REMITTANCES IN INDIA

2. Key Points

• It is important to note that India's remittance flows are expected to account for only 3 per cent of its GDP in 2022.
• This indicates that while the absolute amount of remittances is substantial, its relative contribution to the country's overall economy remains relatively modest.
• In South Asia as a whole, remittance flows are predicted to grow by 3.5 per cent in 2022, reaching $163 billion.
• However, this growth rate represents a slowdown compared to the 6.7 per cent increase observed in the previous year.
• The report attributes this deceleration to a combination of external factors such as inflation and slowing demand in both destination and source countries, as well as domestic factors specific to each country.
• While India and Nepal have experienced positive performance, with gains of 12 per cent and 4 per cent, respectively, other countries in the region have reported an aggregate decline of 10 per cent in remittances.
• Despite the challenges faced globally in 2022, remittances to low- and middle-income countries as a whole are projected to grow by 5 per cent, amounting to $626 billion.
• This indicates the continued importance of remittances as a vital source of income for households in these countries.

• The high remittance inflows to India in 2022 can be attributed to several factors highlighted by the World Bank.
• Firstly, there has been a gradual shift in destinations for Indian migrants, with a structural shift in qualifications.
• More Indian migrants have been able to secure high-skilled jobs in countries like the United States, the United Kingdom, and East Asia, particularly in the services sector.
• Higher education has played a crucial role in this, as it has been linked to higher income levels, directly impacting remittance flows.
• During the COVID-19 pandemic, Indian migrants in high-income countries benefited from work-from-home arrangements and significant fiscal stimulus packages.
• As the pandemic situation improved, wage hikes and favourable employment conditions further supported migrants in sending money back to India, despite the challenges of high global inflation.
• In addition, price support policies in the Gulf Cooperation Council (GCC) countries, where many Indian migrants typically work, helped keep inflation at bay.
• This, combined with increased demand for labour due to higher oil prices, contributed to a rise in remittances from Indian labourers.
• The World Bank report also highlights wage hikes and a strong labour market in countries like the United States and other OECD nations as factors that enhanced remittances to India.
• Governments in GCC destination countries implemented direct support measures to ensure low inflation, thereby safeguarding migrants' ability to remit funds.
• Furthermore, the depreciation of the Indian rupee against the US dollar during the period from January to September 2022, which fell by 10 per cent, may have also worked in favour of Indian migrants by increasing the value of the remittances sent back home.
• The resumption of travel and successful vaccination efforts in 2022 enabled migrants to resume work, which further contributed to the increase in remittances flowing into the country

• Remittance refers to the transfer of money or funds made by individuals working abroad to their home countries.
• It encompasses different types of financial flows, including workers' remittances, compensation of employees, and migrants' transfers.
• These transactions are recorded in the IMF Balance of Payments.
• Remittances serve as a crucial source of income for households in low- and middle-income countries.

5. Global Remittance Predictions for 2023

• The growth of remittance flows into South Asia in 2023 is expected to slow down significantly, with a projected increase of only 0.7 per cent.
• This prediction raises concerns about the resilience of remittances from white-collar South Asian migrants working in high-income countries, as noted in the report.
• Remittance Flows in India: Specifically focusing on India, remittance flows are predicted to decrease in 2023.
• This decline can be attributed to factors such as inflation and an economic slowdown in the United States.
• Additionally, the economic growth slowdown in the Gulf Cooperation Council (GCC) countries, coupled with falling oil prices, will further impact remittance flows to all South Asian countries, including India, according to the report's findings.

6. The Way Forward

• While remittances have played a vital role in supporting households in low- and middle-income countries, the predictions for 2023 suggest challenges ahead.
• Slowing growth rates in remittance flows to South Asia, including India, highlight the potential impact of factors like inflation, economic conditions in source countries, and changes in the global economy.