Money transfer or rather remittances are specific money transfers which are made by the non-residential Indians (NRIs) living and working outside the country to their families, relatives, friends etc. Indian is the country which receives the highest amount in remittance around the world. In the year 2015 it received the 12% of the total remittance around the world and that year the remittance amounted to 4% of the Gross Domestic Product (GDP) of the country. The data from the Ministry of Overseas Indian Affairs (MOIA) shows that India receives remittances from nearly 25 million or more individuals working outside India in various countries.
Money transfer to India happens by means of electronic transfer or demand draft or it may also be sent by means of Travellers cheque. The highest remittance receiving states in India are Uttar Pradesh, Punjab, and Kerala etc. In regards to the effect of this money on economy well most households in the above mentioned states depend on this very money. This is the only maintenance amount they have. This is the money for them to run the household. The remittances form 20 – 23% of the total foreign exchange amount of India. Though India does not at all desperately depend on this amount but still, this amount adds greatly to the economy of the country.
These inbound transfers exceeded the FDI in 2012 thus this goes to show that how much important this amount is in the Indian economy. India’s Balance of Payment is greatly supported by these money transfers. Since the boom in IT sector there has been a sudden increase in the remittances flowing into India as many people from India went abroad for these jobs created by the IT upsurge.
This money usually gets invested in the real estate industry as there are generally no laws regarding its many aspects or if there are they are not very stringent thus these prove to be the best option for an individual investment by a guy working abroad. The money is also used for charity in many cases and in few instances it is used in collaboration with few NGOs and government authorities for some social work. But mostly it is kept in banks at higher interest rates.
Plans are being made to effectively channelize this money and use it in best possible ways and thus instruments or rather well thought schemes are being prepared to invest this money effectively in stock market which was seen in year 2003-04 on a small scale and due to which markets saw an upsurge in the year 03-04. Investment sector is coming up with lucrative schemes as they know that most people working in the Arab countries are not insured or under insured and thus products are being designed with them in mind to lure them into insuring themselves. Big investors are ready to invest in industries like education, healthcare, and a few others to quicken the pace of development of India. Thus one way or the other the money finds its way to some specific business activity in India and the money becomes an active part in the Indian economy.
RBI is working to make NRIs send more money back to their homeland or invest it in any form in India. There was a de- regulation done on the interest rates for the accounts specially designed for NRIs which encouraged them to bank in India. One major reason that led to the inflow of money in India was the difference in the values of dollar and rupee which made investing of dollar in India a reasonable move for the NRIs and this greatly benefitted our country.
Today India is rising in terms of its economy and before the downfall of economy factors like FDI, globalisation etc. were the greatest contributors of external economy in the Indian economy but as seen above the remittances exceed FDI thus in the current scenario remittances cannot be neglected.