Pace of remittance inflows has slowed for India in the past decade

Cash transfers increased in absolute terms but the rate of growth decelerated

Although cash transfers by non-resident Indians were at their highest in 2021 at $89.38 billion (World Bank data), the pace of remittance inflows has slowed down.

Analysis shows that in the five years, between 2006 and 2010, remittance inflows grew at a compound annual growth rate (CAGR) of 17.21 per cent, which was comparable to the economies in the BRICS grouping (Brazil, Russia, China, and South Africa) at 17.42 per cent, but lower than that witnessed in Vietnam at 21.42 per cent.

Though cash transfers increased in absolute terms in the years after 2010, transfers slowed down and grew at the rate of 2.47 per cent between 2011 and 2015. While remittance inflows to India picked up pace again in the next six years and grew at 7.33 per cent, they slowed down in the other economies – BRICS grew at 0.05 per cent and Vietnam at 5.28 per cent. (see chart 1)

A similar trend was noticed in the pace of income deposits as well. FCNR deposits, or Foreign Currency Non-Resident Indian Account deposits, which are fixed deposits by non-resident Indians, have grown at a CAGR of 1.53 per cent between 2016 and 2021 compared to 22.18 per cent in the five years before. Any change in currency deposits is unlikely given the international rate hikes. (see chart 2)

Cash transfers made by non-resident Indians accounted for 13.29 per cent of all the transfers in the world in 2021 – up from 10.58 per cent in 2000. However, remittances sent by Indians contributed just 2.81 per cent to the country’s GDP in 2021.

In 2000, the contribution of remittances was 2.75 per cent, which rose to 3.19 per cent in 2010.

Remittances from lower-middle-income countries accounted for a larger proportion of their GDP. In 2021 (for which data is last available), remittances sent to lower-middle-income countries by their overseas population made for 4.50 per cent of their GDP, up from 2.84 per cent two decades ago in 2000. Remittances sent back by the Chinese accounted for just 0.13 per cent of the country’s GDP in 2021.

India has historically received a major share of its remittances from the Gulf countries. But the analysis found that remittances from the Gulf countries (which include Saudi Arabia, UAE, Oman, Kuwait and Qatar) declined during the pandemic year.

Cash transfers from the North American countries (USA and Canada) also lost sheen during the same year. In FY21 (for which data is last available), for every $100 that was sent back as remittance, $53 was from these countries. In comparison, $78 was sent from these countries in FY17. (see chart 3)
 

However, World bank data shows that inflows from Australia and Germany have outpaced those from the Gulf.

Between 2017 and 2021, transfers from Germany grew at a CAGR of 69.2 per cent and Australia at 41.8 per cent. In comparison, Oman grew at 40.5 per cent, Bahrain at 17.1 per cent and UAE at 19.7 per cent.