The rupee's slump is driving inbound remittances to record highs — which, in turn, will help keep India's current account deficit in check
remittanceinflows are expected to rise to $76 billion this year, marking a 10% rise from 2017.
- The contributions from India’s legion of foreign workers, which was estimated to total around 17 million at the end of 2017, will help the Indian government keep its
current account deficitfrom widening further.
- Last month, the Finance Ministry announced a range of measures to boost foreign exchange inflows such as a hike in import duties on non-essential items and an easing of restrictions on overseas debt issuances.
Amidst all the hue and cry, it might be easy to overlook that the rupee’s slump has also had a positive effect on India’s finances. It has led to a surge in inbound remittances - as overseas workers scramble to take advantage of the relatively higher value of foreign currencies - which is offsetting the damage to India’s balance of trade.
India’s remittance inflows are expected to rise to $76 billion this year, according to EbixCash, a digital payments and transfer firm. This marks a 10% rise from 2017, when remittances totalled $69 billion. And given the advances in cross-border payments and transfer technologies, remittances are only expected to go upward in the coming years.
This bodes well for the economy. The contributions from India’s legion of foreign workers, which was estimated to total around 17 million as of December 2017, will help the Indian government keep its current account deficit in check. According to Capital Economics, a research and consultancy group, if it weren’t for remittances, India’s current account deficit would have ballooned to 5% of GDP last year.
Last month, the Finance Ministry announced a range of measures to prevent the further depreciation of the rupee and boost foreign exchange inflows. These included a hike in import duties of non-essential items, the extension of favourable credit terms to exporters and the easing of restriction of overseas debt issuances.
The move seems to have paid off so far. The rupee is currently trading at 73.2 to the dollar, nearly a 2% jump from the rock bottom value of 74.4 that it hit on 10 October. However, in the year so far, the currency has depreciated by 14%.
While remittances are a prominent form of capital inflows, it would be foolish for the government to rely heavily on them. It will need to prioritise long-term inflows such as
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