Higher remittances to India bring cheer, but looming recession threatens disruption

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Higher remittances to India: Most economies are in a midst of an economic downturn, but it has not affected the remittances by Indian migrant workers who are on track to send home a whopping $100 billion this year, according to the World Bank’s latest Migration and Development Brief. Inward remittances account for 3% of India’s GDP and an increase augurs well for the economy which is facing global headwinds. They are also a useful source of foreign exchange and help narrow the current account deficit. With the 12% jump in remittances, India is the top recipient of remittances.

Indian workers in foreign nations were able to send more money back home due to a number of reasons. Not only were they handed bigger payouts due to stronger labour markets in the US and other OECD countries, but a weakening rupee against dollar is also behind the growth. India has been signing FTAs with various countries with trade in services as a major part of such deals. 

For instance, the soon to be inked trade deals will help the services sector as India is expected to send 1,800 yoga teachers and Indian chefs to Australia every year. On top of this, 1,000 work-cum-holiday visas will also be available for young professionals. This brings fresh opportunities for higher remittances in the future too.

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Following a hiatus after the coronavirus pandemic, the Gulf countries such as Kuwait and Oman which had earlier reduced the reliance on expatriate workers have again opened their doors. The pandemic saw a drop in remittances flow. However, the pandemic has led to another shift in earlier remittance pattern – apart from higher remittances from Gulf countries, the flow has increased from high-income countries such as the US, UK, Japan, Australia, and New Zealand.

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According to a report by the Reserve Bank of India, the share of Gulf countries declined because of stricter labour laws and higher work permit renewal fees. The reopening of other countries also supported expat employment and hence flow of money to India. There has been a structural shift in qualifications which decide the nature of work and the income one takes. During the pandemic, Indian migrants in high-income countries worked from home and benefitted from bigger fiscal stimulus packages. Post-pandemic, wage hikes and record high employment supported remittances back home.

Importance of remittances to India

Remittances are a vital source of household income for low- and middle-income countries as they serve a number of purposes. For one, they are instrumental in alleviating poverty, while also contributing to improving nutritional outcomes. They also result in higher school enrolment rates for children in disadvantaged households. Migrants have a dual role to play, not only do they contribute towards easing tight labour markets in host countries, but they also shoulder the responsibility of families in their homeland through remittances.

While remittances are increasing as far as India is concerned, there are several challenges to its growth. The current geopolitical situation is volatile which extends to the economy too and there are talks of a looming recession. A slowdown is likely to accentuate the current account deficit. Also, the IT industry is running the risk of a slowdown and the visible stress in the tech companies may translate into slower pace for India’s software export receipts. The ever so widening trade deficit may need more than higher remittances.

What causes migration

What is at most times seen in the negative light of the brain drain, migration of skilled workforce from any economy to another is caused by a number of reasons. This includes better opportunities in foreign nations, higher payouts, societal constraints such as caste, etc. Moreover, unemployment is also a major cause of migration from India which rises with higher education. According to recent data by CMIE, as of December 1, 2021, one in every five college graduates is unemployed.

Another category of migration as in climate-driven migration has been identified and it happens due to rising pressures from climate change. This is expected to both drive increases in migration within countries and impair livelihoods. The poorest are likely to be most affected as they often lack the resources necessary to adapt or move.

Arguments abound about keeping Indian talent at home as this will help India take benefit of demographic dividend. While getting remittances is helpful in supporting the economy, retaining Indian talent at home may benefit the economy even more.