Remittances in India may take a hit

Remittances in India may take a hit

News: According to the World Bank’s latest Migration and Development Brief, India, which saw a record-high of USD 111 billion in remittances in 2022, is expected to experience minimal growth of just 0.2% in remittance inflows in 2023.

What are remittances?
• Remittances are money transfers that migrants send to their families and friends in their home countries. They are an important source of income and foreign exchange for many developing countries.

What are the main reasons attributed for minimal growth of remittances in 2023?
• Slower growth in OECD economies, especially in the high-tech sector, and the lower demand for migrants in the GCC countries.

What are the other factors that impact remittances inflow in India?
• Exchange rate fluctuations - The value of the Indian rupee against the US dollar or other currencies can affect the amount and frequency of remittances. A depreciation of the rupee can increase the purchasing power of remittances and encourage more transfers, while an appreciation can have the opposite effect.
• Oil price shocks - Many Indian migrants work in the Gulf Cooperation Council (GCC) countries, which are major oil exporters. A fall in oil prices can reduce the income and employment opportunities of these migrants, and consequently lower their remittance flows to India.
• Domestic economic conditions - The level of income, consumption, investment, and savings in India can influence the demand and supply of remittances. A higher domestic GDP can reduce the need for remittances as a source of income or finance, while a lower GDP can increase it.
• Other factors such as political stability, technological innovations can also affect remittance behavior.

What are the ways to enhance remittances in India?
• Reducing the cost of remittance transfers
• Offering incentives for remittance senders and recipients – Tax credits, subsidies, financial literacy programs, insurance products etc.
• Strengthening the cooperation and coordination among stakeholders
• Unified Payment Interface can enable real-time fund transfers, allowing remittances to be sent and received instantly. This eliminates the need for lengthy processing times associated with traditional remittance methods, providing recipients with quicker access to funds.
• Collaboration with e-commerce platforms to integrate remittance services directly into their platforms.
Source – The Indian Express