US' return as leading source of Indian remittances mirrors pre-2008 trend

North America had a high share of remittances before the global financial crisis

The US accounted for nearly a quarter of India’s total remittances in 2020-21, marking a reversion to the trend that existed before 2008.

The US accounted for 23.4 per cent of the total money sent back by Indians living abroad, according to the Reserve Bank of India’s latest remittances survey for 2020-21. The RBI has conducted similar surveys in the past. North America accounted for as much as 44 per cent of the remittances before 2008, shows reports available between 2006-07 to 2012-13 which had a regional rather than a country-wise breakup.  

This, then, largely shows a declining trend as gulf countries stepped in with increased remittances amid a lower share of North American inflows. The share of gulf countries rose from 24 per cent to 37 per cent between 2006-07 to 2012-13. North America’s share dropped from 44 per cent to 34 per cent in the same period (see chart 1).  

The US replaced the United Arab Emirates (UAE) as the top source of remittances amid the pandemic.

“…the share of Gulf countries has declined, reflecting slower pace of migration and presence of Indian diaspora in informal sectors which was hit the most during the pandemic period…,” said the RBI survey.

The RBI remittance report noted that India’s historical migration pattern has been towards the Gulf Cooperation Council (GCC) region but there has been a decline in emigration clearances since 2015. The clearances are issued to unskilled or semi-skilled workers and women seeking overseas employment. Migration from India to the region slowed down over the last five years because of slower economic growth, oil prices remaining sluggish and labour laws becoming stricter among other reasons.

Meanwhile economies like the US and the United Kingdom and Singapore have emerged as major sources of remittances.

“(They accounted)…for 36 per cent of total  remittances  in  2020-21…This corroborates with the World Bank report (2021) citing economic recovery in the US as one of the important drivers of India’s remittances growth,” said the RBI note.

“After the lull in 2020, remittance flows to India grew at 8 percent in 2021 to $89 billion. The spike was an outcome of a strong economic recovery in the United States, which accounts for a fifth of India’s remittances, and the support to families back home inflicted by the delta variant and related travel restrictions in India during the summer of 2021,” noted the  World Bank group’s Migration and Development Brief, which came out in May 2022.                

This has resulted in Maharashtra replacing Kerala as the state with the highest remittance share. Kerala historically has had a high share of remittances from the gulf region (see chart 2).

The difference between the income levels may also be seen in the changing size of the transactions. Smaller size transactions of under $200 accounted rose from 2.7 per cent of remittances in 2016-17 to 6 per cent in 2020-21 (see chart 3).

“While the increase in small size transactions may be due to the reduced sending capacity of the overseas remitters, it might also be indicative of more frequent financial support required by their low-income beneficiaries during the pandemic period,” said the RBI note.