INWARD REMITTANCE FLOWS TO INDIA

 Remittances or personal income transfers associated with international migration is regarded in the narrow sense as monetary transfers or in a broader sense as encompassing monetary and non monetary transfers or in the broadest sense also including the facility or potential for transfers if required. Remittances from our nationals living abroad normally referred as Non Resident Indians (NRIs) or persons of Indian Origin are principally recorded as "private transfers "in the Current Account of the balance of payment (BOP) statistics published  by the Reserve Bank India. In addition the capital account of the BOP statistics records net changes in the external accounts denominated either in foreign currencies or Indian rupee of NRIs.The scheme of Foreign Currency Non resident account has been formulated with effect from November 1st 1975 in the background large scale emigration of  Indians especially to Gulf countries, with  a view to encourage flow of inward remittances through banking channels from Non resident Indians and persons of Indian origin. 

 Remittances are the second major source of external financing for low and middle income countries after foreign direct investment FDI.In the last decade remittance flows to emerging market economies have steadily increased and even exceeded FDI in several countries including India, Phillipines, Pakistan and Bangladesh accounting for about 3% of GDP in low income countries and 1.6% of GDP in middle income countries.According to recent study by Reserve Bank of India there has been marked changes in the trend and origin of inward remittance flows to India.In major recipient countries the flow of remittances has remained resilient in 2020 and increased in 2021.However quarterly growth fluctuations are visible since the outbreak of covid 19 in India and Indonesia.In the case of India remittances dwindled on year on year basis during Q1 to Q4 of 2020 but rebounded since Q1 of 2021.UAE,USA and Saudi Arabia have been the three major destinations of Indian migrants for the past two decades accounting for 48.6% in 2020.Geographical distribution of Indian migrants has been historically dominated by Gulf countries.However the share Indian migrants in advanced economies like US,UK, Canada and South Africa has increased gradually to around 30 percent and India Gulf corridor combined share declined to 28 percent.

. India continued to remain as the top most recipient country with $89.4 billion inward remittances accounting for 12% of the global remittances.Recent shift of emigrants to the western Advanced economies particularly to USA, UK,and Singapore have emerged as key source of remittances, reducing hitherto prominent share of Gulf countries which accounted for more than half in 2016-17 drastically declined to 30% in 2021.It seems that Covid 19 pandemic affected more blue collared migrants particularly in Gulf region whereas there was  significant increase in the share of Indian origin white collared workers in countries like USA,UK and Singapore.  Advanced economies accounted for 36% share of remittances.So far  UAE has been contributing the largest share of workers remittances to India with 26.9% followed by USA 22.9%, and Saudi Arabia 11.6% in 2016-17. However by 2020-21 the US surpassed the UAE as the top source country contributing 23.4% share of total remittances followed by UAE with 18% ,UK 6.8% , Singapore 5.7% , Saudi Arabia 5.1% and Kuwait 2.4%. 

The share of traditional remittance recipient states like Kerala, Tamil Nadu and Karnataka which had heavy dominance in Gulf region have almost halved in 2020-21, accounting for only 25% of total remittances since 2016-17.Maharashtra has emerged as the top recipient state with a 35% of total remittances share(from a 16.7% in 2016-17) surpassing Kerala to mere 10% as against 19% in 2016-17. Delhi increased its share from 6 to 8% in the same period.Developments in host country requirements, reducing wage differentials changing occupational patterns in these states with increasing white collar migrants to Gulf region and also entry of low wage semi skilled workers from other states and Asian countries may have resulted in this compositional change.On the contrary emigration from Uttar Pradesh, Bihar, Orissa and West Bengal to Gulf countries witnessed a spurt in recent years as evidenced by Ministry of External affairs data on approved emigration clearences  to Gulf region.While NRI deposits schemes are treated as capital account transactions,local withdrawals and redemptions from NRI deposits (especially NRE and NRO rupee deposit schemes) are treated as private transfers in the BOP account. RBI  study observed that NRI deposits are empirically found to be influenced by exchange rate and interest rate differentials.Rapid increase in smaller denominated transactions of less than $200 in 2020-21is attributed to reduced sending capacity and financial distress among remitters due to the impact of covid pandemic.NRI rupee account witnessed  a sharp increase during Covid19 pandemic.NRI deposits rose by $7.826 billion in April-December 2020 against $ 5.862 billion in the same period a year ago. Similarly there was a shift in the shares of institutions recieving remittances. In the case of public sector banks shift occurred from large scale transactions to small and medium scale as evident from 2020-21 data.On the contrary private sector banks not only sustained but also increased their large scale of transactions in 2020-21 and foreign banks were largely popular among remitters from Singapore. The dominance of money transfer operators (MTOs)  as a non banking entity in the remittances business got prominence due to their competitive edge, people friendly attitude, business and cost structure and advanced adoption of digital technologies .

In nutshell India continues to be world's largest recipient of inward remittances buttressing our balance of Payments position. But it witnessed a sharp decline in traditional remittances area namely Gulf region in 2020-21.Indian diaspora working in the informal sector in Gulf region seems to have impacted due to lock down restrictions subdued oil prices and slow pace of emigration in recent years.Consequently the US replaced the UAE as the largest source of remittances inflow to India in 2020-21.Share of traditional recipient states like  Kerala ,Tamil Nadu,Karnataka which had a strong presence in Gulf region almost halved in 2020-21 accounting for only 25% of remittances compared to 2016-17.In 2020-21 Maharashtra (35.2%)replaced Kerala(10.2%) as the top recipient of remittances and the share of states like Karnatak a also decreased,whereas that of Delhi (9.3%)increased. It can be safely inferred that pandemic adversely affected blue collared emigrants more than white collared ones. Major portion of remittances is routed through private sector banks followed by public sector banks and Remittances transactions from Singapore is largely through foreign banks.In any case considering the significance of inward remittances  recent policy measures announced by RBI to stabilise external sector and rupee focus on incentives to attract NRI remittances.