Future Impact of international remittances on India’s current account

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Apurva Dhamankar

6/18/20232 min read

Remittances to India refer to the transfer of money from non-resident Indians (NRIs) who work abroad to their family, friends, or relatives residing in India. India holds the top position globally in terms of receiving remittances. An increase in inward remittances plays a role in reducing the current account deficit as the country receives more foreign currency.

By the end of June, when the Reserve Bank of India (RBI) releases the balance of payments data for 2022-23, it is highly probable that remittances from Indians working abroad to their families in India will surpass $100 billion, marking the highest ever recorded amount.

Goldman Sachs has revised its estimate for India's current account deficit (CAD) for 2023 to 1.4% of the GDP, a significant reduction compared to 2.4% in the previous year. This adjustment is driven by various factors, including strong inflows from remittances, robust exports of services, and a projected decrease in the trade deficit for goods.

Considering that a significant portion of remittances to India originates from oil-producing countries in the Middle East, higher oil prices in these countries are likely to contribute to improved economic growth, leading to higher incomes for workers and subsequently higher remittances to India.

There are certain issues associated with remittances, including concerns about currency depreciation, which can weaken the Indian rupee against the US dollar, affecting businesses exposed to foreign exchange and the overall economy. Additionally, accounting inconsistencies arise due to the diverse nature of remittance transactions, making the compilation process complex and resulting in the under-reporting of flows and data imbalances between host and recipient countries. Furthermore, the absence of formal registration for remittances in India poses a challenge in obtaining accurate data, with the World Bank relying on a combination of national balance of payments data from the IMF and country-specific information.

Moving ahead Encouraging workforce mobility India should strive to raise remittances to approximately 10% of GDP as compared to 2.81% in 2021. Minimizing expenses Efforts should be made to decrease both the recruitment costs of these workers and the expenses associated with sending remittances back to India.

Thank you.

Regards,

Bhairavi Bondale,

Kautilya, IBS Mumbai.

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