As the World's Top Recipient of Migrant Remittances, India May Need New Strategies to Harness this Success
WASHINGTON -- India receives close to 10 percent of global remittances, yet the potential of these remittances remains largely untapped by the Indian government. In a new Policy Brief, MPI analyst Muzaffar Chishti examines the surge in remittances to India and possible policy strategies to capitalize on these inflows of money from Indians abroad.
Remittances to India have skyrocketed in the past 10 years, jumping from $2.1 billion in FY1990-1991 to $24.1 billion in FY2005-2006. Mr. Chishti examines the factors behind this increase, including extensive Indian economic reforms, a decrease in the use of informal channels for remittances, shifting migration patterns to higher-skilled jobs, greater competition in the money transfer market, and the strength of the Indian economy.
He finds that although these remittances exceed total government expenditures in health and education and have a noticeable impact on regions of the country with high rates of migration, the Indian government has not instituted any policies specifically aimed at increasing remittance flows. Policies have instead focused on encouraging Non-Resident Indians (NRIs) to deposit money in Indian bank accounts to help shore up India’s foreign exchange reserves.
Policymakers are also taking note that Indian migrants have recently shifted from being “savers” to “investors.” The most significant factor in the surge in remittances and investments may ultimately be how NRIs perceive the Indian economy. In fact, the World Bank’s annual report released last week found that India’s GDP increased by 9.2 percent in 2006. In an effort to encourage NRI investments, the Ministry of Overseas Indian Affairs just launched an Overseas Indian Facilitation Center to act as a “one-stop shop” for information on investment opportunities in India and as a network for Indians abroad.
“The Indian government has had a great deal of success in encouraging Non-Resident Indians to deposit money in bank accounts in India and to buy Indian bonds specifically launched for NRIs,” said Mr. Chishti. “However, the challenge is to effectively channel the impressive remittances flows for the socioeconomic development of the country.”