India continues to stay on top in the list of top remittance receiving nations. In 2014 NRI”™s sent $70 billion (â‚¹4.67 lakh crore) & in 2015 they sent $69 billion leaving behind China which received $64 billion.
The remittances India received in 2015 were more than 12% of the world’s remittances. This amount accounts for over 4% of our GDP. As per theÂ Ministry of Overseas Indian AffairsÂ (MOIA), remittance is received from approximately 25 million members of theÂ Indian diaspora.
Around 40% of the India’s remittances flow to the states of Kerala, Tamil Nadu, Punjab, & Uttar Pradesh which are among the top international remittance-dependent economies of the world. A 2012 study by theÂ Reserve Bank of IndiaÂ revealed that 30.8% of total foreign remittances received were fromÂ West Asia, 29.4% fromÂ North America & 19.5% from Europe.
The use of remittance particularly in Kerala & Tamil Nadu is not just for subsistence & debt repayments, but also for reasons such as education, healthcare expenses & bank savings. Remittances have positive impact on financial inclusion, poverty alleviation, & obviously other factors such as health & education.
Such huge sums of remittances will understandably have a major impact on the economy. People get money in their hands to spend on necessities as well as luxuries. The remittance amount received by India is larger than our FDI inflows & even our IT exports ““ one can imagine what a massive impact it must have on our economy!
Even though remittance is crucial to India, it has largely been ignored by the government for long. But now at last discussions about remittances are happening at the highest level. Prime Minister Narendra Modi championed the cause for reducing remittance cost at a G20 Summit. This is the first time ever that this issue has been raised at the highest level.
The average cost of sending money to India is about 6%. Sending money within India is 5% which is ridiculously high. In today”™s tech-savvy world such costs are unacceptable.
Excessive scrutiny & regulation is one reason for the high remittance cost. For example ““ One needs proper documentation to show who he is, who he is sending money to, and sometimes even why. At times, one has to even declare where he got the money from. And all this even for petty sums like $100-200!
When we talk about money that comes into a country, we talk about the multiplier effect. India”™s remittance accounts for more than 4% of the GDP, and when the amount is so huge, facilitating remittances by reducing costs & creating mechanisms for more convenient transfers can push growth by 0.5% or more.
You can follow the author on Twitter at @vinayak_jain