A weak rupee, emergence of investment opportunities in the domestic market, and improving income levels of non-resident Indians, especially in West Asia and the US, have aided recovery in remittance flows to India, in 2011.
While India has been the largest recipient of remittances globally for the past few years, political unrest in the West Asian and African economies, and the crisis in Europe slowed inflows in the first half of the last calendar year.
But now, according to the World Bank’s estimates, remittance flows to India will touch $57.8 billion in 2011, seven per cent higher than the previous year.
“Given the correlation between the currency and remittances, the latter's rise is not surprising in the second half of the year, given the sharp depreciation in the currency,” Sajjid Chinoy, economist with JP Morgan in India, said.
The rupee depreciated 19 per cent against the dollar in the second half of 2011, prompting the Reserve Bank of India (RBI) to take steps to arrest the volatility in the exchange rate.
Economists said that this would augur well for India’s balance of payment (BoP) and narrow the current account deficit, which widened to 3.6 per cent in July-September from 2.6 per cent in 2010-11.
“The nature of these flows, stable and large, will certainly aid the balance of payment and help reduce the current account deficit. India's growth prospects still appear far better than most economies and this has helped remittance flows,” Brinda Jagirdar, general manager – economic research at State Bank of India (SBI), said.
An indication that remittance flows to India have recovered could be gauged from RBI's data on private transfers. In July-September, private transfers, a part of which is inward remittances, grew 10 per cent sequentially. The flows are expected to be even better in October-December.
“Despite the conditions in Europe, the US has been doing fine. The commodity prices are holding high translating into better income levels in the Middle East,” said Sonal Varma, economist with Nomura, while explaining the factors that helped recovery in remittance flows to India.
She added, while strong income growth overseas was the likely “push factor”, higher deposit rates in India may have acted as the “pull factor”.
According to Harsh Lambah, senior regional director at MoneyGram International for South Asia, remittance flows also improved in the second half because of a number of festivals in the country. He added many non-residents also sent money home because globally interest rates were low as compared to India.
