Remittances: Overseas Indians book trips back home, sending record $29 billion home in Q3

MUMBAI: Overseas Indians have seen a steady rise in earnings from FCNR (Foreign Currency – Non-Resident) products, with these savings schemes becoming more lucrative than bank deposits in Western countries in December. Remittances sent a record $29 billion home in the quarter.

Indeed, unlike NRI deposits, which can be repatriated, remittances are a permanent source of capital flows and contribute to India’s current account deficit (CAD), which is a steadily shrinking share of gross domestic product (GDP). contributing to the reduction.

Net inward remittances, reflected in private remittances in the balance of payments current account, reached $29 billion in the quarter ended December 2023, according to provisional data released by the Reserve Bank of India (RBI). An ET analysis of data since 1991, the year of economic liberalization, showed that this was the highest remittance by Indian diaspora in any quarter.

Remittances are related to the level of immigration and employment status in different economies. According to a survey on remittances conducted by the RBI post-COVID-19, the US is the largest source of remittances, accounting for 23% of the total. In contrast, inflows from the Gulf region decreased.

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“This could be because it was a strong year globally, especially in the US,” said Madan Sabnavis, chief economist at Bank of Baroda. “It is also the end of the year for overseas companies, with most bonuses being paid in December. Although this is seasonal, this could be due to a strong year for global business. there is.”

India has been the largest recipient of remittances from the diaspora since the software boom of the 1990s began to change the landscape of technical talent, with Asia’s third-largest economy expected to receive more than $100 billion in 2023. It is estimated that there will be an inflow of .

While most of these remittances are used for family needs, some are also invested in other assets such as savings, an RBI study on remittances has found. In addition to a surge in services exports, an increase in remittances also helped keep the Canadian dollar to GDP as a percentage of GDP in December to 1.2% from 2% in December 2022, according to an analysis of balance of payments data.

“In general, we expect remittances to surge in the third quarter, likely due to Christmas season commitments to relatives back home. Also, the weaker rupee would have further boosted profits. ” said Saugata Bhattacharya, an independent economist at Axis Bank. “Furthermore, banks are looking for stable deposits, so remittances are added to FCNR deposits at relatively high interest rates.” FCNR deposits are attractive when the rupee is weak because the currency risk is borne by the bank rather than the depositor. It is. FCNR deposit inflows from April 2023 to January 2024 were $4.15 billion, more than three times the inflows for the same period last year.

“While India is the second cheapest remittance receiving market in the G20 group after Mexico, costs in certain remittance corridors are consistently higher than others,” RBI economists said in 2022. says a research paper published in the July Bulletin. “Policy measures need to be taken to expand the reach of MTSS (Money Transfer Service Scheme) in high-cost corridors.”

Under MTSS, authorized agents abroad can issue prepaid cards to remittance recipients in India.