The sustained growth in remittances

Source– The post is based on the article “The sustained growth in remittances” published in The Hindu on 9th December 2022.

Syllabus: GS2- Indian diaspora

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News– The article explains the trends of remittances across the world. It also explains the case of India

According to the World Bank’s latest ‘Remittances Brave Global Headwinds’ report, remittances to India are set to touch a record $100 billion in 2022. India received $89.4 billion in 2021. This is the first time a country will reach the $100 billion mark.

What is a remittance?

It denotes a sum of money sent by one party to another. These days, the term describes the money sent by someone working abroad to their family back home. In the case of India, the largest sources of remittances have been from Indians working in the Gulf Cooperation Council.

What has been the general trend in remittances this year?

World remittances are expected to touch $794 billion in 2022. This represents a growth of 4.9%. Of the $794 billion, $626 billion went to low- and middle-income countries (LMICs).

Remittances represent an even larger source of external finance for LMICs in 2022, compared to foreign direct investment, official development assistance, and portfolio investment flows. The top recipient countries this year are expected to be India, followed by Mexico and China.

What are the reasons behind the sustained growth in remittances?

According to the World Bank, one of the main reasons is the gradual reopening of various sectors in host-country economies, following pandemic disruptions.

An allied reason was the migrants’ determination to help their families back home during the tough post-pandemic recovery phase.

What are the reasons behind the resilience of India’s inward remittance flows?

The report points to a structural shift in India’s remittance economy. It is both in terms of the top destination countries, and the nature of the jobs held by migrants.

Remittances have benefitted from a gradual structural shift in Indian migrants’ key destinations from largely low-skilled, informal employment in the GCC countries to a dominant share of high-skilled jobs in high-income countries such as the U.S., the U.K., and East Asia.

In fact, between 2016-17 and 2020-21, 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.

During the pandemic,Indian migrants in high-income countries worked from home and benefited from large fiscal stimulus packages.

In the GCC countries, Indian migrants benefited from governments’ direct support measures to keep inflation low.

Indian migrants may also have taken advantage of the depreciation of the Indian rupee to increase their remittances.

What does the report say about future trends?

The report predicts that growth in remittances will fall to 2% in 2023 as the GDP growth in high-income countries continues to slow. 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. 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.

Remittances to India are forecast to grow by 4% next year.