India has become the first country in the world to cross the $100 billion mark in annual remittances from overseas. According to the World Bank, private remittances or remittances from NRIs to relatives and friends in India will cross the threshold in 2022 with an impressive 12% year-on-year growth. The country is likely to retain the top remittance destination tag in FY23, which it beat China in FY21.

The latest data show that the continuous and rapid growth trend of “personal transfers” in India, which was interrupted by the epidemic in the fiscal year 2021, has not only resumed but has also been supported. The surge in remittances comes when the flow of foreign direct investment across borders appears to have slowed. According to multilateral development finance institutions, remittances to low- and middle-income countries will reach around $630 billion in 2022, up 5% year-on-year. Remittances to these countries are on par with foreign direct investment (FDI) flowing into these countries for the year.

FDI inflows to India fell 15% year-on-year to $36.75 billion in the April-December period of the current fiscal, according to Ministry of Industry Promotion and Internal Trade data. Bloomberg quoted London-based mobile payments provider TerraPay saying funds were heading to India as remittances grew from Qatar, Saudi Arabia, Australia and the United States. Some 18 million Indians live outside their country of birth, the largest diaspora group in the world. “In the Gulf region, where many Indians migrate, vaccinations and a resumption of travel mean migrants can return to work. Higher oil prices have also helped overseas workers send more money to their families,” Bloomberg reported.

High-skilled Indian migrants from the US, UK and Australia also send more money home, thanks to employment support schemes during the Covid-19 pandemic. According to the World Bank, Indian migrants may have taken advantage of the rupee’s depreciation against the dollar.

Private remittances are the main driver of India’s current account, although the country’s trade in goods often leads to a deficit. A surge in services exports in recent quarters has also kept the country in a good balance of payments.
India’s current account deficit (CAD) narrowed to $18.2 billion or 2.2% of GDP in Q3FY23 from 4.4% in Q2 due to a smaller deficit in goods trade. With the average trade deficit compressed in Q4FY24 compared to the previous quarter, analysts expect a CAD size of $7.7-80 billion (2.3% of GDP) in FY23, which is relatively benign.