Remittances to India set to cross record $100-billion mark in 2022


From UPSC perspective, the following things are important :

Prelims level : Remittances

Mains level : Remittances inflows and their significance

India is expected to receive a record $100 billion in remittance in 2022, the top recipient this year, the World Bank has said.

What are Remittances?

  • A remittance is a non-commercial transfer of money by a foreign worker, a member of a diaspora community, or a citizen with familial ties abroad, for household income in their home country or homeland.
  • The World Bank defines it as “the sum of worker’s remittances, compensation of employees, and migrants’ transfers as recorded in the IMF Balance of Payments.
  • Workers remittances are current transfers by migrant who are considered residents in the source.
  • Remittances are a vital source of household income for low- and middle-income countries.

India’s total remittances to grow

  • Remittances to India are money transfers from non-resident Indians (NRIs) employed outside the country to family, friends or relatives residing in India.
  • In its Migration and Development Brief, the World Bank has said India’s remittance will grow 12 per cent from 7.5 per cent last year, resulting in $100 billion flow as compared to $89.4 billion in 2021.
  • It attributed the feat to the large share of Indian migrants earning relatively high salaries in the US, UK and East Asia.

Key points from the report by World Bank

  • Highly-skilled Indian migrants living in wealthy nations such as the US, UK, and Singapore were sending more money home.
  • Remittances to low and middle-income countries have grown by 5% in 2022 to around $626 billion – around half the rate of growth seen in 2021.
  • The amount of money sent back home by migrants around the world has grown by 5% in 2022.
  • Other top recipient countries for remittances include Mexico, China, Egypt and the Philippines.
  • Domestic and International shocks have affected countries like Pakistan, Bangladesh, and Sri Lanka for whom remittances earned by migrants are expected to drop this year
  • Barring India and Nepal, other south Asian countries saw a decline of more than 10% in their remittances from 2021, due to the end of government incentives introduced during the pandemic

Why is remittance to India so high this year?

  • Upskilling: There has been a gradual shift in destinations for Indian migrants aided by a structural shift in qualifications.
  • Work from home: Indian migrants in high-income countries benefited from work-from-home and large fiscal stimulus packages.
  • Easing of pandemic: As the pandemic eased, the wage hikes and “record-high employment conditions” helped migrants send money home despite high global inflation.
  • Inflation control in India: The price support policies kept inflation at bay in India.
  • Crude oil dynamics: Demand for labour increased with higher oil prices, which in turn increased remittances for Indian labourers.

Significance of remittances

  • Stable source of funds: Remittance flows tend to remain relatively stable through the business cycle, thereby having the potential to support households in the face of economic adversity.
  • Economic lifeline: In countries affected by political conflict, they are often an economic lifeline to the poor.
  • Labour contribution: While migrant remittances contribute to the development of their home country, and also to the host country by filling the gap between labour demand and supply and making a positive net fiscal contribution.
  • Globalization: In this way, remittances represent globalization with a human face, contributing to the spread of global interdependence at all levels – social, economic and political.

Issues with Remittances

  • Fear of currency depreciation: It causes the rupee to weaken against the dollar, which in return impacts the businesses exposed to foreign exchange, and the economy overall.
  • Accuracy of data: A key challenge for policymakers, researchers and investors interested in remittance flows concerns the accuracy and consistency of available data.
  • Accounting inconsistencies: The varied nature of remittance transactions makes the compilation process complex, resulting in a systemic problem of under-reporting of flows and data asymmetries between host and recipient countries.
  • No formal registration in India: The main source of data on remittances is the World Bank, which combines national balance of payments data compiled by the IMF with country information.
  • Ignoring informal flows: A large share of remittances is believed to flow through informal channels, which are often more convenient and cheaper than formal ones.
  • Hawala transactions: In addition, Hawala (an international network of money brokers) and Hundi (a form of credit instrument) systems operate in parallel to formal remittance channels.

Way forward

  • Promoting labour mobility: India should aim to increase remittances to say 10% of GDP. The Philippines’ model of promoting labour mobility should be replicated in India.
  • Reducing the costs involved: Both the cost of recruitment of such workers and the cost of sending remittances back to India should come down.


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