Impact of Indian economy – Remittance by NRI’s

Impact of Indian economy – Remittance by NRI’s

Indian economy is one of the world largest and booming economy and it is next to China but still India has high CAD (current account deficit) due to less export compared to import. Earlier in one of my post I mentioned about gold import which contributes mainly to CAD but the major one is oil import and the tricky one is India’s highest export product is purified oil which we can see later in some other post. Even though export is less but still somehow CAD is managed by FDI (Foreign Direct Investors), FII’s (Foreign Institutional Investors) and Remittance. Now in this article we will see how Remittance helps Indian economy.

What is Remittance?

A remittance is a transfer of money by a foreign worker to an individual in his or her home country. Money sent home by migrants competes with international aid as one of the largest financial inflows to developing countries.

Will you believe? India is the world largest remittance market in the world bigger than China. What it means? Every month or year considerable amount of other country currencies are getting in RBI hands which provides considerable support to India’s foreign currency reserves and remittances constitute 3 to 4% of India’s GDP every year.

Remittance Stats

For remittance statistics, kindly refer the World Bank data

http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1199807908806/India.pdf

Impact of global financial crisis:

Global financial crisis played a major role in remittance and in this mortgage crisis Indian economy was least affected compared to other countries. There was increase in exchange rate of Indian currency which tempted the NRI’s to bring the investments back to India. Fall of asset prices in India was also a plus for NRI’s to invest in India instead of holding the currencies in the foreign country. In period of 2008-2009 only there was reduction in remittance money and after that there was steady increase in inflow of money.

Remittance to India:

Remittance to India is happening through banks and money transfer operators (MTO) like Western Union Transfer, Remit2India etc. Most of the people used banks for remittance because it is high secure and reliable compared to MTO and exchange rate differs from bank to bank. People used banks remittance to build credit history as well to get loans in Indian banks. Processing fee/service charge differs from bank to bank and because of this reason few people are using black market to remit the money. Currently RBI is implementing various regulatory measures to control illegal transfers. Lot of unskilled workers abroad send their money back to home town illegally because they don’t know the benefits of building credit history in banks and they simply look at the exchange rate provided in the black market. RBI and banks should start educating the people and encouraging them to use bank transfers. RBI must also regulate the exchange rate provided by the banks and service charge so that the black market transfers can be controlled. Illegal black market is called as Hawala market in India which accounts almost 30-40% of the remittance and if this money also is brought into legal transfer it will also contributes to the Indian economy.

Conclusion is that remittance contributes significant value to the economy hence RBI has to regulate this carefully and encourage the remittance participants so that they will invest more in India.

Conclusion is that remittance contributes significant value to the economy hence RBI has to regulate this carefully and encourage the remittance participants so that they will invest more in India.

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