India has become the first country in the world to have annual remittances from abroad crossing the $100-billion mark. According to the World Bank, private remittances or transfer of money from NRI to friends and relatives in India crossed the threshold in 2022, with an impressive year-on- year growth of 12%. The country likely retained the tag of top remittances destination slot in FY23, which it vanquished from China in FY21.
The latest data indicates that the trend of sustained and fast-paced increase in “personal transfers” to India, which was interrupted during FY21 due to the pandemic, has not only resumed, but also been buttressed. The surge in remittances is at a time, when FDI flows across national borders seem to have slowed. According to the multilateral development financing body, about $630 billion was sent in remittances to low- and middle-income nations in 2022, up 5% on year. Remittances to these countries were on par with foreign direct investment (FDI) inflows into them during the year.
FDI into India fell 15% on year to $36.75 billion during the April-December this fiscal, according to the department for promotion of industry and internal trade data.Quoting TerraPay, a London-based mobile payments provider, Bloomberg reported that money is flowing to India as remittances from Qatar, Saudi Arabia, Australia, and the US grow. Around 18 million Indians are living outside their country of birth — the biggest diaspora in the world. “Across the Gulf region where many Indians have moved, vaccinations and the resumption of travel meant migrants could go back to work. The benefits of higher oil prices also helped overseas workers send more money to their families,” Bloomberg reported.
Highly-skilled Indian migrants from the US, UK and Australia were also sending more money home, helped by job support programmes during Covid-19 curbs. Indian migrants may have also taken advantage of the depreciation of the rupee against the US dollar, according to the World Bank.
Private remittances are a major boost to India’s current account, even as the country’s merchandise trade often results in a deficit. In recent quarters, a jump in services exports too has allowed the country to maintain a comfortable balance of payments position.
India’s current account deficit (CAD) narrowed to $18.2 billion or 2.2%of GDP in Q3FY23 from 4.4% in Q2, thanks to a reduction in the goods trade deficit. With a compression in the average trade deficit in Q4FY24 relative to the previous quarter, analysts peg the size of the CAD in FY23 to be $77-80 billion (2.3% of GDP), which is a rather benign level.