NRIs are people who used to live in India but now live in other countries. They help India by sending money back to their families, which in return strengthen the Indian economy. This money increases the foreign currency and makes sure the economy is stable. In the year 2022, NRIs sent a lot of money back to India, which was more than what the World Bank expected.
This happening increased India’s inward gross remittance, which spiked up to $107.5 billion during the FY 2022 as per the RBI Governor Shaktikata Das. The inward remittance upped the projected amount by the Word Bank, which was $7.5 billion.
India’s forex reserves have crossed $600 billion again due to stabilizing exchange rates and high remittance flows after a year in June 2021, which fund imports, pay off external debt, and strengthen the currency. The reserves had reached a high of $642 billion in Sep 2021 before falling below $600 billion in May 2022 due to the pressure on the rupee following the Ukraine invasion. It helped the government to release its external debt amount, strengthening Indian currency.
Remittance Strengthening Microeconomic
When people who live abroad send money back to their families in India, it helps India’s economy. This is called remittance, and it makes up about 3% of India’s economy. Remittances are important because they help India when it’s facing economic problems from other countries. They’re the second-biggest source of money coming into India from outside, after services exports. Recently, India’s trade situation has gotten better because the difference between the number of goods it exports and imports has gone down, and more people than expected are sending money back home.
The amount of money India spends on buying goods and services from other countries is more than the amount it earns by selling goods and services to other countries. This is called the current account deficit. But in the last few months, this deficit has gone down because India is exporting more services and importing fewer goods. Due to this, India’s foreign exchange reserves have increased to more than $600 billion from $524.5 billion on October 21, 2022. Remittances, or money sent back by Indians living abroad, have played an important role in this. By adding to India’s foreign exchange reserves, remittances have helped India protect its currency from big ups and downs.
Why is Remittance Increasing?
India received $89.4 billion in remittances in 2021, making it the world’s largest recipient. The World Bank expects that India’s remittances will reach $100 billion in 2022, growing at a 12% faster rate than 7.5% in 2021. The recent increase in remittances is due to a change in the profile of Non-Resident Indians (NRIs) and a shift in the countries they send money.
According to a World Bank report, the United States is now the top country from where remittances to India are sent, surpassing the United Arab Emirates. This is because Indian migrants have been getting better jobs in countries like the US, the UK, and some in East Asia, instead of low-skilled jobs in countries like Gulf Cooperation Council (GCC). This shift has helped increase the amount of money sent back home to India.
From 2016 to 2020, the proportion of remittances sent by NRIs from countries like the US, UK, and Singapore has increased significantly (from 26 percent to over 36 percent), while the proportion of remittances from countries in the Gulf Cooperation Council (GCC) like Saudi Arabia, the United Arab Emirates, Kuwait, Oman, and Qatar has decreased. This indicates that more remittances are now being sent by NRIs who are better off financially.
More and more NRIs in the US are climbing the social ladder, and as they do, they are sending more money back to India. A lot of Indians who have been living in the US for over 10 years have earned higher degrees, which help them move into higher-income groups.
The Indian people living in the US are well-educated and highly skilled, with many of them having a graduate degree. In contrast, the number of US-born residents with a graduate degree is much lower, i.e. 13% of the US-born residents. Additionally, most Indians (82% of all Indians & 77% of foreign-born Indians) in the US have at least a high school degree and are fluent in English.
When Indians in the US have higher education, they earn more money, which leads to more money being sent back home as remittances. Indians in the US have higher education levels and earn more than the average American. This has led to an increase in remittances from high-salaried jobs, particularly in the service sector. In 2019, the median household income for Indians in the US was nearly $120,000, which is way more than $70,000 for all Americans.
More Indian students are opting to study in developed countries, which will further increase the upward mobility of Indian diaspora in the US. As their income grows, particularly in developed countries, remittances are likely to increase.
The UPI linkage with Singapore’s PayNow allows for lightning-fast and inexpensive cross-border funds transfers through mobile apps. Typically, the cost of international money transfers is almost 5%, but this new system can reduce it to less than half, which will likely increase India’s inward remittances. It’s an efficient way to transfer money from abroad to India, and it can be duplicated in many other countries if it proves successful.
