Indian diaspora deposits $29 billion in remittances in Q3

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Demonstrating the substantial impact of the Indian diaspora in supporting India’s economy, Indians abroad deposited a whopping $29 billion in India during the December quarter of 2023. The increase in remittance is evident due to the growing yields from Foreign Currency Non-Resident (FCNR) instruments, which have rendered these savings schemes more attractive than regular bank deposits in Western nations.

“Many countries, notably India, have implemented savings programs to attract foreign currency deposits from the nonresident citizens. Such deposits are usually repatriable, yield higher interest rates than comparable international interest rates (e.g., US treasuries or term deposits in a US Bank), and are tax exempt,” said the World Bank’s Migration and Development Brief 39 released in December 2023. “Data on nonresident deposit schemes are not readily available, but such schemes are widespread among countries across developing-country regions. As of September 2023, nonresident Indian deposits in India amounted to $143 billion registering an increase of over $10 billion in one year.”

The Brief predicted that the “remittance outlook for India for 2024 is strong,” while adding “Growth in remittances is expected to moderate to eight per cent taking remittance levels to $135 billion in 2024.”

It pointed out that labor market conditions and inflation in the primary host economies will heavily influence this trend, impacting both highly skilled and less-skilled migrants. Specifically, the United States, United Kingdom, and Singapore collectively contribute 36 per cent to India’s remittance inflows.

“Growth in remittances to India will also hinge on developments in the [Gulf Cooperation Council] GCC, as almost 29 percent of the flows originate from its mostly less-skilled migrants employed in the GCC countries. In 2024, economic growth is projected to recover in the GCC and inflation to drop even further from its already low level. Both factors bode well for remittances flows to India.”

Per the World Bank data, since the surge in software development during the 1990s, India has consistently led in receiving the largest remittances from its diaspora. According to an RBI survey on remittances, most of these remittances are allocated to family necessities, with some also being put into various assets like deposits.

Remittances represent a consistent stream of funds “unlike repatriable NRI deposits.” They play a crucial role in reducing the Current Account Deficit, which has been gradually decreasing as a proportion of India’s Gross Domestic Product, according to a report in Economic Times.

“Net inward remittances, as reflected in the private transfers in the current account of the balance of payments, amounted to $29 billion during the quarter ended December 2023” said the report citing preliminary data published by the Reserve Bank of India (RBI).

A recent survey by RBI, after the COVID pandemic, revealed that the United States is the primary contributor to remittances. Similarly, the World Bank’s Migration and Development Brief 39 released last year also noted, “United States continued to be the largest source of remittances” adding the top five remittance recipient countries in 2023 were India ($125 billion), Mexico ($67 billion), China ($50 billion), the Philippines ($40 billion), and Egypt ($24 billion).

Given the trajectory of “weaker global economic activity” the Brief underscored that the growth of remittances to Low and Middle-Income Countries is anticipated to decrease to 3.1 per cent in 2024. It further added that this moderated forecast is influenced by decelerating economic growth and the potential for weakened job markets in numerous high-income nations.

“During crises, migrants have weathered risks and shown resilience to support families back home. But high inflation and subdued global growth is affecting how much money they can send,” said Global Director of the Social Protection and Jobs Global Practice, World Bank, Iffath Sharif, in a statement. “Labor markets and social protection policies in host countries should be inclusive of migrants, whose remittances serve as a vital lifeline for developing countries.”

Lead Economist, Migration, and Remittances at the World Bank and Lead Author of the Brief Dilip Ratha said “Remittances are one of the few sources of private external finance that are expected to continue to grow in the coming decade. They must be leveraged for private capital mobilization to support development finance, especially via diaspora bonds.”

Ratha added that in recent years the money sent to developing countries as remittances has exceeded the combined total of foreign direct investment and official development assistance, and this pattern continues to grow.

According to the Brief, remittance inflows to South Asia experienced a 7.2 per cent growth in 2023 reaching $189 billion. The surge is solely credited to remittances to India, surpassing earlier predictions by $14 billion and ultimately reaching $125 billion the same year. This also highlights the significant contribution of the Indian diaspora in lending support to their families back home and bolstering the economic strength of their nation.

The main reasons for remittance growth in 2023 “are a historically tight labor market in the United States, high employment growth in Europe reflecting extensive leveraging of worker retention programs, and a dampening of inflation in high-income countries.”