Available information indicates that inward remittances to India have not been impacted significantly by the economic crisis, the RBI said in its annual report contradicting popular perception of a severe impact on remittances.
According to the World Bank estimates (July 2009), remittance flows to developing countries, which increased to $328 billion in 2008 from $285 billion in 2007, are projected to decline by 7.3% in 2009, the RBI said.
Europe and Central Asia are expected to experience the largest decline (15%) among all developing regions in 2009. However, remittance flows to South Asia are expected to decline more modestly by 4%, the report said. India remained the top recipient of migrant remittances with $52 billion in 2008 as against $38.7 billion, it said citing the World Bank estimates, and added remittance flows to South Asia have continued strong growth in 2009.
Uncertainties in oil prices might have induced the workers to remit their money to India as a hedging mechanism due to its relatively better growth prospects, the report noted as one of the factors for higher remittances in India. Another reason for the growth of remittances to South Asia and East Asia appears to be a switch in the motivation for remittances from consumption to investment, the RBI said.
Falling asset prices, rising interest rate differentials, hike in interest rate ceilings on NRI deposits since September 2008, and a depreciation of the local currency have attracted investments from migrants, it said. The continued strong growth of remittances in 2009, it pointed out, is also due to the fact that the Gulf Cooperation Council (GCC) countries, a major destination for Asian migrants, have not significantly reduced hiring migrants.
GCC countries are following a long-term strategy of infrastructure development funded by the accumulated reserves and are unlikely to slow down such investments and lay off migrant workers in large numbers, the annual report said. Though there could be some slowdown in remittances in the near term due to the recession in advanced economies and sharp moderation in the West Asia, remittances are expected to return to positive growth in 2010 and 2011, it said.