The migration of Indians and money transfer to India have always been the same. India’s economic performance is improving significantly thanks to financial remittances from Hindu expatriates. After all, this type of financing makes up a considerable part of the cash flows into the state. Remittances significantly reduce the current account deficit and regularly support the balance of payments of Indians.
Recent decades have shown that overseas remittance to India is fundamental to ensuring the country’s development. Such fund transfers are made as payment or financial assistance to their Indian relatives. Money transfers are provided by financial support to India. It is worth noting that cross-border money transfers have become an essential source of foreign exchange for developing India. And the increase in foreign currency significantly affects the state’s overall economy.
During the Covid crisis, international wire transfers have decreased, but still cannot be compared with the reduction in foreign direct investment. Speaking about remittance trends to India during periods of global economic crises, it is noted that remittances, if reduced, are insignificant compared to other financial receipts in the country. Remittances to India are characterised by relative stability even during periods of economic downturns in countries around the world; all people have a great need to provide family financial support.
Impact of remittances on Indians and the state’s economy
Despite all this, the World Bank only predicts a few percent increase in remittances from Europe. It will have a positive impact on the economy of a developing country. After all, sending money to India strengthens the state’s economic and financial sphere, including providing credit lines. Thanks to the accumulative property of financial resources, the poverty level of the population is reduced, and inequality among the people is smoothed out; therefore, sending money home is very popular.
India is one of the largest recipients of remittances in the world, which provides a substantial economic impact of remittances. Thanks to financial support, the state’s current account deficit is reduced. It contributes to an increase in total production through this investment. Suppose you understand the main aspects that influence the remittance flow trends from Indian emigrants. In that case, you can create a stable program to ensure a continuous currency cash flow into India.
Let us highlight the main advantages of money transfer to India:
- The state’s economy becomes more stable.
- India’s current account deficit is shrinking.
- Positive impact on foreign exchange rates.
- Reduce debt on credit lines.
- Financial support for families.
- Reduce poverty and inequality.
Conducted studies confirm that currency exchange rates in the country and the cost of petroleum products largely depend on the size of foreign currency remittances from emigrating Indians. In addition, such remittances from Europe increase GDP within the state. Thus, many years of regular remittances from emigrants directly affect the economic impact of remittances on many individual Indian families.
Critical aspects of money transfers to India
Let’s follow remittance trends to India. Since the 90s, remittances have been the main factor in the current account of the balance of payments in the state. The active influx of foreign currency money has had a positive impact on the country’s Indian foreign exchange reserves. With the introduction of innovative technologies (the widespread use of online remittance services and simple currency exchange for India), reasonably stably, it became possible to ensure economic stability in the country.
Here are examples of the increase in overseas remittances to India from emigrants in American dollars:
- in the 90s – no more than 2.5 billion;
- in 2004 – approximately 19 billion;
- in 2011, the amount was approximately 55 billion;
- in 2014 – just under 70 billion;
- in 2020, transfers reached 84 billion;
- in 2022, already more than 100 billion.
This increase in the volume of remittances is associated with an increase in the emigration of Indians to more developed countries: the USA, Canada, and Europe. It is also due to the rise in the number of highly qualified Indian specialists who have become in demand in developed countries. Therefore, many Indians strive to obtain a prestigious education, contributing to successful employment and career growth. Having a decent salary, an Indian will always transfer part of it to India using money transfer platforms to provide financial assistance to relatives, including developing the family business. The state will receive its share of the company’s activities through paid taxes.
Due to financial and economic reforms, the volume of remittances has increased in India, and sending money to India has always been challenging. This is due to reduced costs of receiving funds from abroad, including simplified currency exchange for India. Despite various crises, sending money to India, although it decreased for some time (in 2016 – 62 billion USD), could always recover in any conditions.
Consequently, money transfer to India represents a stable financial flow of foreign currency. This is due to their greater resistance to various economic and financial problems than direct foreign investment. It is remittances from migrated Indians that help reduce the government’s current account deficit.
What determines the volume of remittances?
Remittances may be altruistic or driven by individual motives. Altruism makes it possible to adjust the needs of the economic activities of Hindu recipients. In addition, they guarantee against various adverse circumstances at home and provide financial support to India. Therefore, researchers are trying to identify factors contributing to increased financial transfers from emigrants for altruism.
As a rule, altruistic intentions are associated with economic instability in India and the desire to provide an economic impact of remittance. During periods of financial trouble, remittances from Indians exceed the growth pattern in the state. Foreign exchange transfers are stable and resilient even during periods of sharp economic downturn. But other foreign receipts are significantly reduced.
Altruistic intentions will motivate the flow of foreign currency from Indian emigrants, which helps curb foreign exchange rates. Therefore, the potential growth of such investments will depend on the extent of the economic crisis in India. Increased foreign exchange inflow will boost Indian manufacturing growth.
However, some indicators suggest that, based on the individual preferences of Indians, not everyone will increase the size of overseas remittances to India based on the deterioration of the economy as a whole. Everything will depend on the emigrant’s income and desire to help his relatives. Also, the decrease in foreign currency receipts may be affected by the economic downturn in the country where the Indians emigrated.
The fact is that during the economic crisis, many emigrants try to save money and accumulate their earnings. This is because the problem may be protracted, and the emigrant may have a decreased or no income for a certain period.
The nature of research on the impact of the size of transfers
Many studies are based simultaneously on the economic state of both countries at the same time: the sending and receiving parties. All this includes the following:
- economic indicators in the state (including the inflation rate);
- potential for financial growth and level of production development;
- interest rates of the national bank;
- level of exchange rate and its activity towards volatility;
- fluctuations in oil prices;
average salary level.
All this will influence the motivation of emigrated citizens to carry out financial transactions back home. As a rule, increasing Hindu emigrants proportionately increases foreign exchange earnings in India.
Also, the increase in cash receipts will be influenced by the degree of economic gap between India and the country from where transactions are carried out. The more significant this difference, the greater the number of currency transfers. It is noted that even with increased unemployment in the country where the emigrant lives, the motivation for transfer does not decrease. The amount of money transferred may only reduce slightly, but not their quantity.
The state’s national banks and various currency conversion services play an even more significant role in establishing specific requirements and rules for conducting currency transactions. The lower the transfer retention percentage for the sender and recipient, the more influential the amount will be transferred to India.
Undoubtedly, money transfer to India greatly helps the state’s economy and emigrants’ relatives. Many Indians strive to go to developed countries to obtain higher education and possibly further employment in this state. And this desire is understandable. The higher the income of an Indian, the more they can send money to India. All these foreign exchange earnings make it possible to close many loans and improve the population’s standard of living.
However, since the volume of foreign exchange received by India depends on many factors, researchers study this issue in detail and strive to smooth out the negative aspects in India that impede cash receipts and their reduction. Of course, factors independent of the state (both sending and receiving) may also arise, such as natural or environmental disasters. Also, military actions and sudden changes in government leadership can entail many changes that affect the variability of transactions.