India’s Reserve Bank recently conducted its fourth survey concerning the country’s inward remittances for the fiscal year 2016-17. The survey covered several aspects of remittances, such as sources, destinations, and purposes, as well as the sizes and modes of transmission. Costs for senders and receivers were also highlighted. Notably, according to the World Bank’s latest Migration and Development Brief, India was the top recipient of remittances in 2017, with an estimated $69 billion received from overseas Indians.
Survey Highlights
The survey produced several key findings. For instance, the United Arab Emirates (UAE) was the leading source of inward remittances, while Kerala received the most funds from abroad. A significant 82% of total remittances originated from only eight countries – UAE, United States, Saudi Arabia, Qatar, Kuwait, Oman, the United Kingdom, and Malaysia. Four Indian states – Kerala, Maharashtra, Karnataka, and Tamil Nadu – received a combined 58.7% of total remittances.
Use of Remittances
The study discovered that more than half of the remittances received by Indian residents were spent on family maintenance, including consumption (59.2%), bank deposits (20%), and investments in land and shares (8.3%).
Banks and Remittances
Remittances were primarily routed through private sector banks, which accounted for 74.2%, followed by public sector banks (17.3%), and foreign banks (8.5%).
Channels of Remittances
The Rupee Drawing Arrangement (RDA) was the most popular channel, handling 75.2% of remittances. Other channels included SWIFT (19.5%), direct transfers (3.4%), and cheques and drafts (1.9%).
Role of the FATF
The Financial Action Task Force (FATF) is an intergovernmental body that sets standards and promotes legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other threats to the international financial system. The RDA relies on the FATF’s compliance guidelines to facilitate cross-border remittances.
Vostro and Nostro Accounts
Vostro accounts enable foreign correspondent banks to act as agents for domestic banks, performing transactions such as wire transfers, withdrawals, and deposits in countries where the domestic bank lacks a physical presence. Conversely, from the perspective of domestic banks, funds deposited at correspondent banks are referred to as nostro accounts.
Role of SWIFT
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides a secure network that allows financial institutions globally to send and receive information about financial transactions.
Importance of Remittances
Remittances are critical for generating permanent inflows of foreign currency and financing the current account deficit. Unlike repatriable NRI deposits and instantly withdrawable FDI, remittances offer more stability. Therefore, experts suggest that the government should safeguard remittance inflows and identify ways to secure overseas markets through its policies to further promote worker migration.