An Overview of Remittances to India

The amount of money that Non-Resident Indians (NRIs) sent to their loved ones in India surpassed the $100 billion mark in 2022, witnessing a growth rate of 12% from the previous year, as per the World Bank .

• It is anticipated that India will continue to hold its position as the top recipient of remittances in the financial year 2023. It first secured this position in FY21, overtaking China.
• Recent data reveals a steady and swift increase in “personal transfers” to India. Although these had slowed down during FY21 due to the pandemic, they have now regained momentum and shown robust growth.

Surge in Remittances Amidst Slowing FDI Inflows

• Interestingly, remittances have witnessed a surge during a time when foreign direct investment ( FDI ) appears to be slowing down.
• A noteworthy report from a multilateral development financing institution indicates that remittances to low- and middle-income countries rose by 5% in 2022, amounting to a total of $630 billion.
• These statistics imply that remittances to low- and middle-income countries were on par with FDI inflows during the same period.

Factors Driving the Increase in Remittances to India

• According to TerraPay, a London-based mobile payments provider, remittances from nations like Qatar, Saudi Arabia, Australia, and the US to India have seen a significant increase.
• India boasts the largest diaspora globally, with about 18 million Indians residing outside their country of birth.
• As per a report by Bloomberg, the resumption of travel and vaccination drives in the Gulf region have enabled migrants to return to their jobs, leading to an increase in remittances to India.
• Skilled Indian migrants in countries like the US, the UK, and Australia have also been sending more money home, facilitated by various job support schemes during the Covid-19 restrictions.
• The weakening of the rupee against the US dollar may have also acted as an incentive for Indian migrants to send more money back home.

The Impact of Private Remittances on India’s Current Account:

• India benefits greatly from private remittances sent by its citizens living abroad, which significantly aids the country’s current account.
• While India's goods trade often results in a deficit, exports of services have helped maintain a healthy balance of payments in recent times.
• In the third quarter of FY23, India’s current account deficit narrowed to $18.2 billion or 2.2% of GDP, primarily due to a reduction in the goods trade deficit.
• Analysts foresee that the CAD in FY23 will be around $77-80 billion, a relatively low level, attributed to a decrease in the trade deficit in the fourth quarter of FY24.