Why in the News?
According to recent RBI Survey findings, Advanced Economies such as the US and the UK have emerged as the top sources of inward remittances for Indians in the past four years, leaving behind the Gulf nations.
Key Trends in Remittances Inflows to India
- Remittances inflow: Doubled to USD 118.7 billion in 2023-24 (compared to 2011).
- Top 5 source countries for India (2023-24): US (27.7%) followed by the UAE, the UK, Saudi Arabia, and Singapore.
- Historically, Gulf Cooperation Council (GCC) countries like the UAE and Saudi Arabia dominated India's remittance inflows. However, their combined share at 38% has fallen behind Advanced Economies' share of more than 50%.
- Top 3 recipient states in India (2023-24): Maharashtra (20.5%), followed by Kerala and Tamil Nadu.
Factors behind the shift in the remittance inflows
Changes in migration patterns have been cited as the major reason due to:
- Cost of Transfer: The cost of sending remittances to India is lower than the global average cost, driven by digitalisation but remains higher than the SDG target of 3 per cent for US$ 200.
- However, cash-based transactions remain prevalent, especially for smaller amounts.
- Strong labor markets in the US and Europe, especially with more white collar jobs, along with wage hikes and post-pandemic fiscal stimulus, have boosted migrants' earning capacity.
- On the other hand, GCC countries have seen declining opportunities for low-skilled labor due to automation, economic diversification, and nationalization policies (e.g., Saudi Arabia's policies of Nitaqat & Kafala system).
- Emergence of Canada, the U.K. and Australia as preferred higher education destinations along with policies like 'Migration and Mobility Partnership' (May 2021) between India and the UK.
- For example, Indian migration to the UK tripled from 76,000 in 2020 to 250,000 in 2023.
Why are remittances important for economy?
- Balance of Payments (BoP): While financing around half of India's merchandise trade deficit, net remittance receipts have been an important absorber of external shocks.
- Household Level: Remittances fund essential expenses such as food, healthcare, and education, thus, improving standard of living of people.
- E.g., in 2021, remittances constitute over 36% of Kerala's state domestic product, boosting per capita income.
- Macro-Economic Role: Remittances account for 3-3.5% of India's GDP since 2000, dwarfing Foreign Direct Investment (FDI) and Official Development Assistance (ODA).
- Their stability makes them a key driver of economic resilience, especially during global crises, such as pandemic and wars.
- Debt sustainability: Remittances can lead to reduced country risk, thereby reducing the marginal cost of raising revenue and improve the sustainability of government.
