Sustained growth in remittances

What’s in today’s article?

• Why in News?
• About Remittance (Meaning, India’s remittance)
• Major Highlights of the WB Report (General trend in 2022, Reasons behind growth, etc.)

 

Why in News?

• Remittances to India are set to touch a record $100 billion in 2022, according to the World Bank’s latest report titled ‘Remittances Brave Global Headwinds’.
• India received $89.4 billion in 2021 — this is the first time a country will reach the $100 billion mark.

 

What is a Remittance?

• When migrants send home part of their earnings in the form of either cash or goods to support their families, these transfers are known as workers’ or migrant remittances.
• They have been growing rapidly in the past few years and now represent the largest source of foreign income for many developing economies.
• In the case of India, the largest sources of remittances have been from Indians working in the Gulf Cooperation Council countries (UAE, Bahrain, Saudi Arabia, Oman, Qatar, Kuwait), the S. and the U.K.

 

What is the general trend in remittances in 2022?

• World remittances are expected to touch $794 billion in 2022, up from $781 billion in 2021.
  • This represents a growth of 4.9%, compared to 10.2% in 2021, which was the highest since 2010.
• Of the $794 billion, $626 billion went to low- and middle-income countries (LMICs).
• The top five recipient countries this year are expected to be –
  • India ($100 billion),
  • Mexico ($60 billion),
  • China ($50 billion),
  • Philippines ($38 billion) and
  • Egypt ($32 billion)

 

What are the reasons behind the sustained growth in remittances to India?

• According to the World Bank, one of the main reasons is the gradual reopening of various sectors in host-country economies, following Covid-19 pandemic-induced closures and travel disruptions.
• World Bank’s latest report points to a structural shift in India’s remittance economy, both in terms of the top destination countries, and the nature of the jobs held by migrants.
• It notes that remittances have benefitted from a gradual structural shift in Indian migrants’ key destinations from largely low-skilled, informal employment in the GCC countries to a dominant share of high-skilled jobs in high-income countries such as the U.S., the U.K., and East Asia.
• In fact, between 2016-17 and 2020-21, while the remittances from the U.S., U.K. and Singapore increased from 26% to 36%, the share from five GCC countries dropped from 54% to 28%.
• In 2020-21, the U.S., with a share of 23%, surpassed Saudi Arabia to become India’s top source country for remittances.
• The report also adds that Indian migrants may also have “taken advantage” of the depreciation of the Indian rupee vis-à-vis the U.S. dollar – it fell by 10% between January and September 2022 – to increase their remittances.

 

What does the report say about future trends?

• The report predicts that growth in remittances will fall to 2% in 2023 as the GDP growth in high-income countries continues to slow, eroding migrants’ wage gains.
• For South Asia as a whole, the growth in remittances is expected to fall from 3.5% in 2022 to 0.7% in 2023.
• Nonetheless, remittances to India are forecast to grow by 4% next year, “supported by the large share of Indian migrants earning relatively high salaries in the U.S., the U.K. and East Asia”.

 

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Q1) Is remittance part of current account or capital account?

In the balance of payments framework, compensation of employees is a component of income while workers' remittances are a component of current transfers; both are part of the current account.

 

Q2) What is the limit of free remittance in India?

LRS allows Indian residents to freely remit up to USD $250,000 per financial year for current or capital account transactions or a combination of both. Any remittance exceeding this limit requires prior permission from the RBI.

 

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