Introduction
In 2023, India solidified its position as the world’s top recipient of remittances, with inflows reaching an unprecedented $125 billion. This remarkable achievement underscores the vital role of the Indian diaspora in bolstering the nation’s economy. The surge in remittances has been attributed to robust labor markets in key host countries and strategic financial agreements facilitating smoother transactions.
Global Remittance Landscape
According to the World Bank, global remittances to low- and middle-income countries totaled $669 billion in 2023. India’s share of $125 billion represents a significant portion of this total, reflecting a 7.5% growth from the previous year. Following India, Mexico received $67 billion, China $50 billion, the Philippines $39 billion, and Pakistan $27 billion in remittances. This data highlights India’s leading position in global remittance inflows.
Primary Sources of Remittances to India
The United States emerged as the largest source of remittances to India, contributing 27.7% of the total inflows in 2023, up from 23.4% in 2020-21. This increase is largely attributed to the steady recovery of the U.S. job market, where a significant number of Indian migrants are employed in high-earning sectors such as management, business, science, and the arts.
The United Arab Emirates (UAE) maintained its position as the second-largest contributor, accounting for 18% of India’s total remittances. This steady contribution is linked to the substantial Indian workforce in the UAE, particularly in sectors like construction, healthcare, hospitality, and tourism. The agreement between India and the UAE to promote the use of local currencies for cross-border transactions has further facilitated remittance flows.
Other notable contributors include the United Kingdom, whose share of remittances to India increased to 10.8% in 2023-24 from 6.8% in 2020-21, bolstered by the ‘Migration and Mobility Partnership’ signed in May 2021. Additionally, countries like Singapore, Canada, and Australia have seen a rise in remittances to India, with shares reaching 6.6%, 3.8%, and 2.3%, respectively, in 2023-24.
Factors Driving Remittance Growth
Several factors have contributed to the growth in remittance inflows to India:
- Strong Labor Markets: Declining inflation and robust labor markets in high-income countries have enabled Indian migrants to remit more funds back home.
- Bilateral Agreements: Initiatives like the agreement between India and the UAE to use local currencies for transactions have streamlined remittance processes, reducing costs and encouraging formal channels.
- Diversified Migrant Profiles: The Indian diaspora comprises both highly skilled professionals in countries like the U.S. and U.K., and semi-skilled workers in the Gulf Cooperation Council (GCC) countries, ensuring a steady flow of remittances across various economic sectors.
- Digital Payment Systems: The increasing penetration of digital infrastructure globally has reshaped remittance transfers. On average, 73.5% of total remittances received by money transfer operators were through digital channels in 2023-24, reflecting a growing preference for cost-effective and efficient digital payments.
State-wise Distribution of Remittances
Within India, Maharashtra emerged as the largest recipient state, accounting for 20.5% of total remittances, although this is a decrease from 35.2% in 2020-21. Kerala followed closely, with its share increasing to 19.7% from about 10% during the same period. Other significant recipient states include Tamil Nadu (10.4%), Telangana (8.1%), and Karnataka (7.7%). This distribution reflects the migration patterns and the concentration of Indian expatriates in various global regions.
Economic Implications
Remittances play a crucial role in India’s economy, contributing to household incomes, improving standards of living, and supporting domestic consumption. They also aid in bridging the current account deficit and bolstering foreign exchange reserves. The Reserve Bank of India reported that private transfer receipts, primarily remittances by Indians working overseas, rose to $31.9 billion in the July-September quarter of 2024, up from $28.1 billion a year ago. This increase has helped narrow the current account deficit, underscoring the importance of remittances in maintaining economic stability.
Future Outlook
The World Bank forecasts that remittances to India will grow at 3.7% to $124 billion in 2024 and at 4% to reach $129 billion in 2025. India’s efforts to link its Unified Payments Interface (UPI) with source countries such as the UAE and Singapore are expected to reduce costs and speed up remittances. Additionally, the diversification of India’s migrant pool between highly skilled migrants in high-income OECD markets and less-skilled migrants in the GCC markets is likely to lend stability to remittance flows in the event of external shocks.
Conclusion
India’s record-breaking remittance inflows in 2023 highlight the significant economic contributions of its global diaspora. The sustained growth in remittances underscores the resilience and dedication of Indian migrants worldwide. As India continues to strengthen its financial infrastructure and foster bilateral agreements, the future of remittance inflows appears promising, ensuring continued support for millions of households and the broader economy.
