Uncertain future: India may see a fall in remittances amid global challenges

India leads the world in inward remittances
India receives record $125 billion remittances this year, but the inflows may taper due to global inflation and low growth prospects.

India has retained its position as the top remittance-receiving country globally in 2023, shows the latest Migration and Development Brief from the World Bank. In 2023, India’s remittance inflows are estimated to reach $125 billion. The total remittances for low, and middle-income countries rose by 3.8% this year to touch $669 billion. The other major remittance-receiving countries are Mexico ($67 billion), China ($50 billion), the Philippines ($40 billion), and Egypt ($24 billion). In 2022, remittances totalled $647 billion, of which India received $111 billion, Mexico $61 billion, China $51 billion, the Philippines $38 billion, and Pakistan $30 billion.

The brief also points to potential future challenges. It warns of the risk of declining real income for migrants in 2024, primarily due to global inflation and low growth prospects. Such a scenario could affect the remittance flows as migrants might find it harder to send money back home. This potential decline could have significant implications for countries heavily reliant on remittances for their economic stability.

The World Bank brief sheds light on the significant role of India in global remittance flows, the resilience of these flows despite economic challenges, and the potential risks and opportunities that lie ahead in the realm of global migration and remittances. The report serves as a crucial resource for understanding the complexities of migration and its economic implications, particularly for countries like India.

The history of modern Indian emigration dates back to the late 19th century, with significant numbers of Indian indentured labourers working in British plantations in Ceylon, Burma, Malaya, Mauritius, South Africa, and the West Indies, many of whom permanently settled in these regions. Post-independence, the second phase of emigration saw Indians taking up administrative, technical, and professional roles in advanced economies like the UK, USA, Germany, and France.

The 1973 surge in petroleum prices, which led to an increase in petro-dollars and significant investments in infrastructure in the Gulf countries, marked a significant shift in emigration patterns. Workers from India, Pakistan, Bangladesh, and Sri Lanka became preferred in the Gulf due to their willingness to accept jobs and salaries that Arab workers declined. For example, in 1977, India received $303 million in remittances from the Middle East, which grew to $1,442 million by 1985.

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Sources of India’s remittances

While the United States, United Kingdom, and Singapore stand as the key contributors to India’s remittance inflows, it is crucial to acknowledge the growing importance of diversification in remittance sources. Countries like the UAE, with its burgeoning Indian population and focus on bilateral trade, play an increasingly significant role. Additionally, the skilled Indian diaspora across Europe and beyond contributes substantially. Highlighting this diversification paints a clearer picture of India’s resilience in the face of potential economic slowdowns in specific regions.

The late 1990s saw a new wave of emigration of professionals, particularly in information and communication technology (ICT). Economic reforms in the 1990s, encompassing globalisation, liberalisation, and privatisation, further fuelled this trend. The Indian diaspora transformed from traditional roles to more high-tech professions in various sectors. Currently, approximately 850,000 Indian students study abroad, often working part-time to support their education.

According to the ministry of external affairs, there are 29 million non-resident Indians (NRIs) or persons of Indian origin (PIOs) globally, the largest diaspora of any country. Annually, about 2.5 million Indians migrate overseas, the highest number globally. Major destinations include the US, UAE, Saudi Arabia, UK, South Africa, Canada, Kuwait, Mauritius, Qatar, Australia, and Trinidad and Tobago. An OECD report highlighted Indians as leading in acquiring foreign citizenship, particularly in the US and Canada.

Remittances play a crucial role in bolstering foreign exchange reserves, supporting balance of payments, and enhancing savings, consumption, and investment. remittances have a profound influence on social and cultural landscapes in both sending and receiving countries. In India, remittances contribute to improved living standards, healthcare access, and educational opportunities for recipient families. They also fuel entrepreneurship and local development projects.

Additionally, these funds facilitate cultural exchange, with diaspora communities preserving and enriching Indian traditions abroad. Discussing these broader social and cultural aspects paints a more holistic picture of the significance of remittances. The Indian diaspora also promotes trade in diaspora goods, services, and cultural products. The growth in remittances can be attributed to strong labour markets for skilled Indians abroad and policy measures to attract foreign remittances, including higher interest rates and tax exemptions for NRI bonds/deposits.

In January 2023, the National Payment Corporation of India (NPCI) expanded UPI transaction capabilities to NRIs in 10 countries. A February 2023 agreement with the UAE promotes the use of local currencies in cross-border transactions, further enhancing remittances through official channels. Although remittances constitute 4% of India’s GDP, they are a vital financial lifeline for countries like Tajikistan, Tonga, and Lebanon.

The World Bank anticipates a potential decline in remittances in 2024 due to global economic and political conditions, but India is expected to maintain its top position. Evaluating labour market conditions in countries with significant Indian diaspora and providing this information to potential emigrants can help mitigate the expected decline in remittances.