RBI holds repo rate at 6.5%RBI holds repo rate at 6.5%

Virendra Singh Rawat

India has topped the global remittances chart by posting a robust 26% growth to breach the level of US$112 billion in financial year 2022-23.

Remittance refers to the transfer of money or funds from one place or person to another, usually across geographical borders.

This financial transaction involves the sending of money, often by a migrant or expatriate worker, to their home country or to a recipient in another country.

Remittances can be sent through various channels, including formal financial institutions like banks, money transfer operators, online platforms, or informal channels such as friends or family members physically carrying the money.

Remittances are typically sent to support family members, cover living expenses, invest in education or healthcare, or for other personal reasons.

After the Narendra Modi government came to power in 2014, the remittance inflows have almost doubled although there was a decline in remittance inflows in 2020 due to the pandemic.

While in 2022, the remittances to India stood at $89 billion, the figure jumped to an impressive $112.5 billion in 2023.

Considering the broader economic context, the remittances hold substantial weight, accounting for approximately 3.2% of the Indian GDP.

Following factors have an impact on Indian remittances: –

• Diaspora Population: India has a vast and diverse diaspora population living and working in various countries. The diaspora includes skilled professionals, workers in the service industry, and labourers. Their earnings abroad contribute to the inflow of remittances.

• Global Migration Trends: The demand for skilled and unskilled labour in many developed countries has led to a steady stream of Indian workers seeking better employment opportunities abroad, thus contributing to consistent remittance inflows.

• Labour Market Opportunities: Indian migrants often work in sectors such as construction, healthcare, IT, and services, which provide employment opportunities and a source of income that they can send back to their families in India.

• Communication and Technology: Advances in communication and technology have made it easier for migrants to send money back home.

• Financial Inclusion Initiatives: Government efforts to promote financial inclusion have led to more people having access to formal financial channels. This has made it easier for families to receive remittances through banks and other regulated institutions.

• Remittance Infrastructure: The presence of a well-developed network of banks, money transfer operators (MTOs), and other financial institutions that facilitate remittance transactions has contributed to the growth in inflows.

• Exchange Rate Stability: Exchange rate stability and the relative strength of the receiving country’s currency can influence remittance patterns. A stable currency can incentivize migrants to send more money home.

• Supportive Government Policies: Some countries, including India, have implemented policies to encourage and facilitate remittance inflows. These policies may include favourable regulations, tax incentives, and initiatives to attract investments from the diaspora.

September Rupee Outlook

The Indian Rupee (INR) has seen a movement of 0.74% against the US Dollar (USD) over the past month. This upward movement could affect India’s remittance dynamics.

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Remittances from abroad are often denominated in dollars, increasing the value of incoming remittances and generating a slightly higher return in Indian rupees after conversion. However, given the US’s 1.97% appreciation against the basket of major currencies in the Dollar Index, inflows from countries outside the US may not have the same beneficial effect.

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