India's Remittance Resilience Strengthens as Gulf Share Declines, US Rises

India's remittance inflows have become significantly more shock-resistant, even as Middle East tensions test traditional labour corridors, according to Morgan Stanley India Economics & Strategy. In a report titled Opportunities and Risks amid Conflict, the brokerage notes that India received about US$120 billion in remittances in FY2024, which rose to around US$138 billion in FY2025, reflecting both a global recovery and a structurally stronger inflow base.

These transfers now fund roughly 40–45% of India's merchandise trade deficit, making them a key stabiliser for the external account.

What has changed is not just size, but composition. Gulf Cooperation Council (GCC) countries, once dominant at about 47% of remittances in 2016–17, have seen their share ease to roughly 38% in 2023–24. At the same time, advanced economies have gained weight, rising from about 30% to 42% over the same period. The United States alone now contributes 27.7% of India's total remittances, while the UAE accounts for 19.2%.

Morgan Stanley says this shift matters because inflows from developed economies tend to be more stable and less tied to commodity cycles, making the overall remittance stream less volatile.

"This trend reflects the expansion of a white-collar Indian diaspora and adds resilience, as these flows are less exposed to Middle East instability. By contrast, GCC remittances largely originate from temporary or semi-skilled workers in construction and services, which face more direct exposure to regional disruptions."

Despite the improved resilience, the report flags risks from the ongoing Middle East conflict. Gulf labour markets—especially in construction, logistics and services—are showing early strain, including layoffs and softer consumption in hubs like the UAE.

"As of April 2026, business activity in key Gulf hubs such as the UAE has shown early signs of strain rather than full normalcy, with sectors like tourism, hospitality, and services seeing layoffs, pay cuts, and weaker consumption amid the ongoing Middle East conflict," it said.

States such as Kerala remain particularly exposed, with nearly 20% of India's remittances flowing into the state and a large share of its diaspora based in the Gulf. There is also a behavioural risk: in periods of uncertainty, migrant workers may delay transfers or hold higher precautionary savings, temporarily slowing inflows.

The key buffer is diversification. With over half of inflows now coming from advanced economies, India is less exposed to a single-region shock than in earlier cycles.

"In the interim, strong remittance inflows from the US, Europe and East Asia have continued to shore up India's external balances. Potential implications of conflict on the remittance kitty remain uncertain: the conflict in the Middle East has raised concerns about the stability of India's key remittance flows."

The nature of migration has also shifted toward higher-skilled roles in IT, finance and professional services, which typically generate steadier earnings and more consistent remittance patterns.

The report also highlights a potential counterbalance once regional conditions stabilise. Historically, Gulf economies have responded to disruptions with reconstruction-led infrastructure spending, which can revive demand for migrant labour and support remittances after short-term weakness.

While near-term volatility is possible, Morgan Stanley argues India's remittance base is structurally more shock-resistant than before due to geography and skill diversification. The broader trend points to a more balanced external inflow profile, reducing dependence on any single region even as Gulf flows remain important.