Why in news?

• According to the World Bank’s latest Migration and Development Brief, India is expected to post a growth of just 0.2% in remittance inflows in 2023.
  • It provides updates and analysis on global trends in migration and remittances.
  • It also focuses on increasing the volume of remittances as a percentage of GDP, reducing remittance costs, and reducing recruitment costs.
• Slower growth in OECD and GCC economies, high base effect are few reasons behind this slowdown.

What’s in today’s article?

• Remittances
• News Summary

Remittances

• About
  • RBI defines remittances as the transfer of money by an individual who is a resident of one country to an individual or entity in another country.
  • Remittances generally involve migrant workers who send money back to their home countries to support their families or for other purposes.
  • The RBI regulates remittance transactions and has put in place guidelines and regulations to govern the process.
  • Authorized dealers, such as banks and other financial institutions, facilitate these remittance transactions in compliance with the RBI’s regulations.
• Importance
  • In the aftermath of the Covid-19 pandemic, remittances are being viewed as a critical financial inflow.
  • It is an important source of foreign exchange for several countries including those in South Asia.
  • Remittances are highly complementary to government cash transfers and essential to households during times of need.
  • In India, remittances represented only 3.3% of GDP in 2022.

News Summary: India’s remittance inflows growth could slow to just 0.2% in 2023

Why are remittances expected to grow at a slower pace in 2023?

• Slower growth in OECD economies
  • Slower growth in OECD economies — especially in the high-tech sector in the United States has affected the demand for information technology (IT) workers.
    • OECD is an intergovernmental organisation with 38 member countries.
    • It was established in 1961 to stimulate economic progress and world trade.
    • The majority of OECD Members are ranked as very high in the Human Development Index, and are regarded as developed countries.
  • It could lead to a diversion of formal remittances toward informal money transfer channels.
• Lower demand for migrants in the Gulf Cooperation Council (GCC) countries
  • GCC is a grouping of six Arab nations located around the Arabian Gulf, where declining oil prices have dented growth.
    • 6 countries are – Bahrain; Kuwait; Oman; Qatar; Saudi Arabia; UAE.
• High Base effect
  • In 2022, India registered a growth of more than 24% to reach a record-high $111 billion in remittances in 2022.
  • The high base in 2022 will significantly affect the growth rate of remittances for India in 2023.

What are the top sources of remittances for India?

• Almost 36% of India’s remittances are from the high-skilled and largely high-tech Indian migrants in three high-income destinations — US, United Kingdom, and Singapore.
  • The post-pandemic recovery led to a tight labour market in these regions, and wage hikes boosted remittances.
• Remittance inflows from the GCC countries account for about 28% of India’s total remittance inflows.
  • High energy prices favoured employment and incomes of the less-skilled Indian migrants in the GCC countries.
  • At the same time, the GCC governments’ special measures to curb food price inflation shielded migrants’ remitting potential.

What was the trend for remittances in 2022?

• In 2022, India posted more than 24% growth in its inward remittances to reach $111 billion, higher than the World Bank’s earlier estimate of $100 billion.
  • India represented 63% of South Asia’s remittance flows.
• The top five recipient countries for remittances in 2022 were India ($111 billion), followed by Mexico ($61 billion), China ($51 billion), Philippines ($38 billion), and Pakistan ($30 billion).
• Remittances were supported by:
  • oil surge in member countries of the GCC, which increased migrants’ incomes;
  • large money transfers from the Russian Federation to countries in Central Asia; and
  • the strong labour market in the US and the OECD countries.