A longer Gulf conflict could squeeze remittances to India
The ongoing Iran conflict threatens India's significant remittance inflows from Gulf nations. This could impact economies like Kerala and Maharashtra, which rely heavily on these funds. While business activity remains stable for now, prolonged con...
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Bengaluru | Dubai: India’s multi-billion-dollar annual remittances from the Gulf could come under strain with the Iran war continuing to severely disrupt business and travel activity in the region.
With fresh Iranian threats of strikes in the UAE prompting some professionals to return to their home countries and companies shifting to remote work, economists warn that a protracted conflict could disrupt remittance flows to India, straining regional economies such as Kerala, Maharashtra, and Tamil Nadu that depend heavily on Gulf earnings.
More than a third of India’s remittances, worth Rs 3.74 lakh crore ($40 billion) in 2023-24, came from Gulf nations such as the UAE, Saudi Arabia, Qatar, Kuwait and Oman, according to the latest RBI data. The UAE, which counts Indians as the single-largest expatriate group, was the second-largest source of remittances in FY24 at 19.2%, while Gulf nations together accounted for 38%.
“A prolonged conflict poses a risk to remittance flows for India,” HDFC Bank said in a note. “In recent years, strong remittance inflows have cushioned the impact of a widening merchandise trade deficit, along with net services.”
India’s remittances increased 15% to $138 billion in FY25 from $119 billion in FY24, according to World Bank data.
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Remittance receipts financed about 42% of India’s merchandise trade deficit each year between FY11 and FY24 (barring pandemic year of FY21), helping offset a widening trade gap alongside net services earnings, according to an RBI paper titled, ‘Changing Dynamics of India’s Remittances – Sixth Round Survey.’
Madan Sabnavis, chief economist at Bank of Baroda, told ET that a 10-20% hit to remittances from West Asia could translate into a loss of $5-10 billion.
“If the war drags on, it would be the labour class that could lose jobs or face lower pay as these countries scale down some economic activity due to the conflict,” he said. “This class is different from the skilled professionals working in other countries.”
The top five recipient states—Maharashtra, Kerala, Tamil Nadu, Telangana and Karnataka—together account for nearly 66% of India’s total remittances.
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“If this conflict continues longer, it will affect not just household remittances but the broader economy,” said K Ravi Raman, member of Kerala’s state planning board. “Regional economies such as Kerala will see a higher impact.”
However, firms say business activity remains largely normal for now, even as risks remain elevated due to potential supply disruptions.
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“March is traditionally one of the stronger remittance periods, and this year continues to reflect normal customer activity across our network,” said Thampi Sudarsanan, CEO of Lulu Exchange. “This also reflects the high level of stability, preparedness, and reassurance that the UAE consistently provides to businesses, residents and expatriate communities.”
Suresh Kumar, founder of the Indian Business and Professional Council (IBPC) and former CEO of Emirates NBD, said business-related flows could face some disruption due to shipping and trade challenges in the region. Earlier stresses in the Red Sea linked to Houthi attacks had already affected exports, imports and re-exports.
Kerala’s exposure
Kerala is among the states most exposed to Gulf remittances. Nearly 80% of the state’s non-resident Indians live in the Gulf, and the state alone accounts for 19.7% or nearly a fifth of India’s total remittance receipts, estimated at Rs 1.94 lakh crore.
The pressure is most acute in sectors with high concentration of Keralite workers.
“Kerala’s expats work mainly in logistics, hospitality and healthcare,” said Ajith Kolassery, chief executive of NORKA Roots, Kerala’s state nodal agency for expatriate welfare. “Even a temporary disruption will hurt remittances and the job market.”
With tourism in the region already slowing, cab drivers and food delivery workers—many of them from Kerala—are reporting a steep drop in earnings, said Kolassery.
On the ground in the Gulf, anxiety is already visible. A logistics professional in Dubai told ET that shipments are stalling at ports and business has slowed.
“I can’t afford to go home now,” the person said. “If I leave, I might not have a job to come back to.”
As Iranian threats against the UAE escalated this week, with drone debris reportedly falling on a building in Dubai’s financial centre, and warnings issued about potential targets including ports and US military facilities, some professionals have begun returning to their home countries while companies transitioned to remote working.
The shift is also affecting blue-collar workers employed by expatriate professionals as domestic helpers, cooks, and cleaners, many of whom fear losing their source of income.
The hospitality sector is also seeing the impact. Several hotels have reported tourists cutting short their stays, pushing occupancy levels sharply lower.
“Most staff have been asked to take their annual and accumulated leave as occupancy has fallen to very low levels,” said a senior executive at a hotel chain said. “However, if the situation continues, it is difficult to predict what will happen to jobs.”
Some experts also highlighted that the immediate impact of the war could also lead to a temporary spike in remittances. During the Gulf War in 1991 and again during the pandemic, remittances surged as migrants rushed to send money home before conditions worsened.
“During the Gulf War in 1991 and Covid, we saw a sudden increase in remittances, a panic sending,” said Raman at Kerala’s state planning board. “We might see something similar here as a short-term effect.”
The rise of digital payment apps and cross-border transfer platforms could also change how quickly and easily money moves, though experts remain divided on whether this would ease the blow or simply accelerate such panic-driven transfers.
Remittances from Gulf (GCC) Countries (2023-24)
Gulf country
% share
estimated value (Rs lakh crore)
United Arab Emirates
19.2%
1.891
Saudi Arabia
6.7%
0.660
Qatar
4.1%
0.404
Kuwait
3.9%
0.384
Oman
2.5%
0.246
Bahrain
1.5%
0.148
Total GCC
38.0%
3.743
Remittances from Other Major Countries
source country
% share
estimated value (Rs lakh crore)
United States
27.7%
2.728
United Kingdom
10.8%
1.064
Singapore
6.6%
0.650
Canada
3.8%
0.374
Australia
2.3%
0.227
Germany
1.0%
0.099
Top Recipient Indian States/UTs (2023-24)
The top five states receive over 66% of the total remittance value.
