Kerala likely to see 20% drop in remittances as West Asia war drags on

The West Asian crisis is expected to have a significant impact on Kerala’s economy, with experts forecasting a 20% drop in remittance. The State receives annual remittances of around ₹2.16 lakh crore from expatriates. Although the depreciation of the currency against the dollar is expected to cushion short-term impact, the State is expected to see at least a 20% decline in remittances this year, especially if the war continues.

The latest Kerala Migration Survey (KMS), conducted by the Gulati Institute of Finance and Taxation (GIFT) with technical support from the International Institute of Migration and Development (IIMAD), has put the total remittances from expatriates at a record ₹2,16,893 crore in 2023, up from ₹85,092 crore in 2018, an increase of 154.9%, despite the economic setback caused by COVID-19.

“If the situation in West Asia persists, with Iran targeting Gulf countries across the region in retaliation for attacks by the U.S. and Israel, the immediate drop in remittances would be around 20%. This could increase further if the war escalates and continues for an extended period,” said S. Irudaya Rajan, Chair of the IIMAD.

Remittance comparison

Around 80% of Kerala’s expatriate population resides in Gulf Cooperation Council (GCC) countries, approximately 30 to 35 lakh people, contributing the lion’s share of Kerala’s inward remittances. On the other hand, the expatriate population in Europe, and countries such as the U.S., the U.K., and Canada contributes only marginally to annual remittances. In fact, a significant share of outward remittances flows from Kerala to these countries, estimated at ₹43,378.6 crore, about 20% of the total inward remittances, according to the migration survey.

This means any disturbance in the economies of GCC countries will directly affect Kerala’s economy, Mr. Rajan said. As per the Kerala Budget document for 2026–27, the expected GSDP is ₹16.29 lakh crore for the ongoing fiscal year. This clearly highlights the State’s dependence on remittances from the Gulf.

At the national level, Kerala’s share of inward remittances stood at 19.7% in 2023-24, out of the total remittances of $118.7 billion (₹9.88 lakh crore) received by the country, according to a report by the Reserve Bank of India. This is the second highest in the country after Maharashtra. Remittances had earlier dropped to 10.2% in 2020-21 during the peak of the COVID-19 pandemic.

According to Divya Balan, Assistant Professor in the Department of Social Sciences at FLAME University, Pune, the depth of the crisis will become clear in the coming days, as it is too early to quantify the impact based on trends observed over just one month. However, the drop in remittances could exceed 20% if the war escalates, she said. Already, expatriates in West Asia have begun “precautionary planning,” such as sending non-earning family members back to Kerala, drawing lessons from the COVID-19 crisis. However, earning members are likely to stay there, considering the re-migration difficulties they faced during the pandemic, she added.

According to K.P. Kannan, a noted development economist, although the crisis seems to be severe, the initial impact of the drop in remittance would be offset by devaluation of currency against the dollar which will help the expats send more money to Kerala for the time being. However, the long-term impact would be there and the State will have devise strategise to minimise the impact of the crisis, noted Mr. Kannan.