(Newswire.net — November 12, 2018) — The World Bank reported that India featured at the top of the list of nations to receive remittances. More than $ 60 billion were received in remittances to India in 2017. This sizable annual flow of wealth drives profound changes to India’s economy. Some short-term impacts of remittances, such as economic stimulus through increased consumer spending, are readily visible. Other effects, although less visible, are more important in the longer term.
Economic growth
In 2017, the total value of remittances to India amounted to 0.58% of the national GDP. Considering the percentage of the population responsible for remittances this can be considered an important contribution. The annual GDP growth rate of the Indian economy averaged at 5.8% during the past 20 years. These facts prove that remittances positively drive GDP growth.
Living standards
Remittances support millions of Indian families. Remittance money contributes to their purchasing power and is instrumental in the fulfillment of their important needs such as daily bread, debt repayments, asset creation, savings and more. Without remittances, these families would not have access to healthcare and education. Therefore remittances are instrumental in establishing and improving the living standards of millions of Indians. The increased purchasing power of these millions increases the national demand for a range of goods and services, and stimulates the national economy. The longer term effect of remittances sent to Indian families is to enable future generations of those families to enter the workforce as educated and productive citizens. Another long term effect is to gradually alleviate poverty and all its associated social evils such as child labor and the exploitation of women.
Employment creation
In addition to the creation of employment due to increased purchasing power remittances are self-reinforcing. In 2017, $ 60 billion worth of remittances sent to India originated from 16.4 million Indians living and working overseas. That amounts to $ 60,000 in per capita annual remittances. That number is almost eight times the per capita GDP (PPP) of India. In other words, Indians working abroad earn significantly more on average than those employed domestically. In light of these facts, Indians see skilled emigration as a viable option to support their families and create long term wealth. The focus in education and industry is steadily shifting toward acquiring marketable skills. There are segments within these sectors that are consciously targeting emigration based business models to setup long term revenue streams. These events are setting a definite trend for future generations. This trend toward the acquisition of specialized and high value skills will have important long term positive impacts on the skill pool and economy of India.
Macroeconomic impacts
Remittances comprise a notable percentage of India’s annual foreign exchange earnings. In addition to being a massive net inflow of wealth, the corpus of remittances has a strong positive contribution to the country’s balance of payments. Incoming remittances optimize the exchange rate of the rupee in forex markets. Stabilization of currency exchange rates creates several more benefits for Indian expats and businesspeople.
Regulatory influences
In recognition of these important effects of remittances the Government of India, through the Reserve Bank of India (RBI) has taken steps to encourage NRIs to send money to India in larger volumes and to maximize the inflow of wealth through these channels. The tax rates and upper limits on the volume of inward remittances are becoming more favorable. Various incentives are being offered to NRIs to invest in India through purchase of property and assets, and investments in business. The ritual of sending remittances is itself being simplified. A majority of Indians prefer fast, secure and reliable international money transfer (IMT) service providers such as Ria Money Transfer, in favor of big banks. The RBI is busy finding ways to make IMT remittances cheaper and faster.