The Non-Resident Indians (NRIs) are part of India's soft power, boosting India's global image as well as adding to its diplomatic heft. But they hold a hard power too — the power of money. Inward remittances, or the money they send back to their families and relatives in India, bolster India's economy by fattening its foreign exchange reserves and ensure India's macroeconomic stability. They also fuel consumption and investment in India.
India's inward gross remittances touched an all-time high of $107.5 billion during calendar year 2022, RBI Governor Shaktikanta Das announced yesterday. The remittances have overshot the World Bank projection by $7.5 billion.
And that, besides other factors, has helped India's forex reserves to jump back to $600 billion now after nearly a year. Forex reserves have again crossed the $600-billion mark with the exchange rate stabilising and record remittance flows. Reserves had crossed the $600-billion mark for the first time in June 2021 and touched a high of $642 billion in September 2021 before slipping below that level in May 2022 when the rupee came under pressure following the Ukraine invasion. Forex reserves fund imports, most crucial of them being oil; help the government pay off its external debt; and strengthen India's currency.
Remittances account for a significant chunk of nearly 3% of India’s GDP. They are a buffer to India’s external sector, which has been stressed recently due to various global economic woes. When India's trade deficit widens, remittances provide a much-needed cushion. being the second largest source of external financing after service exports. Lately, India's external trade position got stable with narrowing of merchandise trade deficit, higher services exports and, of course, more-than-expected remittance growth.
Announcing the rise in reserves yesterday, Das said that the country’s current account deficit (the vale of import of goods and services exceeding the value of exports as a percentage of the GDP) has narrowed to 2.2% in Q4 from 3.7% in Q2 because of a lower merchandise trade deficit and robust growth in services exports. “Foreign exchange reserves have rebounded from $524.5 billion on October 21, 2022, and now stand in excess of $600 billion,” said Das.
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