DYNAMIC CHANGES IN REMITTANCE INFLOWS TO INDIA: IMPLICATIONS OF RBI STUDY

INWARD REMITTANCES 

Inflow of remittances or personal income transfers  associated with migration is considered to be the most important safety valve available to many  economies across the  world. Inward remittances made by Indian diaspora abroad has been a major source of  foreign exchange earnings to strengthen our balance of Payments position, foriegn exchange reserves and external sector.  In recent  years particularly inward remittances exceeded  more than FDI flows to thecountry.As per the recent Remittances Survey conducted by RBI team for the period 2023-24 it  indicated a major breakthrough that the share of India's Inward remittances from advanced economies has risen surpassing that of traditional Gulf cooperation countries (GCC).That is pointing towards a  new shift in emigration patterns with more skilled and qualified Indian emigrants incresingly searching for employment in advanced economies. State wise distribution of  remittances showed that as in the previous year Maharashtra ranked first followed by Kerala and Tamil Nadu and they continues to be the major recipients of global remittances. Compared to many countries the cost of sending remittances to India is lower due to increasing digitalisation and emergence of fintech companies that offer affordable cross border remittances which in turn fosters competition among various remittance service providers. 

FINDINGS OF RBI STUDY 

The RBI survey results were based on response from 30 authorised dealer(AD) banks  and two major money transfer operators (MTOs) and two fintech companies involved in cross border transactions. In the  case of India personal transfers comprising of inward remittances to family maintenance from Indian workers residing abroad and local withdrawals from Non Resident Indian account constituted lion's share of inward remittances.Global remittances were estimated to reach US$ 905 billion in 2024 wherein Low and  Middle Income Countries (LMICs recieved More than 75% (U$ 685 billion)Another major turning point is that remittances to India has more than doubled during the period 2010-11 to 2023-24   from US$ 55.6 billion to US $ 118.7 billion and it is further projected to reach around $160  billion in 2029.Apart from  India other major recipients of inward remittances are Mexico,China, Philippines, France  Pakistan and Bangladesh. RBI study estimated that the stock of Indian emigrants tripled from 6.6 million in 1990 to 18.5 million in 2024 correspondingly increasing our Global share from 4.3% to over 6% during the same period. UAE maintained the second largest source of remittances with largest hub of Indian workers primarily blue collar workers engaged in construction industry followed by health care,hospitality and tourism sector.As on January 2024 out of total 13.4 lakh Indian students migrated  largest share gone to Canada (32%)followed by  US  25.3%,UK 13.9% and Australia 9.2%.With regard to major source of remittances flows  study indicated that In 2023-24 US topped the list contributing 27.7% of our total inward remittances followed by UAE 19.2%,UK 10.8%,Saudi Arabia 6.7%,Singapore 6.6%,Qatar 4.1,Kuwait 3.9%,Canada 3.8%, Oman 2.5% and so on. Infact UAE continue to maintain it's position as the second largest source of India's remittances. 

State wise distribution of remittances showed that after 2016 Kerala's supremacy as the major recipient of inward remittances declined from 19% in 2016-17 to 10.2 in 2020-21 and further revived to 19.7 in 2023-24. On the otherhand Maharashtra's  share has  risen sharply  from 16.7% in 2016-17  to 35.2 % in 2020-21 and  declined 20.5 % in 2023-24.In 2023-24 state wise share of remittances were Maharashtra (20.5%), Kerala (19.7) Tamil Nadu's 10.4% followed by Telengana 8.1% Karnataka 7.7%,Andhra Pradesh 4.4% DelhiNCT 4.3%,Punjab 4.2%Gujarat 3.9%, U P 3.0%,Haryana 2.9%, West Bengal 2.3% and so on .It may be noted here that Maharashtra, Telengana, Punjab and to some extent Kerala accounted for large number of students going abroad for education and staying back for employment in the host country. It was found that maximum share remittances made through digital mode was from Saudi Arabia  92.7%,followed byAustralia 89.5%,Qatar 76.2% and UAE 76.1%.

IMPLICATIONS 

Historically  we observed that quantum of remittances flows  largely evolved  in the aftermath of first oil  price hike of October 1973 when OPEC increased petroleum prices several fold However developed countries could neutralise the impact  by hiking the prices of manufacturers exported to these countries . Consequent flow of petro dollars and massive development projects undertaken in petroleum countries eventually opened the process of  export manpower on a large  scale  to Gulf countries from countries like India,Pakistan, Bangladesh etc.But then exists pegged exchange exchange rate system and strict restrictions imposed on external sector indrectly encouraged hawala transactions and  smuggling. Only after following liberalisation and liberalised exchange rate regime we were able to reduce hawala transactions drastically and encourage remittances through banking channels.Further currently digitalisation of accounts and use of Fintech products not only reduced the cost of transfer but also made transactions quicker.. State wise remittance flows showed that during 2023-24 Maharashtra remained major recipient with 20.5 % followed by Kerala(19.7%) where in the  gap between two states drastically reduced from 35.% for Maharashtra followed by only 10.2 % for Kerala in 2020-21.The cost of sending remittances did vary depending on the mode of transactions and 73.5% of total remittances were MTOs through digital  mode during 2023-24 which were cost effective. More over the traditional dominance of Gulf Cooperation Council (GCC) countries in remittance flows is currently giving way to advanced economies where USA alone account for 27.7% of total remittances in 2023-24 compared to 23.4% recorded in 2020-21. Migrants in advanced economies tends to have higher and more stable income compared to NRIs  comprising of more temporary workers in the Gulf region.However the uncertainty looming over Trumps emigration and student visa policies along with Tariff distortions is likely to impinge future remittances from USA Domestically more workers from the states with "more demographic dividend " like  Bihar  UP,West Bengal Orissa should be encouraged through initiatives to make these populous states to participate in working abroad for infrastructure projects involving skilled and semiskilled jobs .State Governments can assist not only in skill development but also in  giving orientation about the procedure and process of recruitment to various countries. In any case perennial flow of remittances into India constitute a vital stablising  factor in the context of global uncertainties,tarrifs, trade wars ,global supply chain disruptions and tightening financial conditions.