To be sure, remittances are a source of permanent flows, unlike repatriable NRI deposits, and these help in narrowing the current account deficit (CAD), which has steadily shrunk as a percentage of India‘s gross domestic product (GDP).
Net inward remittances, as reflected in the private transfers in the current account of the balance of payments, amounted to $29 billion during the quarter ended December 2023, showed the preliminary data published by the Reserve Bank of India (RBI). An ET analysis of the data since 1991, the year of economic liberalization, showed this is the highest for remittances by the Indian diaspora in any quarter.
The remittances are linked to the level of migration in different economies and the job situation. A post-Covid survey on remittances conducted by the RBI showed that the US is the largest source of remittances, accounting for 23% of the total. By contrast, flows from the Gulf region declined.
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“This could be due to a good year globally – and the US in particular,” said Madan Sabnavis, chief economist at Bank of Baroda. “Also, it is the year end for companies overseas, where most bonuses are paid in December. This is seasonal, but a good year for global business could be the reason.”
India has been the biggest recipient of remittances from its diaspora ever since the software boom of the 1990s began transforming its technical talent landscape, and Asia’s third-largest economy is estimated to have received more than $100 billion in inflows in 2023, World Bank data showed.
The bulk of these remittances are going toward family needs, while a portion is also invested in other assets such as deposits, showed an RBI survey on remittances. Besides a surge in services exports, higher remittances also contributed to help rein CAD at 1.2% of GDP in the December quarter, from 2% in the December 2022 quarter, an analysis of balance of payments data showed.
“Generally, one sees a surge in remittances in Q3, probably due to the festive season commitments to relatives back home. Also, the rupee’s depreciation would have added to returns,” said Saugata Bhattacharya, an independent economist, formerly with the Axis Bank. “Moreover, banks are looking for stable deposits, with remittances adding to FCNR deposits at relatively high interest rates.”FCNR deposits are attractive when the rupee is weak as the forex risk is borne by the bank and not the depositor. During April-January 2023-24, FCNR deposit inflows at $4.15 billion were more than three times the level of inflows in the year-ago period.
“India is the second-cheapest remittance receiving market in the G20 group after Mexico, (but) the cost for certain remittance corridors has been consistently higher than others,” said a research paper published by the RBI economists in the July 2022 bulletin. “Policy measures need to be undertaken that expand the scope of MTSS (Money Transfer Service Scheme) in high-cost corridors.”
Under MTSS prepaid cards can be issued by the overseas authorised dealers to the beneficiaries of remittances in India.
