What the India Remittance Landscape Could Look Like in 2017

Remittance is one of India’s most important sources of income. It counts for 4% of the country’s GDP. Countless families depend on relatives who work abroad to send money back in order to pay for school fees, mortgages, retirement funds, and daily expenses. An estimated 25 million of the 1.2 billion Indian citizens live and work abroad, are sending money home regularly.

The largest amount of remittance to India originates from the United States, the United Arab Emirates and Saudi Arabia.

At the same time, India has one of the fastest growing economies in the world, at an average growth rate of 7% per annum. This newly industrialized country is a key player to watch in the world’s economy, and therefore also in the field of remittance.

We will give a quick overview of the last two years’ remittance statistics and try to mark the path India’s remittance faces in 2017.

India’s remittance in 2015

According to Trading Economics, India was the world’s largest receiver of remittance in 2015. The fact rang true even after a $1 billion drop from the year before. The World Bank stated that this was the first time Indian remittance saw a decline since 2009, yet the drop didn’t cost the country’s title as the highest receiver of remittance in the world.

The World Bank’s annual report titled “Migration and Development Brief” reported that India received $69 billion in remittance in 2015. Out of this $11 billion came from the United States. The second largest remittance receiver at the time was China at $64 billion. The global decline in remittance was 1.7% in 2015, making India’s drop of 2.1% seem much less significant.

India’s remittance in 2016

Last year saw a significant drop in remittance to India, the total remittance drop by 5% in 2016. The estimated amount at the end of 2016 was $65.5 billion, a significant drop from the year before. India remained the highest receiver of remittance around the world, but only just. China was estimated to receive $65.2 billion in 2016.

Remittance to Bangladesh also decreased in 2016, but only by 3.5%. Remittance to Pakistan and Sri Lanka increased by 5.1% and 1.6% respectively. This shows that the problem is not one of global proportions, as remittance to other South Asian countries continued to climb.

The Times of India stated that, if the remittance to India continues to decline more drastically in 2017 and years to come, many families will face trying times.

India’s demonetization of 2016

The sudden and drastic demonetization that took place in India in 2016 might also affect its remittance for 2017. On 8 November 2016, the Government of India announced the demonetization of all ₹500 (US$7.40) and ₹1,000 (US$15) banknotes of the Mahatma Gandhi Series. This caused great uproar and lots of chaos as citizens scrambled to get to banks to replace their banknotes, which have become completely useless overnight.

The government’s motivation behind the demonetization was to curtail the shadow economy and crack down on the use of illicit and counterfeit cash to fund illegal activity and terrorism. Yet, according to The Guardian, 90% of banknotes have been returned after the announcement, a much higher amount than what the government suspected. Either there wasn’t as much illegal activity as suspected, or those who did have illegally acquired banknotes, found equally illegal ways to change their money to the new currency. Some believe certain bankers were bribed or forced to comply.

According to Forbes, 96% of transactions in India were conducted in cash at the time. Partly the reason for the demonetization was to encourage Indians to open bank accounts. Yet the sudden nature of the announcement gave them no warning, and the trade and economy came to a crashing halt. At the time, only half of the population had bank accounts.

The informal economy was therefore the hardest hit, and these are also the people who depend most heavily on remittance. Luckily, international money transfer companies adapted to the new banknotes swiftly.

Mobile and digital remittance in 2017

A significant development to observe and monitor in 2017 would be mobile remittance. 2014 saw a magnitude of startups offering Indians quick, easy and cheap means of sending money to India and receiving it on the other side – no bank account required. The idea at the time was to side step the prolonged process of paperwork required to transfer money abroad when signing up with the more traditional and established money transfer companies.

Yet these companies had some traits that the startups didn’t: they are reliable, secure and trusted. Today, many of these established companies offer mobile remittance, and even the Post Office of India has a mobile money transfer service that is accessible and doesn’t require a bank account.

Since mobile communication is the fastest developing mode of communication in developing countries, it will be interesting to watch how mobile remittance fairs in the rest of 2017. Predictions are that it will grow.

One thing the demonetization did achieve, was that more and more Indians are doing business digitally now. According to Forbes:

“The providers of e-wallet and other digital payment systems have correctly viewed demonetization as a way to promote their services and to obtain new users. Since Modi’s announcement, Paytm, a popular e-wallet, has seen a threefold increase in new sign-ups, while Oxigen Wallet’s daily users spiked by 167%.”

It is expected that a new wave of startups for digital remittance will see the light as 2017 moves forward.

It is still unclear whether the total amount of remittance will decrease further during 2017 or whether it will start climbing back to an increase, but it does seem that the means with which the money reaches India, and the way in which these dollars are then exchanged and traded within the country, will diversify as India moves away from being a predominantly cash economy.

Whatever happens, the money transfer services in India will continue to work hard to help Indians abroad to send their hard-earned money home.