How Inward Remittances impact the Indian Economy
According to the recent reports by the World Bank, India has again topped the list of Inward Remittances. It received around $70 billion over the year 2013. It is followed by China. Inward remittances are the money, which are transferred or sent by the overseas Indian diaspora to their family, friends, and relatives back in India. It can be in the form of foreign currency, traveller’s cheque or demand draft. India has now become the leading receiver of remittance in the world. India has held on the top position for the past 5 years in a row now.
But how does it impact the Indian economy? According to the Ministry of Overseas Indian Affairs (MOIA), around 25 million NRI contribute to the inward remittance. Every year they send billions of money in remittance to their families back home. There are many households who are dependent on this money that are sent to them by their family member’s working abroad. Inward remittance forms around 22%–23% of the country’s foreign exchange money. Though India does not heavily depend on this money, but still it adds up to the economy.
Around 4.5 % of the Indian household receives regular remittance. It acts as a mantaince for the recipient’s household. Major states which receive these are Kerala, Karnataka, Punjab, Andhra Pradesh and so on. It also contributes to around 3% – 4% of the country’s Gross Domestic product (GDP). Thus these private transfers are helping to support India’s balance of payment. In 2012 – 2013 India had received around $67.6 billon and this year 2013–14, it grew to $70 billion taking India to the top position. In 2012, inward remittance exceeded the FDI inflow of $ 46.84 billion. Which show that how much important is inward remittance for Indian economy.
There has been a huge development in the inward remittance, since it started to boom from 1991, when the markets opened. In 1991 remittance were accounted to be $ 2.1 billion, and from there, today in 2014 it has grown to $70 billion. Since then it is growing steadily, except in the year 2003-04 when it dipped than its previous year. In 2007, it claimed to be contributing 12% of the world’s remittance. Earlier, it used to be only the low skilled migrant workers who would contribute towards the remittance. But with the boom in the IT industry, things have changed as many IT professionals have started working in the various developed countries as highly skilled workers. It is interesting to note that in 2014 out of $70 billion, $65 billion has come from the Indian software industry. This show that Indian software industries are quite successful in the international market and have the power to give a boost to the economy by bringing in more projects.
In recent times, the RBI had been trying to encourage the NRIs to invest and send more money back home. In 2010, there was a de-regulation on the interest rates of the NRO and NRE accounts, thus helping the NRIs to deposit and bank in India. One more factor for the rise of remittance was the strong value of the US dollar in respect to the weak Indian rupee. Last year, the difference was stronger. Thus it led to more Indians depositing money in their Indian accounts. Though there was a global slow down, still migrants kept on sending money. India is seeing quite a remarkable rise in its economy. Before the economic downfall, FDI’s globalization, liberalization of the economy was contributed as the largest share of the external economy.
But now things have changed. Now other factors such as inward remittances are also being given importance. Migrants have for long being sending the money back home but this was never taken much into consideration. India has the second largest diaspora in the world with around 25 million people living in 110 countries. The cost of sending money to India is quite cheap in compared to the other countries. So they regularly keep on sending money by various means. In India the remittance market is run by the commercial banks, foreign exchange bureaus, cooperative banks, and India Post, along with various commercial agents who tie up with different exchange houses who help in the money transfer from the foreign land to India. They provide with the different exchange rates applicable at that time and help in the smooth transfer of money.
In the current economic strenuous scenario where Indian economy is looking for more stability, India’s Inward Remittance cannot be taken for granted anymore. Along with the other means of external economy, remittance has shown its importance. And as long as Indian rupee is weak, this inward remittance will only keep helping Indian economy and help India to retain its position on the top.