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According to World Bank, remittances to India by non-resident Indians (NRIs) are expected to touch $100 billion in 2022. Increased remittances is a boon and may help in stabilizing the rupee. Mint explains the trend and how tapping NRI resources can help the economy.

What is the trend in NRI remittances?

According to a World Bank report, India may have received over $100 billion remittances in 2022, or 2.9% of GDP. While remittances to South Asian countries grew at an estimated 3.5% to $163 billion in 2022, there are large disparities, with Nepal seeing about 4% rise, against India’s projected gain of 12%. India has been a recipient of increased remittances consistently with inward remittances (money coming into the country) being $89 billion in 2021 as against $68 billion in 2012. However, high inflation in the US and UK, coupled with an economic slowdown, may hit inward remittance flow in 2023.

What explains this increased flow?

The labour market has been strong in the US and other OECD countries. This demand led to an increase in earnings. Meanwhile, a structural shift is underway. From low-skilled, informally employed personnel in the Gulf Cooperation Council (GCC) countries, Indian labour is becoming more dominant in high-skilled jobs, in high-income countries such as the US and UK, and East Asia. The share of remittances from the US, UK and Singapore increased from 26% to over 36% in 2022, while the share from the five GCC countries (Saudi Arabia, UAE, Kuwait, Oman, and Qatar) dropped from 54% to 28%.

Graphic: Mint
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Graphic: Mint

What are the norms proposed to boost inflows?

NRIs and POIs (persons of Indian origin) can invest at an individual level in stocks or invest money with a foreign portfolio investor (FPI). No single NRI can hold over 25% in the corpus of the FPI. But, as a group, NRIs can invest a maximum of 49% in an FPI. Discussions are underway to relax these curbs. The relaxed norms will be applicable in GIFT City to start with.

What are the risks in such a relaxation?

Amid a weaker rupee and net FPI outflows of $18 billion in 2022, increased NRI remittances will prove to be a boon and give a boost to the stock market and also help stabilize the rupee. However, there could be a risk of round-tripping of unaccounted money, especially if the investment is routed through tax havens like Mauritius. Hence, extra care should be taken with regards to the origin of the money. Authorities have to ensure the sources of income and tax compliance in the concerned country.

How can India tap the base of NRIs better?

The government can target NRI savings as a long-term investment, preferably as FDI. The focus should be on combining resources with talent—in fact, the latter is more crucial. India can take a cue from the success of Taiwan’s Hsinchu Science Park, conceived on the lines of Silicon Valley in the 1980s to attract emigrants back to Taiwan. Similarly, India needs to attract NRI scientists, doctors, and management experts back to the country.

Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH.

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