Remittances : India set to cross Record $100-billion mark in 2022

NEWS HIGHLIGHT 

Theme : Effects Of Liberalization On The Economy

Paper:GS - 3

TABLE OF CONTENT

1. Context
2. Remittances
3. India’s Remittance Growth
4. Why is India’s Remittance So High this year?
5. Importance of Remittances
6. Issues with Remittances

Context : India is expected to receive a record $100 billion in remittance in 2022, the top recipient this year, the World Bank has said.

Remittances : 

• A remittance is a non-commercial transfer of money by a foreign worker, a member of a diaspora community, or a citizen with familial ties abroad, for household income in their home country or homeland.
• The World Bank defines it as “the sum of worker’s remittances, compensation of employees, and migrants’ transfers as recorded in the IMF Balance of Payments.
• Workers remittances are current transfers by migrants who are considered residents in the source.
• Remittances are a vital source of household income for low- and middle-income countries.

India’s Remittance Growth : 

• Remittances to India are money transfers from non-resident Indians (NRIs) employed outside the country to family, friends or relatives residing in India.
• In its Migration and Development Brief, the World Bank has said India’s remittance will grow 12 per cent from 7.5 per cent last year, resulting in $100 billion flow as compared to $89.4 billion in 2021.
• It attributed the feat to the large share of Indian migrants earning relatively high salaries in the US, UK and East Asia.

Why is India’s Remittance So High this year?

• Upskilling: There has been a gradual shift in destinations for Indian migrants aided by a structural shift in qualifications.
• Work from home: Indian migrants in high-income countries benefited from work-from-home and large fiscal stimulus packages.
• Easing of pandemic: As the pandemic eased, the wage hikes and “record-high employment conditions” helped migrants send money home despite high global inflation.
• Inflation control in India: The price support policies kept inflation at bay in India.
• Crude oil dynamics: Demand for labor increased with higher oil prices, which in turn increased remittances for Indian laborers.

Importance of Remittances : 

• Stable source of funds: Remittance flows tend to remain relatively stable through the business cycle, thereby having the potential to support households in the face of economic adversity.
• Economic lifeline: In countries affected by political conflict, they are often an economic lifeline to the poor.
• Labour contribution: While migrant remittances contribute to the development of their home country, and also to the host country by filling the gap between labor demand and supply and making a positive net fiscal contribution.
• Globalization: In this way, remittances represent globalization with a human face, contributing to the spread of global interdependence at all levels – social, economic and political.

Issues with Remittances : 

• Fear of currency depreciation: It causes the rupee to weaken against the dollar, which in return impacts the businesses exposed to foreign exchange, and the economy overall.
• Accuracy of data: A key challenge for policymakers, researchers and investors interested in remittance flows concerns the accuracy and consistency of available data.
• Accounting inconsistencies: The varied nature of remittance transactions makes the compilation process complex, resulting in a systemic problem of under-reporting of flows and data asymmetries between host and recipient countries.
• No formal registration in India: The main source of data on remittances is the World Bank, which combines national balance of payments data compiled by the IMF with country information.
• Ignoring informal flows: A large share of remittances is believed to flow through informal channels, which are often more convenient and cheaper than formal ones.
• Hawala transactions: In addition, Hawala (an international network of money brokers) and Hundi (a form of credit instrument) systems operate in parallel to formal remittance channels.

FAQs : 

1. What are Remittances?

ANS. A remittance is a non-commercial transfer of money by a foreign worker, a member of a diaspora community, or a citizen with familial ties abroad, for household income in their home country or homeland.

2. What is the Expected Remittance growth for India in 2022 ?

ANS.  India is expected to receive a record $100 billion in remittance in 2022, the top recipient this year, the World Bank has said.