Significance of Remittances in India’s External Sector
- Inward remittances touched a record $118.7 billion in 2023-24, surpassing FDI inflows.
- Remittances financed over half of India’s merchandise trade deficit, offering crucial macro-stability.
- Despite their importance, remittances receive less policy attention compared to FDI or trade.
Relevance : GS 3(Indian Economy)
Structural Shifts in Source Countries
- Advanced Economies (AEs) now dominate over GCC countries as remittance sources.
- U.S. share rose to 27.7%, overtaking earlier dominance by GCC nations.
- Combined share of U.S., U.K., Canada, Australia, and Singapore = 51.2%, vs GCC’s 37.9%.
- Reflects shift in migrant profile: from low-skilled West Asia workers to high-skilled professionals/students in AEs.
Implications of the Shift
- Higher income and stable earnings in AEs make inflows more resilient to commodity or cyclical shocks.
- However, long-term remittances may decline as migrants settle permanently, reducing economic ties to India.
Growing Skew in Transaction Sizes
- Transfers over ₹5 lakh = 29% of total value, but only 1.4% of transactions.
- Indicates growing dominance of high-income migrants in remittance flows.
- Raises vulnerability risks: any curb on high-skilled migration (e.g., via stricter visa regimes) could hurt inflows.
Rise of Digital Remittance Channels
- Digital transactions = 73.5% of all remittances in 2023-24.
- Transaction costs have dropped to 4.9%, below global avg. (6.65%) but above SDG target (3%).
- Growth attributed to fintech and app-based transfers.
Corridor-Wise Digital Disparities
- High digital use in UAE (76.1%) and Saudi Arabia (92.7%).
- Low digital penetration in Canada (40%), Germany (55.1%), Italy (35%).
- Points to infrastructure and regulatory bottlenecks in some corridors.
- India needs to enhance cross-border digital payment integration.
Sub-National Disparities
- Maharashtra, Kerala, Tamil Nadu = 51% of remittance share.
- Bihar, U.P., Rajasthan = under 6%.
- Root causes: uneven migration infrastructure (language training, credentialing, employer linkages).
- Need for state-responsive skilling missions to democratize migration opportunities.
Missing Data on Remittance Usage
- Survey lacks insight on household-level usage of remittances.
- Important to know whether inflows are for:
- Consumption smoothing (basic needs), or
- Asset creation and savings (long-term development).
- Data gap hinders design of remittance-linked savings/investment products and financial literacy programs.
Key Concerns for Policymakers
- Over-reliance on elite migrants and large transactions is risky.
- Digital divide and state-level inequalities need to be bridged.
- Lack of data on usage limits developmental planning.
- Calls for inclusive, data-driven remittance policy architecture.
