Remittances and India's External Sector
Remittances have historically played a significant role in India's external sector, often overshadowed by indicators like foreign direct investment (FDI) and trade flows. According to the Reserve Bank of India (RBI)’s Sixth Round of India’s Remittances Survey, remittances are crucial for the stability and structure of India's external accounts.
Key Statistics
- Inward remittances reached a record $118.7 billion in 2023-24, surpassing FDI inflows and financing over half of India's merchandise trade deficit.
- The U.S. accounts for 27.7% of India's inward remittances, with the U.S., U.K., Canada, Australia, and Singapore together accounting for 51.2% of the flows.
- Transfers above ₹5 lakh accounted for nearly 29% of total remittance value.
- Digital channels represented 73.5% of all remittance transactions in 2023-24.
- The average cost of sending $200 to India is 4.9%, below the global average of 6.65%.
Trends and Shifts
- There's a shift from the traditional dominance of GCC countries to advanced economies as major remittance sources.
- The profile of Indian migrants is changing from low-skilled workers in West Asia to high-skilled professionals and students in advanced economies.
- Remittances are increasingly driven by higher-earning, professionally mobile Indians.
- There's an accelerating shift toward digital modes of remittance.
Regional Disparities
- Maharashtra, Kerala, and Tamil Nadu received about 51% of remittances, while Bihar, Uttar Pradesh, and Rajasthan received under 6%.
- Unequal access to migration-enabling infrastructure contributes to regional disparities.
Policy Implications and Challenges
- India needs to deepen cross-border digital payment linkages to reduce costs and increase efficiency.
- National skilling missions should be more State-responsive to avoid perpetuating remittance elite-regions.
- There's a need to understand the developmental role of remittances beyond their macroeconomic contribution.
Concluding Thoughts
Understanding the shifts in remittance profiles and transaction sizes is crucial to assess whether these flows support long-term financial goals or remain primarily consumption-based. Incorporating this understanding can inform the design of complementary financial instruments to enhance the developmental impact of remittances.
