India to be Largest Receiver of Remittances in 2011: WB

A weak rupee and rising incomes in the Middle East are main triggers for higher inflows, says World Bank

India is likely to be the largest recipient of remittance inflows this year, a World Bank report has said, easing pressure on the country’s balance of payments at a time when foreign investors have pulled out in large numbers.

Depreciation of the rupee and rising incomes in the Middle East account for the rise in remittances from Indian migrants, the latest World Bank migration and development brief said. The report noted that the inflows could have been much higher but for the weak employment in the US and the debt crisis in Europe.

According to the report, India is set to receive $58 billion worth of remittances this year. The figure is in line with the data published by the Reserve Bank of India, according to which the country received $29 billion in transfers in the first six months of the year. Remittances to developing countries are expected to rise by a fifth to $351 billion this year. China ($57 billion), Mexico ($24 billion), Philippines ($23 billion) and Pakistan ($12 billion) are also expected to gain as remittances to all developing countries have increased for the first time since the global economic crisis.

“The depreciation of the currencies of some large receiving countries (including Mexico, India and Bangladesh) created incentives to send remittances to take advantage of the ‘sale effect’ on local currency assets,” said Sanket Mohapatra, Dilip Ratha and Ani Silwal, authors of the report.

The authors have used anecdotal evidence from money transfer companies to conclude that remittances to India from Gulf countries surged during the third and fourth quarters of 2011. Gulf countries are the largest source of remittances into India. During 2010, they accounted for 53% of total transfers to South Asian countries. Soaring oil prices provided an additional incentive for transfers by migrant workers to their home countries, the report said. “High oil prices, which have hovered over $100 a barrel in recent months, continue to provide a much-needed cushion for migrant employment in, and remittance flows from, the GCC and Russia,” the report said.

Increasing inflows ease the stress on India’s balance of payments account as foreign investors, induced by rising risk aversion, have pulled out more than . 24,000 crore from the domestic markets.

“Following this rebound in 2011, the growth of remittance flows to developing countries is expected to continue at a rate of 7-8% annually to reach $441 billion by 2014,” it said.