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What is Remittance?
Remittance is derived from the word 'remit' which means 'to send back'. Remittance refers to money that is sent or transferred to another party, usually overseas. Remittances can be sent via a wire transfer, electronic payment system, mail, draft, or cheque.
Remittances can be used for any type of payment including invoices for business purposes or other obligations like personal transfers made to family and friends.
According to the World Bank, 2019 Migration and Development Brief, $529 billion in remittances were sent to low and middle-income countries in 2018. An increase of 9.6% over the previous record high of $483 billion recorded in 2017. India, due to its large diaspora and overseas expats population, remained the top receiver of remittances in 2018 and in 2017 as well.
Why remittances are on the rise
1. 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.
2. Businesses have increasingly relied on the internet as it makes connecting and 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 namely, Non-Resident Ordinary Rupee Account (NRO Account), Non-Resident (External) Rupee Account (NRE Account) and Foreign Currency Non Resident (Bank) Account – FCNR (B) Account. NRO Accounts are not repatriable except for all current income. UAE, US and Saudi Arabia are the top three countries that have seen a growing amount of remittances being sent to India.