From Kerala to Bihar: West Asia conflict puts India’s remittance flow at risk

The ongoing West Asia conflict is emerging as a serious concern for India’s economy, not only because of its impact on energy supplies but also due to the potential disruption to remittance flows from the Gulf. A decline in remittances could widen India’s current account deficit and put further pressure on the rupee, which already fell to a record low of 92.46 against a dollar on Friday.

Nearly one crore Indian citizens live and work in the West Asia region. In some Gulf countries like the United Arab Emirates, Qatar, Bahrain and Kuwait, Indian expats outnumber the local population.

Most Indian migrants in the Gulf are low-skilled and semi-skilled workers. While migration to advanced economies like the USA, the UK, Australia and Singapore has largely been driven by the quest for better living standards, the majority of Indian migrants in the Gulf use their tax-free income to support families back home through remittances.

These remittances serve not only as a vital lifeline for millions of households from Kerala to Bihar and West Bengal but also play a critical role in the economy.

Remittances sent by Indians employed overseas increased from $55.6 billion in 2010-11 to $135.4 billion in 2024-25. In the financial year that ended in March 2025, remittances accounted for nearly 3.5% of the country’s gross domestic product (GDP). In the first six months of the current financial year, remittances rose to $73 billion compared with $64.7 billion recorded in the corresponding period of the previous year, according to the latest RBI data.

Remittances remain a vital source of external-sector strength for the Indian economy, which has been facing a high merchandise trade deficit largely due to dependence on imports to meet energy requirements. “In most years, remittances have surpassed gross FDI inflows, underscoring their importance as a key source of external funding,” noted the Economic Survey tabled in Parliament earlier this year.

The Gulf countries have historically dominated India’s inward remittances. In 2024-25, the US was the top contributor with 27.7%, followed by the UAE (19.2%), the UK (10.8%) and Singapore (6.6%).

“The Indian rupee may weaken further as the proportion of GCC in India’s remittances is highest, and a prolonged conflict may affect remittance inflows into India,” said Devendra Pant, Chief Economist at India Ratings and Research.

“The short-term impact would be an increase in commodity prices and some supply disruption. Overall, the impact depends on how long the conflict continues,” Pant added.

Anis Sajan, vice-president of Dubai-based real estate firm Danube Group, said there would not be any significant impact on remittances if normalcy returns. “The situation is challenging, but we are standing with the workers. We have given them flexibility to work from home,” Sajan told DH in a virtual interview from Dubai.

Ajith Kolassery, Chief Executive Officer of Norka Roots, a nodal agency set up by the Kerala government for the welfare of people from the state working abroad, said people initially called the Norka Roots helpline frantically. “Now the majority are adopting a wait-and-watch approach as no one wants to risk their jobs… Many are reaching out to us seeking assistance in expediting transit visas to Saudi Arabia to get flights from there,” Kolassery said.

Convener of the Indian Overseas Congress for the Middle East region, Mansoor Palloor, fears the ongoing crisis in the Gulf could push migrants to move to countries like Canada, Australia and Europe.

“It will have an impact on the Indian economy. Most people who migrate to Gulf countries go there for jobs and send remittances home. But many youngsters migrating to countries like Australia, Canada and European nations plan to settle there as their priority is ease of living,” Palloor said.

The RBI’s latest Report on Currency and Finance (RCF) estimates remittance flows to India could rise to $160 billion by 2029, driven by higher mobility of Indian workers. But the ongoing Iran versus  Israel-US war is likely to significantly affect India’s migration patterns and remittance flows.