Immediate impact - falling crude prices impact the profitability of the oil producing nations and further exploration / existing infrastructure upgradation stops / slows down. Fall in real estate prices, crash in stock markets, squeeze in bank credit, liquidity problems and fall in spending by the local populace. While this will be a mild pain, the effect would be felt nevertheless. These are occurrences that are in place in Kuwait, Dubai and Venezuela at the time of writing this piece. There will be a marked slowdown in remittances over a peroid of time as savings evaporate due to falling property prices, bank defaults and business losses arising out of trade imbalances and currency volatility.
 

Medium term impact - this is the next logical impact of falling energy prices. As producing nations sell at miniscule profits or even losses (accounting for budgetary deficits and international loan repayments), pay scales / jobs are cut down. This is a more severe development from the Indian view point as significant number of Indian citizens are gainfully employed in the gulf nations. Should expatriates start facing the axe (locals will suffer the pink slips the last), the un-employed get displaced and may even contemplate "returning home". The result - loss in the dollar income that was remitted by the Gulf Indians. This could create significant pressure on the Rupee as the flow of Gulf money is significant. The impact is everywhere to see. Some southern cities thrive on NRI remittances as a major source of affluence or even survival. Major buyers of properties, subscribers to government US $ denominated bonds and commercial paper, the Gulf Indians can be ignored at serious peril to our own self. Their money is channeled almost everywhere, yes, even in our stock markets. Their problems have to become our problems. Adversity in Gulf nations will therefore trickle down to our shores this way. Even if there is no mass exodus of Indians from the Gulf countries, a partial drying up of remittances will turn the heat on the Rupee.

Long term impact - should the worse possible scenario come true and Indians are displaced to a degree, some jobs maybe permanently lost to locals or others. Remittances will be hit and investment in the real estate, capital markets, bank deposits and mutual funds will be adversely impacted. While this remittance is not the be-all-and-end-all factor for pricing the value of the Rupee, it's significance cannot be ignored. The forex reserves comprise of a significant amount of remittances by Gulf Indians. Long term dents in this revenue will have harmful pressures on the Rupee.