Context: Recently, world bank published data on global remittances.

Key Points

• U.S. was the largest source country for remittances in 2020, followed by the United Arab Emirates, Saudi Arabia, and Switzerland.
• As a share of gross domestic product, the biggest remittance recipients are Tonga, Lebanon, the Kyrgyz Republic, Tajikistan.
• Remittances to low- and middle-income countries reached $589 billion in 2021.
• Remittance flows from migrants complemented government cash-transfer programs to support families suffering from economic hardships during the Covid-19 crisis.
• Cost of sending money across international borders averaged 6.4% in the first quarter of 2021.
• Remittance costs: South Asia has the lowest average costs of any world region at 4.6 %.

India related data

• India had received over $ 83 billion in remittances in 2020.
• India is followed by China, Mexico, the Philippines, and Egypt.
• In India, remittances are projected to grow three per cent in 2022 to $ 89.6 billion.

What is a Remittance?

• Remittance is derived from the word 'remit' which means 'to send back'.
• It refers to money that is sent or transferred to another party, usually overseas.
• It can be sent via a wire transfer, electronic payment system, mail, draft, or cheque.
• They can be used for any type of payment including invoices for business purposes or other obligations like personal transfers.

Why remittances are on the rise?

• Migration among people who choose to live abroad for jobs or studies is increasing.
• Therefore, many remittances are made by people who want to send money back home.
• Businesses have increasingly relied on the internet as it makes collaborating with suppliers, employees, and clients easier.
• This has resulted in overseas remittances paying for business invoices.

Remittances to India

Under the Foreign Exchange Management Act (FEMA) of 1999, Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) can open and maintain three types of accounts

• Non-Resident Ordinary Rupee Account (NRO)
• Non-Resident (External) Rupee Account (NRE)
• Foreign Currency Non-Resident (Bank) Account (FCNR).

Note: NRO Accounts are not repatriable except for all current income.

Impact of Remittance in Indian Economy

• At the macro level, remittances contribute to maintaining stable foreign reserves.
• Remittances help Indian Rupee hold its value against the US dollar and forms a significant part of the GDP.
• On a micro level, remittances have shown a positive impact on healthcare, entrepreneurship, education, and overall economic development of the recipient families.

Inward Remittance

• Inward remittance refers to the money sent by Indian expats residing abroad to their near ones in India.

Outward Remittance

• Outward remittances refer to money sent overseas by residents of India for specific purposes.
• Authorized dealers and banks in India like SBI, PNB, Bank of Baroda, Axis Bank, ICICI Bank, etc. offer these services.

Key Fact

• Under the RBI's Liberalized Remittance Scheme, resident individuals are allowed to remit up to USD 250,000 per financial year.
• This could be under various categories involving current account transactions including going overseas on employment, studies overseas, emigration, and medical treatment.