SURGE IN REMITTANCES

The growing world remittances were $781 billion in 2021 and are expected to touch $794 billion in 2022. This growth rate was 10.2% in 2021, which was the highest since 2010.  While in 2022, its growth rate was of 4.9%. Out of the $794 billion, $626 billion went to low- and middle-income countries (LMICs). 

Remittances are larger source of external finance for LMICs in 2022, as compared to foreign direct investment (FDI), official development assistance (ODA), and portfolio investment flows.

The increase in migration to the Organization for Economic Co-operation & Development (OECD)countries which went up by 22% in 2021. 

The stimulus packages to bolster the economies in the United States (US) and the European Union during the pandemic, boosted the remittances.  

While the rising inflation & the hardening of the monetary stance in advanced economies are likely to adversely affect the flow of remittances in the coming years.

The slump in the growth of remittances is however sharper in the low & middle-income countries where the growth rates steadily fell from 10.2% to 4.9% & further to 2% during this period.

Despite this slowdown, the income through remittances will be more than both foreign direct investment & portfolio debt as well as equity flows to the low- & middle-income countries.

So, the stability in the flow of remittances is a major factor, that demarcates them from other external sector financial flows.  In India, remittances increased from $89.2 billion in 2021 to $100 billion in 2022, that is a surge of around 12%. 

India will hold the crown over the poor & middle-income countries with the largest remittances. 

The other countries with the largest remittances are Mexico ($60 billion), China ($51 billion), the Philippines ($38 billion), and Egypt ($32 billion).

India’s is at advantageous position as it has consistently garnered around a tenth of the global remittances in the last few years.

A root cause for this surge in remittances into India is the strengthening of the labour markets in the US & the other advanced economies. The remarkable reduction in the cost of sending remittances, encouraged transfers through formal channels. The remittances have surged due to the  the steady structural shift in the skill composition & geographical flow of migrants.

The flow of low-skilled migrant workers, working in the informal sector in the Gulf Cooperation Council (GCC) countries, has gradually been overtaken by the migration of high-skilled workers to developed economies like the US & the United Kingdom , who together now account for a fifth of the migrants.

The United Arab Emirates (UAE), the US, and Saudi Arabia  accounts for almost half the non-resident Indians. 

The other major countries with a sizeable share of NRIs include Oman, Kuwait, the UK, Canada, and Qatar in that order. 

India is still the largest source of international migration, which enhances its potential for boosting remittances further.

The shift in migration flows to skilled white-collar jobs in advanced countries also improves prospects for further increasing remittances in the coming years. The US has now replaced the UAE as the largest source of remittance to India with its share going up close to a quarter. 

The revival of economic activities in the GCC after the pandemic has also helped in building larger share of remittances. 

The remittances into India which soared up from $13 billion at the beginning of the millennium to $54 billion in 2009–10 have now gone up to $100 billion. 

However, the share of remittances in India’s gross domestic product will still be a low 3% as compared to that in neighbouring countries like Nepal, Bangladesh, and Pakistan. 

It helped reduce the share of remittances of the top GCC countries, from more than half to just around a quarter and pushed up the share of the developed economies especially the US, the UK, and Singapore. 

The US has now replaced the UAE, as the largest source of remittance to India with its share going up close to a quarter. 

The revival of economic activities in the GCC, after the pandemic has also helped in building larger share of remittances. 

The remittances into India which soared up from $13 billion at the beginning of the millennium to $54 billion in 2009–10 have now gone up to $100 billion. 

However, the share of remittances in India’s gross domestic product will still be a low 3% as compared to that in neighbouring countries like Nepal, Bangladesh, and Pakistan.

But despite of that,  the amount of foreign exchange through remittances continued to provide almost half the merchandise trade deficit cover. 

In fact, remittances have even exceeded the total foreign direct inflows in four of the last five years.

According to a recent study published by the Reserve Bank of India, ‘among the Indian states, Maharashtra has now surpassed Kerala and emerged as the biggest beneficiary of remittances’.

While Maharashtra, now accounts for more than a third of the remittances, Kerala’s share has now declined to one-tenth. Overall, the share of Kerala, Tamil Nadu, and Karnataka in the total remittances has now halved to around a quarter. 

It has been partly due to the shift of migration in favour of white-collar jobs to the advanced economies and the sharp increase in the migration of low-skilled labour from Uttar Pradesh, Bihar, Odisha, and West Bengal to the GCC states. 

So, the demand for medium-skilled workers is now more than a third faster than for low-skilled workers.

Moreover, the changes in migration policies in advanced economies like Australia & Germany to support skilled migration will only further accelerate these trends. 

In the period between 2016-17 & 2020-21, the remittances from the U.S., U.K. and Singapore increased from 26% to 36%, the share from five GCC countries dropped from 54% to 28%.

In 2020-21, the U.S., with a share of 23%, surpassed Saudi Arabia as India’s top source country for remittances. With 20% of India’s emigrants in the U.S. & the U.K., the structural shift in qualifications & destinations created surge  in remittances associated with high-salaried jobs, especially in service sector. 

During the pandemics, Indian migrants in high-income countries worked from home and benefited from large fiscal stimulus packages” while in the post-pandemic phase, “wage hikes and record-high employment conditions supported remittance growth in the face of high inflation.

Sending remittances was an advantageous affair, due to the depreciation of the Indian rupee vis-à-vis the U.S. dollar. Indian rupee depreciated by 10% between January and September 2022. It lead to increase their remittances. 

For South Asia as a whole, the growth in remittances is expected to fall from 3.5% in 2022 to 0.7% in 2023. 

In the U.S., higher inflation combined with a slowdown will limit remittance flows, while the GCC countries will also see cooling of remittance outflows following a slowdown.

The demand for labour is expected to soften as construction activities for the FIFA World Cup in Qatar have ended.