The Phenomenal Rise in Remittances to India: A Closer Look

This report captures India’s exceptional growth in reported remittances over the 15-year period between 1990 and 2005. The report first explores the relative importance of these remittances in India’s economy, and then identifies factors responsible for this exponential gain by examining the effects of government and commercial bank policies, the profile of recent emigrants, and the strength of the Indian economy.

The author attributes the reported remittance surge to policy initiatives aimed at liberalizing the Indian economy and the emergence of a new class of high-skilled Indian diaspora, the intended and unintended consequences of which have diverted remittance flows into formal channels and away from informal hawala networks, and recast India as an “investment destination” to non-resident Indians (NRIs), who are increasingly becoming “investors” as opposed to pure “savers.”

While India has achieved a large sustained level of remittances, the author notes that research and analysis on the links between remittances and socioeconomic development in India are sorely lacking. A key challenge for the Indian government will be determining how to leverage inflows of capital from its diaspora effectively toward socioeconomic development. Based on the past success of NRI deposit accounts and bond initiatives, the report recommends offering investment options that are tied to India’s development goals in its infrastructure, education, and health sectors.