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What is the current status?
- 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.
Source: Business Line
