances were only 0.6 time the goods trade deficit last fiscal, whereas with GCC they were 2.6 times. However, going forward, as oil prices start rising and trade deficit expands faster than remittances, some of these gains could reverse, the report cautioned. The growth slowdown in GCC remittances was marginal (down 2.2%) despite a 47% slump in oil prices in 2015 (see Chart 2).
This indicates that these economies – especially Saudi Arabia and the UAE, which are the largest two remitters within GCC – are relatively less dependent on oil income (see Table 1). As such, given the bearish oil price outlook, most of these countries are expediting efforts to diversify their economies, as the Saudi Arabia Vision 2030 plan testifies to.
Also, India’s dependence on remittances and the resultant vulnerability is much lower than some of its Asian peers who receive similar proportions of remittances from GCC countries. Charts 3 and 4 below plot the share of remittances in GDP and current account deficit (CAD) ex-remittances as a share of GDP, respectively. The latter indicates how much each country’s current account deficit would be if it were to not receive any remittance. The data supports the point made earlier about any slowdown in remittances from GCC due to lower oil prices getting more than compensated by lower oil imports in value terms.
With the slide in exports more than matched by the slide in imports, India’s trade deficit with GCC as well as well as the rest of the world has narrowed. However, if oil prices remain weak for an extended period, economic activity in GCC will come down sharply as the fiscal stress mounts. This can certainly impact GCC remittances to India, CRISIL report added.