Remittances
Remittances in the Indian context encompass inward transfers from the non-resident Indian (NRI) diaspora, which make India the world's largest recipient of remittances, as well as outward remittances under the RBI's Liberalised Remittance Scheme (LRS).
India has consistently topped the World Bank's annual remittance rankings. In FY2023–24, inward remittances exceeded USD 120 billion, surpassing both foreign direct investment and portfolio inflows as a source of foreign exchange. The primary corridors are the United States (a large share driven by IT professionals), the Gulf Cooperation Council states (driven by blue-collar migration), the United Kingdom, Canada, and Australia.
Inward remittances are recorded in the current account of India's balance of payments under 'secondary income.' They have a direct stabilising effect on the current account: in years when India's merchandise trade deficit widens — particularly during oil price spikes — buoyant remittances offset a portion of the shortfall and reduce pressure on the rupee. The RBI has cited remittance stability as a structural advantage of India's BoP compared to pure current-account-deficit-prone peers.
The destination of inward remittances is uneven across states. Kerala receives a disproportionately large share due to its high Gulf emigration rate. Maharashtra, Tamil Nadu, Uttar Pradesh, and Andhra Pradesh also figure prominently. At the micro level, remittances flow into household consumption, residential property construction, and local financial savings — with knock-on effects on cement, tiles, consumer durables, and small-ticket gold purchases.
Outward remittances under the LRS allow Indian residents to transfer up to USD 250,000 per financial year for permitted current and capital account transactions — education abroad, travel, maintenance of relatives, and overseas investments. LRS outflows surged sharply between FY2020 and FY2024 as overseas education and international holidays became more prevalent among upper-middle-class households. The Government of India applied a Tax Collected at Source (TCS) on LRS outflows above a threshold to moderate the outflow and create a tax trail.
For the bond and currency market, a sharp decline in inward remittances — possible during a global slowdown that hits Gulf or US employment — would widen India's effective current account deficit, potentially putting depreciation pressure on the rupee and prompting RBI forex market intervention, which in turn affects domestic liquidity.