ET Explains: Elections and the surge in remittances

What are inward remittances?
They are money sent by an Indian who is residing overseas to their families back home for their daily maintenance. In India, in terms of data, it is reflected in “ private transfers” in the and is a major source of resources for any economy.

What are the factors that drive remittances?
It largely depends on a country’s and the that arise in different overseas markets that a country’s resident chooses to make use of besides the compensation package they offered. For Indians, opportunities first started pouring in a big way during the seventies when the oil boom in the Persian gulf countries created opportunities for Indian semiskilled workers . This led to some initial pick up in remittances. Later in the nineties the IT boom created a huge market for Indian skilled IT professionals in advanced economies in North America and Europe. This led to a surge in remittances to India leading India to emerge as one of the top recipients of remittances.

How does a country benefit from remittances in an open economy where foreign currency flows from a variety of sources?
Since the liberalisation of the Indian economy in the nineties, a number of avenues for reign currency flows like through foreign portfolio flows, foreign direct investment, and external commercial borrowings among others have emerged. But all these avenues are from the capital account in the balance of payments and are reversible. But the remittances are a permanent source of foreign currency inflows and is also handy to fund the country’s .

Is there a link between and the inward remittances?
Unlike with respect to cash in circulation where studies show that cash tends to surge during elections, there is no proven study or any analysis by the regulators that confirms the link between surge in remittances and elections. But the long-term data shows spikes in inward remittances around the general election time.

Will the uptrend continue?
Going by the numbers for FY’2022-23 when India received a record $112 billion it could be that the diaspora sent the money early this time round or probably even made good for a lower growth in remittances for the previous years. But a long=term shows that it is likely that growth of remittances may slow down.