The World Bank has recently declared India to be the largest recipient of remittances from abroad.
According to the Bank, remittances to India are likely to touch $80 billion this year, way ahead of the second largest recipient China ($67 billion).
According to the official Indian balance of payments data, remittances through private transfers that includes –
Remittances for family maintenance
Local withdrawals from Non-Resident Rupee Accounts (NRE and NRO)
Gold and silver brought through passenger baggage
Personal gifts/donations to charitable/religious institutions
It includes workers’ remittances, which consist only of transfers made by migrants employed and resident abroad to relatives in India.
Workers’ remittances form the dominant component of private transfers.
The share of workers’ remittances in total transfers touched a high of 69% in the first six months of financial year 2018-19.
This shows that the remittance levels have remained high, despite the lower oil prices in the gulf and the trend has remained positive.
Who is the biggest contributor?
India became a successful exporter of software and business services, which often require onsite provision at locations abroad.
Hence it is expected that there would be a shift in remittance flows away from the Gulf region to North America (especially the US).
It was expected that there would be higher contributions from workers employed on temporary visas (such as H1-B).
These workers typically extending for more than a year at much higher salaries earn more than the preponderantly semi-skilled workers migrating to the Gulf region.
However, contrary to expectations, remittances have substantially come from the Gulf region.
According to the RBI, as much as 53.5% of remittances came from the Gulf countries in 2016-17, with the US and Canada together contributing about 24%.
This also shows that the share of North America in remittances (from IT and business services workforce abroad) peaked in the mid-2000s, and there has been a deceleration since then.
How do the skilled migrations benefit India?
The contribution of workers’ remittances to foreign exchange inflow has been between 47% and 57% of inflows, especially with respect to India’s flagship export sectors (IT and Telecom).
This shows that more remittances are being received by the workers who got benefitted export of telecommunication, computer and information services from India.
This is mainly because of immense policy support that the IT and IT-enabled services sector has received from the government.
The support was provided in the form of investment in infrastructure, tax holidays and beneficial import policies.
Policies of foreign governments on temporary employment of foreign workers also have boosted migrations from India. (out-migration)
Moreover, the IT and related services boom was possibly helped by the technical and English language skills of a section of Indian workers thus raising the prospect of employment opportunities.
This has made families to stay behind and workers just need to remit foreign exchange for family maintenance and similar expenditures.
Has it helped managing India’s current account deficit?
According to the RBI surveys, the share of remittances meant to finance family maintenance varied between 49 - 61% of total remittances.
Another 20% was into deposits, possibly to be withdrawn later to finance bulk expenditure requirements.
Remittances also cover between 47-80% of the deficit in trade in Goods and Services between 2013-14 and 2017-18.
Thus the benefit provided by migrant workers in the form of remittances help manage India’s balance of payments to a considerable extent.
