Buffer of remittances

The World Bank said in a report last week that India will continue to top the global remittances chart.

It estimates that Indians living abroad will send home $72 billion this year. That is twice the estimated current account deficit for the year. The upshot: remittances can act as a useful buffer in case there is another round of global volatility ahead.

Money sent into local banks by Indians living abroad is not without its problems. It was the sudden exit of such money that tipped India into a balance of payments crisis way back in 1991. A lot of this money does not come in for patriotic reasons but to milk high nominal interest rates in India. And there is another growing concern. The deepening economic crisis in West Asia, resulting from the collapse of oil prices, could harm remittances from that part of the world.

The risks cannot be denied. But an annual inflow of $72 billion is important when the global economy looks shaky.