Why in News:
The latest edition of the Migration and Development Brief released by the World Bank has revealed that the growth in remittance inflows into India is projected to slow down significantly to just 0.2% in 2023, compared to the remarkable growth of over 24% observed in 2022.
Important Points:
- Slower growth in the Organisation for Economic Co-operation and Development (OECD) economies is a key contributing factor, limiting employment and wage gains for migrants, which in turn leads to a slowdown in remittances.
- Other regions, such as East Asia and the Pacific, and Sub-Saharan Africa, are expected to experience a growth rate of around 1% in remittances for 2023.
- The decline in remittance growth in OECD economies, particularly in the high-tech sector of the United States, might result in a diversion of formal remittances to informal money transfer channels.
- India, which achieved a record-high of $111 billion in remittances in 2022 with more than 24% growth, is anticipated to witness a significant slowdown to just 0.2% growth in remittance inflows for 2023, according to the World Bank’s report.
World Bank Report:
- The report highlights that the slowdown in remittance growth is evident in the OECD economies, where high-tech sectors, like the USA, are experiencing reduced demand for IT workers and a shift towards informal money transfer channels.
- Additionally, lower demand for migrant workers in the Gulf Cooperation Council (GCC) countries, impacted by declining oil prices, is another contributing factor to the decline in remittances.
- The World Bank revised its previous estimate of $100 billion in remittance inflows for India in 2022 to $111 billion in June 2023. The revision was influenced by strong labor market conditions, wage increases in high-income destination economies, and higher energy prices in GCC countries.
Importance of Remittances:
- Remittances play a crucial role as the second most significant source of financing, following Foreign Direct Investment (FDI), for middle and low-income developing countries.
- They have a significant impact on household finances, asset building, and the overall quality of life for citizens, making them an essential aspect of household incomes, especially during challenging times.
- Remittances act as a complement to the government’s cash transfer schemes and are vital financial inflows for most countries, particularly in the aftermath of the Covid-19 pandemic.
Remittance Inflows in South Asia:
- In 2022, remittances accounted for 4% of South Asia’s GDP. Among individual countries in the region, remittances constituted 23.1% of Nepal’s GDP, 7.9% of Pakistan’s, 5.1% of Sri Lanka’s, 4.7% of Bangladesh’s, and 3.3% of India’s GDP.
- In comparison, countries like Tajikistan (51%), Tonga (44%), Lebanon (35%), Samoa (34%), and the Kyrgyz Republic (31%) heavily rely on remittance inflows as a substantial portion of their GDP.
Source of India’s Remittances:
- Advanced economies, including the USA, Europe, Canada, South Africa, account for 30% of India’s total migrant stock, followed by the Gulf Cooperation Council (GCC) region.
- A compositional shift in India’s migrants towards more high-skilled white-collar workers bodes well for inward remittances, according to the RBI’s Headwinds of COVID-19 and India’s Inward Remittances report.
- The report also highlights changes in remittance recipient states, with Maharashtra emerging as the top recipient state in 2020-21, replacing Kerala, due to various factors such as changing dynamics in host countries and occupational patterns. Additionally, migration to the GCC from states like Uttar Pradesh, Bihar, Odisha, and West Bengal has seen an increase in recent years.
