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Offshore remittances key support for India’s external balance

Middle East main source of remittances


Middle East main source of remittances

Economist Radhika Rao says remittances key support for India’s external balance.

Singapore’s DBS Group expects offshore remittances to remain a key source of support for India’s external balance, even as its pace of growth remains vulnerable to gyrations in global growth trends or other exogenous factors.

At the same time, concerted efforts to make goods and services’ exports more competitive is necessary to lower the structural current account deficit, thus lowering the economy’s vulnerability to global risk sentiments, writes Radhika Rao, Economist for India, Thailand & Eurozone at DBS Group Research.

Earnings from invisibles have played an important role in containing India’s overall current account deficit (CAD). Apart from software receipts, remittances have been a key source of resilience for India’s external balance, accounting for more than half of the total invisibles last year, and offsetting 40% of the trade deficit.

Remittances depend on a host of factors, including global growth conditions, economic situation in the host country, oil prices and migration policies, amongst others, according to Rao.

India was the highest recipient of remittances last year (2018), at a record high of US$79 billion, up from US$50 billion in 2008-09, according to World Bank data.

More than half of the remittances into India originate in the Middle-Eastern countries, said Rao in the research report dated 30 April 2019.

UAE topped the table with a 20% share last year, while neighbouring countries of Saudi Arabia, Kuwait, Qatar and Oman accounted for the rest.

The US is the second key originating economy, with the UK, Malaysia, Canada, Hong Kong, and Australia amongst the top ten sources.

As of December 2018, there are about 30 million overseas Indians, of which 13 million are Non-Resident Indians (NRIs) and 17 million are People of Indian Origin.

Nearly 60% of the funds are used by the beneficiary/recipient for family maintenance and sustenance purposes, another 20% held as deposits with banks, 8% into physical asset investment e.g. property/ equities and rest miscellaneous purposes which might include healthcare, recreation etc. Given the high proportion of funds being diverted for family consumption purposes, suggests these flows are bound to continue barring unforeseen circumstances for the remitter e.g. retrenchment, closure of company etc, according to the report.

The size-wise distribution of these remittances reveals that 70% of the transfers are above US$500 (or equivalent) and between US$200-US$500 make a third and rest is smaller than US$200, according to a survey by the Reserve Bank of India.

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