India: A leader in Remittances
What are Remittances?
Remittances to India are money transfers by Migrants and Non-Resident Indians(NRIs) living and working abroad to family and relatives in India. Remittances encompassed 2.9% of the GDP of India in 2019. In 2020 remittances to India reached a towering 80 billion despite a pandemic ruining the world economy.
According to the Ministry of External Affairs, over 35 million NRIs reside abroad and regularly send money to India as remittances. Remittances to India comprised 15 percent of world remittances in 2015, and India received more money as remittance than any other country in the world in 2015- 2020. In 2020, Remittances overtook Foreign Direct Investments and became the largest source of external commerce.
Remittances are sent to India through money transfer services like Western Union, Demand Drafts, and International banking networks like SWIFT. About 31% of them come from Gulf Nations, followed by 29% from North America and the rest from Europe and Malaysia. 40% of the remittances go to Kerala, Punjab, Tamilnadu, and Andhra Pradesh, as these states enjoy a large diaspora of NRIs.
Remittances are instrumental in maintaining the value of the Indian Rupee against the dollar and increase the value of the rupee in the world market. They boost Health care, Education, Entrepreneurship, and Savings of recipient families, improve the general well-being, and reduce domestic poverty. They make up a significant fraction of the Indian Economy and increase Forex Reserves. The amount remitted to a country increases dramatically when the nation is in a state of crisis compared to FDI inflow which usually reduces if a calamity strikes. Remittance flowed to India during Gujarat Earthquake in 2001, and in 1999 Orissa Cyclone had towered up and outweighed Official Disaster Management Assistance.
But Covid!?
Remittance to India was expected to drop by 9% due to the covid crisis. Still, it only fell by just 0.2% from the 2019 figure, much of the decrease due to a 17% drop in remittances from UAE, which was compensated by remittance inflow from Europe and North America. On average, 7.9% is charged as tax to remit 200 dollars from one country to another. These regulations are used to fight against money laundering and Hawala scams. There has been a more significant push to decrease the tax for small remittances from migrant laborers and a separate remittance channel for them.
Due to the pandemic, return migration from Gulf countries has increased significantly, and the number of Indian Migrants is on a sharp decline. Migrants are stranded in host countries without a job due to travel restrictions. Migrants now struggle to send money back home, which is evident from the remittance drop from the Arab world in 2020. Reduced Remittance taxes can greatly help migrants; Remittance inflow has to be diversified, and money flow has to be diverted from informal to formal means to counter physical travel restrictions. New players have to be brought in, and adequate technological intervention has to be made to reduce remittance taxes, thereby reducing the plight of migrants and stabilize Remittance flows to India.
