Remittances from abroad are a vital yet underappreciated source of funding for India at a macro level, according to Capital Economics.
Without it, the country’s deficit “would have placed it alongside the likes of Turkey and Argentina -two countries that have suffered a currency crisis,” said Shilan Shah, senior India economist in Singapore at Capital Economics in an India Focus report entitled ‘A helping hand from the diaspora’.
India received $69bn (£53bn, €60bn) in overseas remittances last year, equivalent to almost 3% of GDP, Capital Economics said.
Without that inflow from an estimated 20 million nationals abroad, India’s current account deficit would have been around 5% of GDP at mid-year, rather than 2%, it said.
Remittances should rise 5-6% in the coming years, preventing the deficit from widening past 2% to 2.5% of GDP, it said.
Significant support
These sums provide significant financial support for millions of families, Shah said:
“Remittances may not grow as fast as the wider economy over coming years but they should continue to increase.
“This will allow India to maintain domestic demand in excess of potential supply without having to rely heavily on other, more volatile types of inflows.”
