Context: World Bank has recently released its Migration and Development Brief for 2023 with India as the world leader in remittance inflows.

About the World Bank Migration and Development Brief

• It is prepared by the Migration and Remittances Unit, Development Economics (DEC), the premier research and data arm of the World Bank.

• The brief is produced twice a year.

• The brief aims to provide an update on key developments in the area of migration and remittance flows and related policies over the past six months.

• It also provides medium-term projections of remittance flows to developing countries.

• It also presents recent developments on the Global Compact on Migration (GCM).

Key Findings of the Report

• India received the highest amount of remittance inflows in the world in 2023 at USD 125 billion (3.4% of GDP).

• Remittance is a non-commercial money transfer by foreign workers, diaspora members, or citizens to support household income in their home country.

• South Asia witnessed a 7.2% increase in remittances in 2023.

• India was followed by Mexico (USD 67 billion), China, Philippines, and Egypt.

• There is a continued growth in remittance flows to low- and middle-income countries (LMICs).

• Remittances to LMICs grew by an estimated 3.8% in 2023, totalling USD 669 billion.

• There can be a risk of a decline in real income for migrants in 2024 due to global inflation and low growth prospects.

• Remittance costs remain high, averaging 6.2% to send USD 200.

• Banks are the costliest channel for sending remittances, with an average cost of 12.1%.

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).

• NRO Accounts are not repatriable except for all current income.

Causes of High Remittance Inflow in India

• The main contributing factors are declining inflation and strong labour markets in high-income source countries.

• Highly skilled Indians in the US, the UK, and Singapore collectively account for 36% of the total remittance flows to India.

• Remittances were higher from the Gulf Cooperation Council (GCC), especially the UAE, which accounts for 18% of India's total remittances.

• GCC is the second-largest source of remittance after the US.

• Remittance surge can also be due to the 2023 agreement with UAE, promoting local currency use in cross-border transactions and cooperation for interlinking payment and messaging systems.

Impact of Remittance on Indian Economy

• Boost a family’s income, improved nutritional outcomes, higher spending on education, increased purchasing power, and a better standard of living.

• Enable recipients to boost their investments, savings, and financial literacy.

• Increase consumption, as the disposable income of families increases, GDP increases.

• Keep the foreign reserves of India stable, helping the Indian rupee against the other currencies.

• Act as insurance during macroeconomic shocks; natural disasters, financial crises, political upheaval, etc. in a country.

Disadvantages of Remittances

• High Fees: Workers who are making little income may find it difficult to pay the high fees that some remittance firms demand to transmit money.

• Exchange Rate Fluctuations: If remittance recipients are receiving funds in a different currency, exchange rate swings might cause large losses.

• Lack of Financial Education: Many International workers lack financial education, leading to partial loss of remittance funds due to mismanagement.

• Dependency: Excessive dependence on remittances can foster a culture of dependency rather than building local economies.