India received $83 billion remittances in 2020 "EMPOWER IAS"

Context- 

• According to a World Bank report, India received over 83 billion USD dollars in remittances in 2020, a drop of just 0.2% from the previous year, despite a pandemic that devastated the world economy.

 

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• China received 59.5 billion U.S. dollars in remittances in 2020 against 68.3 billion U.S. dollars the previous year. This makes it a distant second in terms of global remittances for the year gone.
• In 2019, India received 83.3 billion U.S. dollars in remittances.
• As per the report, India's remittances fell by just 0.2% in 2020, with much of the decline due to a 17% drop in remittances from the United Arab Emirates, which offset resilient flows from the United States and other host countries.
• India and China are followed by Mexico, Philippines, Egypt, Pakistan, France and Bangladesh.
• Among the neighbouring countries of India, the remittances of Pakistan grew by 17% with the biggest growth coming from Saudi Arabia, followed by the European Union countries and the United Arab Emirates.
• In Bangladesh, remittances also showed a brisk uptick in 2020 of 18.4% and Sri Lanka to witness a growth of 5.8% in its remittances.
• However, Nepal witnessed a fall of about 2% reflecting a 17% decline in the first quarter of 2020.
• The World Bank, in its latest Migration and Development Brief, said that despite COVID-19 remittance flows remain resilient in 2020, registering a smaller decline than previously projected.
• Remittance flows to the low and middle income countries officially reached about 540 billion U.S. dollars in 2020 which is just 1.6% below the 2019 total of 548 billion U.S. dollars.
• Remittance inflows grew in Latin America and Caribbean by 6.5%, South Asia by 5.2% and the Middle East and North Africa by 2.3%.
• However, East Asia and the Pacific registered a decline of 7.9%, Europe and Central Asia of 9.7% and Sub Saharan Africa of 12.5%.
• The decline of remittance inflows to Sub Saharan Africa was almost entirely due to a 28% decline in the remittance flows to Nigeria. excluding flows to Nigeria, remittances to the region increased by 2.3%, demonstrating resilience.
• The relatively strong performance of remittance flows during the cold 19 crisis has also highlighted the importance of timely availability of data.
• Given its growing significance as a source of external financing for low and middle income countries, there is a need for better collection of data on remittances, in terms of frequency, timely reporting and granularity by corridor and channel, said the report.
• The maximum remittance outflow was from the United States of 68 billion U.S. dollars, followed by the United Arab Emirates - 43 billion U.S. dollars, Saudi Arabia- 34.5 billion U.S. dollars, Switzerland- 27.9 billion US dollars, Germany- 22 billion U.S. dollars, and China- 18 billion U.S. dollars.
• As per the report India registered a remittance outflow of 7 billion U.S. dollars against 7.5 billion U.S. dollars in 2019.

 

Remittance

• A remittance is money sent to another party, usually one in another country.
• The sender is typically an immigrant and the recipient a relative back home.
• Remittances represent one of the largest sources of income for people in low-income and developing nations. It often exceeds the amount of direct investment and official development assistance.
• Remittances help families afford food, healthcare, and basic needs.
• India is the world’s biggest recipient of remittances. Remittances bolsters India's foreign exchange reserves and helps fund its current account deficit.

 

India’s remittances:

• India is the world’s biggest recipient of remittances.
• In 2019, India is estimated to have received $83.1 billion in remittances from people working overseas, about 12% of the total expected global inflow.
• International remittances in 2018 (2020 report) reached $689 billion, out of which India received $78.6 billion from the 17.5 million living abroad.

 

 Significance of Remittances

• Several studies have shown that remittances have helped in alleviating poverty in the lower and middle income countries, improving nutritional outcomes, and are associated with higher spending on education and have also impacted by reducing child Labour in disadvantaged households.
• These are a vital source of income for the developing countries.
• A fall in remittances affects the families ability to spend on these areas as more of their finances art director to solve food shortages and immediate livelihood needs.
• Remittances provide the catalyst for financial market and monetary policy development in developing countries. 
• They improve credit constraints on the poor, improve the allocation of capital, substitute for the lack of financial development and thus accelerate economic growth.

 

World Bank’s Migration and Development Brief

• It is prepared by theMigration and Remittances Unit, Development Economics (DEC)- the premier research and data arm of the World Bank.
• The aim of the brief is to provide an update on key developments in the area of migration and remittance flows and related policies over the past six months.
• It also provides medium-term projections of remittance flows to developing countries.
• The brief is produced twice a year.

 

How do Remittances impact Indian Economy?

• Increased inflow of remittances is a boon for the Indian economy at both the micro and macro levels.
• At the macro level, remittances contribute by helping to maintain stable foreign reserves. Remittances help Indian Rupee hold its value against the US dollar and form a significant part of the GDP.
• On the other hand, at the micro level, remittances have shown a positive impact on healthcare, entrepreneurship, education, and overall economic development of the recipient families.
• An increase in the outflow of remittances causes the rupee to weaken against the dollar, which in return impacts the businesses exposed to foreign exchange, and the economy overall.