Remittances

Also called: Private transfers · Topic: Balance of Payments and Exchange Rates · NCERT: Class 11, Ch 8 "Comparative Development Experiences of India and its Neighbours"; Class 12, Ch 6 "Open Economy Macroeconomics"

Meaning

Remittances are money that people working abroad send home to their families. In the balance of payments (BoP, the record of all dealings between a country's residents and the rest of the world), they are a transfer receipt, because the family gives nothing back in return.

• Under the IMF's BPM6 (the Balance of Payments Manual, 6th edition, the global standard), remittances are recorded as personal transfers under secondary income in the current account.
• They matter because they pay for a large part of India's goods import bill. India is the world's largest remittance recipient, at US$ 135.4 bn in FY25 [3].

Where they sit: Current account balance (CAB) = Balance of trade + Net invisibles, where Invisibles = Services + Income + Transfers (remittances, gifts, grants).

Explanation

How remittances enter the BoP

• The sender is a non-resident.
• A "resident" is a person whose main economic interest is in the country. Citizenship does not decide this.
• An Indian who has settled to work in Dubai is a resident of the UAE for BoP purposes.

• So when that worker sends money to a family in Kerala, the money moves from the rest of the world to an Indian resident. That makes it a BoP transaction.

• It is a credit (+) entry. Money comes into India, just like export earnings.

• It is a one-way flow.
• The family does not sell a good or service in return.
• It does not create a loan that has to be repaid later.
• This is why remittances are in the current account and not the capital account.

Types of transfers

• Transfers are receipts where nothing is given in return. They have three common forms:
• Remittances: money sent home by migrant workers. This is the largest part for India.
• Gifts: personal gifts from people abroad.

• Grants: aid from foreign governments or bodies.

• NCERT vs BPM6 labels:

• NCERT calls this item "transfers", one of the three parts of invisibles.
• BPM6 and the RBI call it secondary income. Factor income (wages, interest, profits) is called primary income.
• RBI press releases use the phrase "personal transfer receipts under secondary income account" [2].

Worked example: how much remittances change the CAB

Using NCERT Table 6.1 (US$ million):

Item	With transfers	Without transfers
Trade balance (150 − 240)	−90	−90
Non-factor services	30	30
Income	−10	−10
Transfers	32	0
Net invisibles	52	20
Current account balance	−38	−70

• Transfers of 32 cut the current account deficit (CAD) from 70 to 38.
• In this example, transfers alone cover about 35% of the goods deficit of 90.

What makes remittances rise or fall

• More workers abroad, and more skilled ones.
• More migrants → more money sent home.

• A growing share of India's remittances now comes from advanced economies, because more skilled Indians work there [3].

• Income and jobs in host countries.

• Host economy slows → migrants lose jobs or earn less → they send less money home.

• Migration and visa rules in host countries.

• Stricter visa rules → fewer migrants → lower remittances over time.

• The exchange rate.

• If the rupee depreciates (falls in value), each dollar sent home buys more rupees.

• This makes it more attractive to send money home.

• The cost of sending money.

• High transfer fees → some money moves through informal channels (such as hawala) → recorded remittances are lower.

In India

• Who measures them: The RBI records remittances in its quarterly BoP data. Its current account table follows BPM6: goods, services, primary income and secondary income [2].
• Size:
• FY25: US$ 135.4 bn. India is the world's largest recipient [3].
• Calendar year 2024 (World Bank estimate): India US$ 129 bn, ahead of Mexico (US$ 68 bn), China (US$ 48 bn), the Philippines (US$ 40 bn) and Pakistan (US$ 33 bn) [4].

• Q4 (Jan-Mar) 2025-26: personal transfer receipts were US$ 43.5 bn, up from US$ 33.9 bn in Q4 2024-25 [2].

• Their role in the current account:

• India's merchandise trade deficit (goods imports minus goods exports) was US$ 337.3 bn in 2025-26 [2].
• Net invisibles of about +US$ 312 bn covered roughly 93% of this gap. Remittances and the services surplus are the two main supports.
• As a result, the CAD was only US$ 25.2 bn (0.6% of GDP) in 2025-26, compared with US$ 22.9 bn (0.6% of GDP) in 2024-25 [2].

• Q4 2025-26 showed a current account surplus of US$ 7.1 bn (0.7% of GDP) [2]. Q4 is often in surplus because remittances and services exports peak in that quarter.

• Cost of sending: Sending money to India costs less than the global average. It still costs more than the SDG target of 3% (for sending US$ 200) [3].

Don't confuse with

• NRI deposits: When a non-resident Indian puts money into a bank account in India, the money must be repaid later. So it is a capital account item. A remittance to a family is a one-way transfer in the current account.
• Services exports (software, IT, GCCs): India earns this money by selling a service. A remittance is a transfer, so nothing is given in return.
• Compensation of employees (primary income): These are wages earned by workers who are still residents, such as short-term workers abroad. Money sent home by migrants who have become non-residents is secondary income.
• FDI / foreign investment: Foreign direct investment creates an ownership claim, and profits later flow out as primary income. Remittances create no claim and no future outflow.

Prelims Hooks

• Remittances are transfers. In BPM6 language they are secondary income in the current account. They are not capital account items and not services.
• Invisibles = non-factor services + income + transfers, and CAB = BoT + net invisibles. Remittances raise net invisibles and so reduce the CAD.
• India is the world's largest remittance recipient: US$ 135.4 bn in FY25 [3], and US$ 129 bn in CY2024 per the World Bank, ahead of Mexico, China, the Philippines and Pakistan [4].
• Trap: balance of trade covers goods only. Remittances do not change the BoT. They change the CAB.
• The BoP counts residents, not citizens. That is why money from an Indian citizen settled abroad counts as a receipt from the rest of the world.
• SDG target: the cost of sending remittances should be 3% (for sending US$ 200). Costs for India are still above this [3].

Mains Points

• A stable support, but exposed to outside risks.
• Remittances and IT/GCC services hold India's CAD near 0.6% of GDP even with a goods deficit of about US$ 337 bn (2025-26) [2].
• Both depend on conditions abroad: global slowdowns, AI automation and migration or visa policy in host countries.

• So India should diversify goods exports (for example electronics under PLI, the Production Linked Incentive scheme) instead of relying only on these supports.

• Better-quality flows, but costs must fall.

• The move towards advanced-economy sources shows more skilled migration [3]. These flows are usually more stable than earnings from low-wage Gulf jobs.
• Cutting transfer costs towards the 3% SDG target [3] would leave more money with families.

• Cheaper formal channels would also pull money away from informal channels such as hawala. This links to GS-II (diaspora policy) and GS-III (financial inclusion).

• Remittances vs debt-based financing (lesson of 1991).

• Remittances need no repayment and bring no interest or profit outflow.
• This makes them a safer support than short-term debt or volatile FPI (foreign portfolio investment).
• In 1991, large CADs financed by short-term borrowing ran forex reserves down to about two weeks of imports. Steady transfer receipts reduce the risk of such a crisis.

Related concepts

• Balance of payments
• Current account (balance of payments)
• Balance of trade
• Trade deficit
• Invisibles
• Non-factor services
• Income account (balance of payments)
• Current account deficit

Read more

• Balance of payments I: the current account