Invisible Power

Updated: Jul 30 2004, 03:21am hrs
Indias external profile is robust partly due to the fact its one of the largest recipients of remittance flows.

For long, these inflows were largely from west Asia, thanks to the oil boom of the 1970s and 1980s which attracted emigrants from India.

But with the large numbers of skilled professionals heading towards the United States between 1985-2000, remittances from that country were bound to be substantial as well.

According to a study by the Confederation of Indian Industry, these amounted to $4.5 billion in 2003 or 30 per cent of net private transfers in 2002-03.

The importance of US as a destination for skilled professionals has been popularly associated with the IT boom of the 1990s.

This boom turned to bust by the turn of the century, jeopardising the prospects of hundreds of thousands of software professionals.

Despite all this, newer professionals like teachers and nurses from India are now in great demand and head there in great numbers.

Prima facie, this indicates that remittances flows will continue to be buoyant from the US.

Remittance flows have been a source of strength for our external profile.

As an important constituent of net invisible earnings besides software earnings and tourism it has ensured an overall surplus on the current account since 2001-02.

According to latest RBI estimates, net invisible earnings as a whole amounted to $25.4 bn which more than offset the trade deficit of $16.7 bn in 2003-04 resulting in a current account surplus of $8.7 bn or 1.4 per cent of GDP in 2003-04, which was an all-time high.

Private transfers surged last fiscal, especially during the third quarter of October-December 2003 coinciding with the redemption of Resurgent India Bonds.

While the external profile of the economy thus remains a picture of strength, there are bound to be questions regarding the sustainability of remittance flows.

The west Asian oil boom is over and there is less need for Indian unskilled professionals who built the infrastructure in that region.

Similarly, the tech boom is over and how much longer will the flows of teachers and nurses to US sustain remittance flows The backlash against immigrants in such countries reinforces these doubts.