Do Remittances Contribute To The Prosperity Of The Indian Economy?

Do you believe that NRIs, also known as non-resident Indians, aid India in enhancing its diplomatic influence and presenting a more favourable worldwide image? Indeed, they do so by demonstrating how powerful the ₹ is. The concept of Inward remittances defined as sending money back to relatives, friends, family and near and dear ones in India contributes to bolstering the Indian economy. This is one way in which there can be seen the spike in foreign exchange reserves, which further fosters macroeconomic stability in the nation. They also have an impact on Indian consumption and investment.

According to the remarks of the RBI governor, India’s inbound gross remittances outperformed the World Bank’s prediction by $7.5 billion in 2022, reaching an all-time high of $107.5 billion. There exist many causes for this achievement which collectively has marked their contribution to India’s foreign reserves gaining back their traction to the mark of $600 billion after June 2021. The major causes can be attributed to the stabilisation of currency rates and record remittance flows. In September 2021, it reached a peak of $642 billion.

But then, the world came under the shield of Russia- the Ukraine invasion and its drastic impacts. Therefore, the Indian forex reserves fall below in May 2022 due to the weakness of the ₹. If one is wondering what function foreign reserves play in supporting imports, one should know that the most significant of them is oil, which helps the government service its external debt and increases the muscle power of ₹.

Remittances serve as a macroeconomic buffer.

Remittances revolve around 3% of India’s GDP. They provide a cushion for India’s external sector, which is compromised because of global economic crises. Remittances, taking the second position, give a much-needed buffer as India’s trade imbalance grows. The highest place in the foreign money is given to service exports.

Recently, India’s foreign trade scenario has been more stable because of the following reasons.

• Merchandise trade deficit reducing.
• Services exports increasing.
• Remittance growth exceeds expectations.

RBI Governor Mr Das stated that the country’s current account deficit has decreased to 2.2% in the fourth quarter from 3.7% in the second one due to a smaller product trade imbalance and solid growth in services exports. It is defined as the value of imports of goods and services surpassing the value of exports as a proportion of GDP. Foreign exchange reserves Of India have marked an upward trend from $524.5 billion in October last year, to more than $600 billion.

If you think that remittances are just the stable anchors for India’s current account, then wait. You will be amazed to know that they are also the helping hand to the central bank to preserve the great Indian ₹ from excessive turmoil by fueling foreign reserves.

Are remittances expected to grow, and if so, what is the reason behind this event?

If we consider the informatics from the World Bank, our nation received remittances computed for $89.4 billion in 2021, giving India the rank of the top receiver on a global platform. Remittances to India were expected by the World Bank to exceed $100 billion last year, growing at a rate of 12% through 2021. The causes for the current rise in remittances can be attributed to the shifting NRI demographic and a structural change in destinations.

The US become the biggest source of Remittances for India.

Again, taking the valuable insights from the World Bank, the USA has surpassed the UAE in terms of the country that provided the huge remittances in 2020-21, accounting for 23% of total remittances. Remittances have benefited from a progressive shift in the work profiles of Indian migrants, from low-skilled, informal employment in Gulf Cooperation Council (GCC) nations to high-skilled positions in high-income countries.

This high-income nation is a bundle of the following.

• The United States.
• The United Kingdom.
• East Asia, which has the collective participation of Singapore, Japan, Australia, and New Zealand.

According to an RBI survey, the share of remittances from the US, UK, and Singapore increased from 26 % to more than 36 %, in two terms that are 2016-17 and 2020-21. The share from the Gulf countries attained downward mobility from 54 to 28 %. These nations are a bunch of Saudi Arabia, Oman, Kuwait, the United Arab Emirates, and Qatar. Thus, it may be said that more wealthy NRIs send money home than those from lower-income NRIs.

NRIs, particularly in the United States, are steadily climbing the socioeconomic ladder, which means they are sending more money home. Now, when the data was collected from the US Census in 2019, around 57 % of the nearly 5 million Indians in America had been there for more than a decade. According to World Bank research, many people received graduate degrees during this period, preparing them to move quickly into the highest-income earning category.

Education acts as a powerful weapon.

There is no doubt that education acts as the sharpest sword to shape the economy and hence the Indian diaspora in the superpower country USA is extremely competent. 43 % of Indian-born residents in 2019 in the United States held a graduate degree. This data when compared to US-born citizens is 13 %. Just 15% of Indian-born residents in the age range of 25+ had a high school diploma or even less than that. The numbers are 39% in US-born people in the same age bracket. However, 82 % of all Indians in the United States (compared to 72 % of Asians) and 77 % of foreign-born Indians were English-competent.

More education leads to higher income levels, which has a direct impact on remittance flows. A typical family income of roughly $120,000 was earned by Indian Americans in 2019. Comparatively, this is greater than the national average of about $70,000. This suggests that the structural change in credentials and destinations has boosted growth in remittances linked to high-paying employment, notably in the service sector.

Increased interest among Indian students in attending universities in developed countries will only reinforce the trend of strong social mobility within NRIs in the superpower nation and hence enhance the remittances in the golden bird country.

India’s Push for NRI funds can mark the onset of a new trend of remittances in the country.

Gone are the days when the old traditional money was used for transactions. As the world is moving towards technical advancements, the finance sector is also making such great tools that can enhance the way remittances were done in the past. One such example is UPI links, which employ current technologies and hence make money transfers quicker and cheaper. All these methods are a magnet to the NRI funds.

The recent effort that resulted in the UPI integration with PayNow in Singapore is an example to support for the advancements in the fintech sector. All these are enabling faster and less expensive cross-border cash transfers via multiple mobile applications. The cost of international money transfers is about 5%, which the India-Singapore connection may lower in half and this will pave the way for increasing remittances to India. If this attempt with Singapore achieves the zenith of success, then a replica of this will work effectively in other huge nations as well.