The World Bank estimates that remittances to India account for about 3% of the country’s GDP and are an important source of foreign exchange earnings.
- Point to remember:
It is no doubt that the year 2022 was for growth, and as we grew throughout the year, we learnt that financial stability needed a brief look. So, we experienced a cost-affecting pandemic which not only affected the country’s GDP but also its people. As they suffered the most vulnerable state of living. However, most of them were living overseas either becoming an NRI or for the sake of employment purposes.
Nevertheless, the workers who migrated in the last few decades have boosted the way of transacting money internationally as a remittance. The money sent by those workers becomes a macro source of income for developing and poorer countries to rely on while on verge of a nation’s calamity. Thus, the total remittance of each year helped the recipient nation in micro conditions like leveraging educational funds, family sustainability, and much more. In this article, we will discuss how remittance impacts the Indian economy and how it is used to foster economic growth.
How remittance makes an impact on India and its economy:
Remittance is an important source of income for the Indian economy. It is by World Bank report estimates that remittances to India account for about 3% of the country’s GDP and are an important source of foreign exchange earnings.
The good effect of remittance on the nation’s economy:
- Remittances indeed provide a great opportunity for recipients to break away from the financial constraints of unbanked households and invest in their future. With the help of remittances, people can enjoy improved access to credit, savings, and financial literacy. Moreover, they can also use these funds to start businesses or even purchase assets that can help them achieve long-term economic stability.
- The impact of remittance on macroeconomic variables such as GDP, inflation, exchange rate, and balance of payments can be significant.
- Remittances can also have an effect on the labour market by providing more job opportunities for locals and reducing unemployment rates. Moreover, remittances can help to improve the quality of life in recipient countries by providing access to healthcare and education services.
- As families’ disposable income rises, remittances, seen from a macro viewpoint, enhance spending in the economy. As a result, the GDP growth is accelerated.
- Micro level – Remittance can help to reduce poverty, improve access to education and health services, and increase economic growth. It can also help to reduce inequality by providing more opportunities for people from disadvantaged backgrounds. On the micro level, remittance can provide direct benefits to families in terms of increased income and improved living standards. This can lead to increased spending power and better access to basic needs such as food, healthcare, education, and housing.
Which countries have sent the most remittance to India:
As per the Worlds bank report, India is to gain its top position in retaining the world’s remittance by 12 per cent more year-by-year. The United States, the United Arab Emirates (UAE), the United Kingdom, and Singapore are the four top sending nations of remittances to India, according to data from the RBI Remittances Survey, 2021. These four countries have been sending remit money to India which accounts for 54 per cent of its overall inflows.
However, the World Bank report reveals that the US has replaced the UAE as a top country to send most of the remit money to India.
How many remittances are sent to India?
Remittance is a vital source of income for India and has a significant impact on its economy. Remittances from overseas Indian workers have been growing steadily over the years, with more than $100 billion flowing into the country in 2022. This money helps to improve living standards, create jobs, and spur economic growth.
The report cited several explanations for the increase in remittances to India, including a structural change in immigration that saw low-skilled work in Gulf countries gradually give way to high-skilled ones in high-income nations.
The percentage of remittances coming from the US, UK, and Singapore rose from 26% to over 36%. The Gulf nations’ share—Saudi Arabia, the United Arab Emirates, Kuwait, Oman, and Qatar—fell from 54 to 28%. According to the research, Covid-19 vaccines and the restart of travel enabled more Indian blue-collar employees to find employment.
The increase in India’s cash flow, which boosts the population’s spending power, is mostly attributable to remittances. NRIs’ international remittances have a beneficial impact on the economy during times of crisis. Due to shifting oil prices, currency exchange rates, the Ukraine crisis, and the recession in wealthy nations like the United States, remittances are likely to be impacted internationally in 2023. Remittances help developing nations expand economically and reduce poverty, but they also have limitations, just like anything else. As a result, the Indian government must formulate regulations that support both the right use of remittances as well as their promotion.