India hit as foreign remittances dry up

Bangkok: India would be among the hardest-hit nations as the remittances sent home by its people working in the Middle East begins to dry up following the economic downturn.

There are an estimated five million Indian migrant workers in six Gulf nations, transferring more than one-fifth of India's total overseas remittances.

While the Ministry of Overseas Indian Affairs insisted the situation is not alarming, there are reports of job losses and wage cuts in the United Arab Emirates and Bahrain during the slump in oil prices and in the construction, real estate and tourism sectors because of the financial crisis.

"Remittances are a catalyst in India's growth as they make up 3 percent of the country's GDP," a ministry official said. "A drop in the figures could act as a drag on the economy."

The Indian consulate in Dubai has said construction firms there had bulk-booked planes next month to fly 20,000 to 30,000 workers home on long leave or to re-deploy them on projects in Gulf nations like Qatar.

An estimated $260 bn of real estate projects are reported to have been delayed or shelved in the Emirates alone. Dubai's construction boom has crashed, sending thousands of workers back home and causing thousands of them to leave cars at the airport that they have stopped payments on.

Over the past three to four years, one of Asia's fastest growing industries has been exporting workers, especially to the oil-driven, construction-crazed economies of the Middle East.

Remittances have become a major contributor to foreign exchange earnings and gross domestic products (GDPs), peaking at an estimated $116 billion in 2008.

This year, the money flows were expected to slow as construction projects are shelved and other jobs dry up in Gulf nations, such Abu Dhabi, Bahrain, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates, which have employed up to 13 mn foreign workers, 11 mn of whom hailed from Asia.

The remittances have saved millions of families from impoverishment and boosted the region's economies.

Last year, remittances to Asia amounted to $8.9 billion for Bangladesh, $27 bn for China, $30 bn for India, $6.5 bn for Indonesia, $2.2 billion for Nepal, $1.8 bn for Malaysia, $7 bn for Pakistan, $16.4 billion for the Philippines, $2.7 bn for Sri Lanka, $5.5 bn for Vietnam and $1.8 bn for Thailand, according to International Labour Organisation estimates.

The inflows accounted for 9.5 percent of Bangladesh's GDP, 2.4 percent of India's, 15.5 percent of Nepal's and 11.6 percent in the Philippines, the UN agency said.

But recession and plummeting oil prices were expected to take a deep bite out of the remittance flow in 2009.

The World Bank estimated remittances from South Asians in the Gulf could decline by nine percent in dollar terms in 2009, compared with a 38 percent increase in the previous year.

Pakistan - with 24 percent of its remittances coming from the US and 56 percent coming from the Gulf - was expecting to be hit in the second half of 2009.

In Nepal, where remittances sustained the economy during the recent years of civil war and political turbulence, fears abound that mass layoffs abroad this year would mean more than economic instability at home.

"If hundreds of thousands of people employed in foreign countries are sent home, it could lead to social problems," Nepalese economist Shankar Sharma said.

In the Philippines, where remittances have been the lifeblood of the economy for decades, the government is looking for new, riskier markets for its chief export: English-speaking labour and managers.

The government is reviewing deployment bans to risky destinations such as Iraq, Lebanon and Nigeria to find alternative jobs for retrenched Filipino workers.

Remittances from Indonesian workers, who are more dependent on the export-driven economies of Malaysia and Singapore, were expected to slump to around $3 billion this year, said Fauzi Ichsan, an economist with Standard Chartered Bank.

The Indonesian government expected that at least 100,000 Indonesian workers in Malaysia would have to return home this year.

In more affluent Asian countries, there is mounting political pressure to send Asian migrant workers home.

Japan, with its exports falling, has been laying off Brazilian workers of Japanese ancestry. Since September, planes to Brazil have been fully booked with returning labourers.

South Korea has promised subsidies to companies that hire only South Korean labourers over foreigners.

Such trends bode ill not just for remittances but also for the employment conditions of the legions of Asian workers desperately seeking jobs in a shrinking market.

"The danger is that migrant workers who invested their meagre assets at home to find work abroad will be laid off first and will seek to stay at whatever cost to try to recoup their investments," said Manolo Abella, chief technical adviser for the International Labour Organisation on labour migration. "Many will become illegal and be vulnerable to abuse."