Inward remittances refer to the money that is sent or transferred by the Indian diaspora to their friends, family, and relatives in India. It can come to India in the form of travellers’ cheque, foreign currency, or demand draft. India now holds the distinction of being the leading receiver of remittances in the world. India has held the top position in the world as the receiver of remittances for the last five years.
The impact on the Indian Economy
Before the global economic crisis, factors of the external economy like globalization, liberalization, and increased foreign direct investment were seen as the main drivers of the growth process. But, after the crisis, internal factors like strength of the regulatory institutions and domestic consumption, the demographic profile of the country have also been appreciated for the role they played in sustained economic growth.
According to the Ministry of Overseas Indian Affairs, more than 25 million NRIs contribute to inward remittance. Each year the NRIs send home billions of dollars in the form of remittances. There are many households that depend on this money which is sent back to them by the family members working abroad. When you think of it in terms of foreign exchange earned by the country, it gets a share of over 22%. It is not like India depends on this money heavily, but there is no denying the fact that it helps the economy. In 2010, RBI imposed a de-regulation on the interest rates of the NRE and NRO accounts, which was aimed at helping NRIs to deposit money in India.
Strong value of the US dollar with respect to the weak Indian rupee has also helped in the rise of remittances because more NRIs have started depositing money in the Indian accounts. The global slowdown did not stop the migrants from sending money through Standard Chartered inward remittance. The population of the developed countries is aging, which means there is a higher demand for migrant labor and the demand will continue to grow over the years. The remittances, in such a situation, help the families of the migrants to build a secure future. This, in turn, makes migration lucrative, even if it is not necessary, for many young people.
The global market of remittances is vast and it impacts both the high and low income countries in important ways. The salaries of the developing countries are five times lower than the developed countries, which acts as an impetus to migrate. The migrants are getting the salary from the developed countries but they are sending the money in the native countries. The additional income from the remittances is really helpful for a developing country like India where the domestically made goods are traded using local currencies. It not only helps in improving the standard of living of the recipient, but also that of the overall economy of India because of an influx of wealth and an increase in buying power.
Regulation of the flow of remittances
Many remitters tend to rely on unauthorized informal channels because these are cheaper and more suited to transfer funds to the remote areas where formal channels do not operate and the charges are low. Remittances that come through such informal channels do not offer any help towards uplifting the Indian economy. Strengthening the infrastructure of remittances by offering low cost transactions and expanding reach can shift the flow from the informal to the formal sector. Both the recipient and sender countries would be able to support the access of the migrants to banking by offering them the right identification tools.