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UAE, GCC to drive India’s remittance surge in 2024-25

Cross-border payment pact boosts fund flows

Published: Wed 24 Jul 2024, 3:54 PM

Updated: Wed 24 Jul 2024, 3:55 PM

By
Issac John

Remittances from overseas workers to India are expected to surge by 3.7 per cent in 2024, reaching a record $124 billion and reaching $129 billion in 2025, driven by increased outflow from the UAE, and other GCC countries, Economic Survey 2023-2024 has forecast.

The UAE, the largest source country for remittance to India, accounting for 18 per cent of the total inflow of $120 billion or $21.6 billion in 2023, will remain the key driver along with the US and other GCC countries.

"India's efforts to link its Unified Payments Interface (UPI) with source countries such as the UAE and Singapore are expected to reduce costs and speed up remittances," the survey presented on Monday by Indian Finance Minister Nirmala Sitharaman said ahead of her 7th budget presentation on Tuesday. It projected a steady increase in remittance inflows to the country over the next two years.

The flow of remittances to India from the UAE, benefited from the February 2023 agreement which established a framework to use local currencies for cross-border transactions and cooperation for interlinking payment and messaging systems between the two countries.

The use of the UAE’s dirhams and India’s rupees in cross-border transactions helped in bringing more remittances to India through formal channels. The UAE, which is India’s second largest trade partner, accounted for 18 per cent of India’s remittance flows.

The landmark Comprehensive Economic Partnership Agreement (Cepa) signed between the two countries in 2022 has helped to significantly boost two-way trade, which totalled $85 billion in 2023 as the foreign direct investment from the UAE into the south Asian nation surged to $3.3 billion.

Saudi Arabia, Kuwait, Oman, and Qatar, collectively accounted for 11 per cent of India’s total remittances, according to the World Bank.

India received the highest amount in remittances in 2023, followed by Mexico at $66 billion, China at $50 billion, the Philippines at $39 billion, and Pakistan at $27 billion.

The diversification of India's migrant pool -- between a large share of highly skilled workers employed mostly in high-income OECD markets, and the less[1]skilled migrants employed in the GCC markets -- is likely to lend stability to their remittances in the event of external shocks, it added.

Analysts said the projected remittance growth underscores India’s strong ties with its diaspora and increasing importance in international financial flows as the third largest Asian economy positions itself as a key player globally. This steady influx of foreign currency is expected to contribute significantly to India's economic stability and growth in the coming years.

The outlook on remittances came as part of a broader economic forecast that conservatively estimates India's real GDP growth for FY25 at 6.5-7 per cent. The survey provides a comprehensive overview of the country's economic state and future prospects and offers insights into various sectors of the economy, including foreign direct investment, artificial intelligence's impact on the workforce, and the performance of India's banking and financial sectors.