It is important for policymakers and other stakeholders – especially business chambers, universities and think tanks- to pay greater attention to the potential impact of the declining remittances on the economies of states – especially those that are heavily dependent upon such inflows.
While speaking at a press conference on May 20 at Thiruvananthapuram, the Kerala Chief Minister VD Satheesan said, “Only those people who are in the Gulf are sending money to Kerala. Remittance is only from the Gulf. People are now going to the European countries, and we have to consider the reverse remittance.”
Satheesan, who was sworn in as Kerala CM on May 18, has retained the Finance Portfolio with himself. He also said that the state government will release a White Paper about Kerala’s financial situation in June. After meetings with Prime Minister Narendra Modi and Union Finance Minister Nirmala Sitharaman on May 26, the Kerala CM, while addressing a press conference in New Delhi, said that Kerala’s economy was facing pressure due to the rising fuel prices and the turmoil in the Gulf, which had impacted remittances.
For the fiscal year 2024-2025, India emerged as the largest recipient of remittances, receiving approximately $135 billion in remittances. This marked a 14 per cent increase over the previous year.
Remittances account for over 3% of India’s Gross Domestic Product (GDP). India receives a significant percentage of remittances from the Gulf Cooperation Council (GCC). The GCC accounts for over one-third of India’s total inward remittances, with the United Arab Emirates (UAE) alone contributing around 19 per cent.
India’s inward remittances: The Kerala factor
A large percentage of Indian expatriates in the Gulf hail from Kerala, accounting for an estimated 20% of the Indian expat population in the region. Kerala is the second largest contributor to India’s inward remittances after Maharashtra. While Kerala accounted for approximately 19.7% to India’s total remittances in 2024-2025, Maharashtra’s share stood at 20.5%.
In recent years, the number of migrants to the Gulf from other states, including Telangana, Andhra Pradesh, Uttar Pradesh, and Bihar, has also increased. As a result, the economies of several states, not just Kerala, have become increasingly dependent upon remittances inflows.
In recent years, there has been a growing trend of young Keralites preferring Western countries over the Gulf as migration destinations. There are several reasons for this. The first is the changing economic landscape in the Gulf, with a slowdown in sectors such as construction that traditionally employed large numbers of migrant workers. Post the COVID-19 pandemic, several workers had returned home. Additionally, the West Asia conflict prompted several Keralites to return home, although many observers have dubbed it a temporary phenomenon.
Second, Western countries offer pathways to permanent residency and citizenship, opportunities generally unavailable in Gulf countries.
The Kerala CM’s remarks on remittances are important because Inward remittances account for approximately 17% of the state’s GDP. A substantial share of these remittances continues to originate from the Gulf, although the contribution of non-GCC countries has risen in recent years. In 2024-2025, the US accounted for approximately 27.7% of remittance inflows into India, surpassing the UAE.
Several economists and commentators have flagged the long-term impact of a possible drop in remittances from the Gulf due to the ongoing conflict in West Asia. A report by Morgan Stanley India Economics and Strategy, titled ‘Opportunities and Risks amid Conflict,’ highlighted the slowdown in economic activity in parts of the Gulf in the aftermath of the West Asia conflict and pointed to layoffs in sectors including services and hospitality.
In the immediate aftermath of the conflict, however, remittance inflows from the Gulf to Kerala did not decline. In fact, they increased, a trend many analysts attributed to uncertainty among expatriates who transferred savings home as a precautionary measure.
Possible decrease in inward remittances from the West
It is not only remittances from West Asia that could come under pressure. Remittances from Western countries may also witness a slowdown in the coming years because of uncertainties surrounding immigration and work-visa policies, particularly in the United States. This is significant because remittances from Western countries, especially the US, have increased steadily in recent years, reducing India’s dependence on Gulf-origin remittances.
It is important for policymakers and other stakeholders – especially business chambers, universities and think tanks- to pay greater attention to the potential impact of the declining remittances on the economies of states – especially those that are heavily dependent upon such inflows, as well as on the national economy. Both the central and state governments need to formulate concrete policy measures to offset the economic impact caused by a dip in remittances. These measures should include both short-term corrective interventions and long-term structural reforms.
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About the author
Tridivesh Singh Maini is a New Delhi-based Policy Analyst. He is faculty member of OP Jindal Global University, Sonepat, Haryana.
