Overseas Indians sent home $52 bn in 08

Despite a dismal 2008,homeward remittances by overseas Indians were a sharp 15% higher than even the earlier robust estimate of $45 billion,says the most recent World Bank update on migration and remittances.

Despite a dismal 2008,homeward remittances by overseas Indians were a sharp 15% higher than even the earlier robust estimate of $45 billion,says the most recent World Bank update on migration and remittances. The $52 billion makes remittances Indias largest source of foreign exchange,putting software exports in second position at $47 billion. This is sizably larger than RBI figures,which peg remittances at just $46.4 billion in 2008-09.

In line with the recent downward revision in the forecast of global economic growth,the World Bank has also said remittances to developing countries are expected to moderate to $304 billion in 2009–down 7.3% from an estimated $328 billion in 2008but that they would remain relatively resilient. In comparison,private flows to these countries are expected to contract by a much steeper 50% or more.

The flows have slowed down in many corridors since the last quarter of 2008,(but) the total flows in the year were much larger than the previous estimate of $305 billion, the World Bank report stated. India,along with China and Mexico,retained its position as one of the top recipients of migrant remittances among developing countries in 2008.

According to the Bank,remittances are relatively resilient because while new migration flows have declined,the number of overseas migrants has remained largely unaffected by the crisis. However,there are downside risks to the outlook as final flows will depend on the depth and duration of the current crisis,unpredictable movements in exchange rates,and the possibility that immigration controls may be tightened further in major destination countries.

Reasons for the fall in remittances in 2009 would vary across regions. Flows to Latin America have been falling in large part because of a slowdown in the US construction sector. However,flows to South Asia have been strong,but in 2009,projections show inflows will decline by 4%.

A lagged fall in remittances to South and East Asia may also arise from the current slowdown in economic activities in Gulf countries. This is especially relevant for Kerala in India,besides Bangladesh,Sri Lanka and the Philippines that have migrant workers in the construction sector in Dubai.

Remittance flows to some South and East Asian countries also increased sharply in 2008 partly because of depreciating currencies against the dollar made assets in home countries more attractive,with the sale effect resulting in a shift from remittances being sent for consumption to investment. These currencies appear to have plateaued in recent months.

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RBI has also lowered interest rates to mitigate the impact of the crisis. The high base effect of a large increase in remittances in 2008 will imply that money sent specifically for savings and investment to these countries could be substantially lower in 2009.