Rising diaspora remittances have helped India comfortably finance its trade deficit. They have contributed to a resilient rupee in recent years. With foreign exchange inflows from this source reaching $118.7 billion in FY24, India is now the largest recipient of global remittance flows by a long chalk — with a 14 per cent share of the global pie. Belying expectations, remittance flows after the pandemic in FY21 have been less volatile. Are these trends sustainable? While this has been hard to gauge so far, Reserve Bank of India’s (RBI) latest survey on the remittance economy, published in its March bulletin, suggests that structural changes are afoot.
It is a common perception that India’s inward remittances largely originate from blue collar migrants in the GCC (Gulf Cooperation Council) countries. But latest RBI data show that this is not the case anymore. Remittances are increasingly flowing in from immigrants in advanced economies (US, UK and Europe), rather than GCC nations. In FY24, the US, UK and Europe together accounted for as much as 40.7 per cent of the inward remittances while GCC nations made up a lower 35.4 per cent. Immigrants in the advanced economies seem to be punching above their weight because over 49 per cent of India’s diaspora lives in GCC nations (in 2024), followed by the US (24.7 per cent) and Europe (7.2 per cent), according to UN data. The diaspora in advanced economies seems to hold a different profile from the workers who have traditionally made up the bulk of remittances. RBI’s survey finds that 78 per cent of US immigrants sending money to India hold highly paid positions in management, STEM or run their own businesses, while remitters from UAE are engaged in blue-collar work in construction, healthcare and tourism. The shift in dominant remitter profile has been accompanied by a churn in recipient States, with Maharashtra (20.5 per cent of flows) now topping the inflows table, followed by Kerala and Tamil Nadu.
This change in the dominant source of flows has interesting ramifications. In the near term, there is a risk to remittance flows from a possible slowdown in the US induced by Trump tariffs or job cuts. But from a long-term perspective, flows from advanced economies are likely to be more resilient to shocks. Skilled immigrants working in middle or higher management roles, or successful entrepreneurs, are likely to have more surpluses than contract workers earning subsistence wages, especially during adverse times. For example, during Covid, inflows from the advanced economies picked up while those from the GCC fell.
So, policymakers need not fret too much about Indian students making a beeline to the advanced economies for higher education, or their parents remitting large sums for their support under the Liberalised Remittance Scheme (LRS). Such outflows eventually deliver payoffs in the form of inward remittances or NRI deposits or investments. Policymakers should facilitate skilled migration and reduce the frictions involved in the remittance process.