Stable Rupee, Resilient Oil to Push Remittances to New Peak

Remittance inflows to India will continue to rise and new peak this year despite global economic slowdown and geopolitical tensions, experts say.

Analysts and economists say remittances to India will grow to $124 billion in 2024 and record $129 billion by next year due to resilient oil prices and stable rupee against the US dollar. India received remittances worth $120 billion in 2023, supported by strong labour markets in the United States and Europe, according to the World Bank.

India remained the top recipient among remittance-recipient countries, followed by Mexico ($66 billion), China ($50 billion), the Philippines ($39 billion), and Pakistan ($27 billion), according to the World Bank’s latest Migration and Development Brief.

India also remained the largest origin countries of emigrants (18.7 million), followed by Ukraine (11.9 million), China (11.1 million), Mexico (11 million), and República Bolivariana de Venezuela (8.9 million).

The multilateral bank said remittance flows to India from the UAE, which account for 18 per cent and are the second-largest source of India’s remittances after the US, benefited from the February 2023 free trade agreement (FTA).

UAE Leads

Atik Munshi, managing partner, FinExpertiza UAE, said remittances from UAE to India has seen a good path over the years and is expected to grow further.

“The UAE is a major contributor for the remittances into India, it is very likely that the 18 per cent UAE share in 2023 may reach 20 per cent in 2024,” Munshi told Khaleej Times.

He said the UAE has a large Indian resident population, a considerable number such population sends money to India regularly, with the increase in population, such remittance would also increase. However, the key factor, in my view, which drives more remittance is the AED-INR rate, the weaker the rupee, the higher the remittance.

“One should also consider the reverse trend where we see a significant investment by Indian nationals into the UAE’s real estate market. With more and more Indians now considering UAE as their primary home, the upper bracket of NRE's in UAE may reduce their remittance to India as such funds would be utilised in UAE,” he said.

“In my view, the mid income and blue collar NRIs from UAE will continue to send a large part of their earnings to India for the foreseeable future, the volume is likely to increase in view of the increased number of NRIs in UAE,” he said.

Steady Rise Seen

Vijay Valecha, chief investment officer at Century Financial, said remittances to India experienced notable growth during the first half of the year and supported predominantly by contributions from the UAE and other GCC countries.

Referring to the Economic Survey 2023-24, he said remittances from overseas workers to India are projected to rise by 3.7 per cent in 2024, reaching a record $124 billion, with further growth expected to $129 billion in 2025.

He said the UAE remains the largest source of these remittances, contributing 18 per cent of the total inflow, equivalent to $21.6 billion in 2023. Other key contributors include the United States and GCC countries such as Saudi Arabia, Kuwait, Oman, and Qatar, which collectively accounted for 11 per cent of India’s total remittances. “The UAE's economic stability, bolstered by resilient oil prices and investments in non-oil sectors, has supported job stability for Indian expatriates in the region. This stability, coupled with a relatively stable Indian rupee against the US dollar, has helped maintain consistent remittance values,” Valecha told Khaleej Times.

Promising outlook

Looking ahead to the second half of 2024, Valecha said the outlook for remittances to India remains promising.

“The sustained economic stability in the UAE and GCC countries is expected to support continued robust remittance flows. Seasonal factors also play a role, with traditional peaks in remittance flows around major festivals and holidays, such as Diwali, likely to further boost the inflows,” he said. Besides, recent agreements and initiatives have played a significant role in this positive trajectory. Notably, the February 2023 agreement between India and the UAE to use local currencies for cross-border transactions has facilitated a smoother and more cost-effective remittance process. This agreement, part of the broader Comprehensive Economic Partnership Agreement (Cepa) signed in 2022, has been instrumental in boosting trade and investment between the two countries.

— muzaffarrizvi@khaleejtimes.com