NRI remittances touched the magic figure of USD 24.1 billion in 2005-2006, making India the largest recipient of personal money transfers in the world. Remittances and flow of funds from migrant workers to India is a key resource in its emerging economy. Remittances from NRIs and the deposits maintained by them form a generous component (about 23%) of our external reserves.

          A working report by the RBI on the cost of NRI remittances in May 2006 found that money flows are determined by the economic health in the host country. The dollars poured in from the Middle East workers in the 1980s, but the source of remittances has now shifted to the West, mainly the USA. This shift in source, says the study, has also meant that growth potential for remittance flows has now moved to traditionally high cost economies which will affect cost of NRI remittances.

          Currently, the Middle East contributes to 35% of total inward remittances, followed by 30 to 35% from North America, 20% from Europe, and 10% from other regions. The global remittance market is estimated at $110 billion, including India-bound remittances of almost $11 billion.

Recommendations by the RBI on Remittances

• The RBI has advised banks to minimize costs of remittances by reducing their charges at the domestic end and at the foreign end.
• It has suggested an awareness programme through the banks' web sites to encourage NRIs to use Indian banks or foreign banks having branches in India to transfer money to India.
• NRIs can affect the remittances in foreign currencies with instructions for conversion into Indian Rupees at the Indian end to get the benefit of a better exchange rate.
• Moreover, public sector banks can explore the feasibility of setting up centralized remittance receiving centre, extending the scope of real time gross settlement between banks in India.

          The report proposes to dispense with existing restrictions on the number of tie-ups by banks with exchange houses and the number of drawee branches for rupee drawing arrangements. However these relaxations could be extended to banks only with sound risk management systems.

          Remittance services offered by a host of commercial banks or authorized dealers, and money exchange service providers have speeded up money transfers across borders. Technology (internet) has made cash transfers possible in minutes. Extending the scope of existing electronic transfer facilities would help bring down remittance charges further.

Overseas Remittance

          On the other hand, the Reserve Bank of India in November, 2006 announced a series of measures to open up overseas investment by individuals.

• The limit for overseas remittance by resident Indians has been doubled from $25,000 at present to $50,000 per financial year. The amount could be used either for current or capital account transactions or for a combination of both.
• For outbound remittances, the RBI has removed the lock-in period for transfer of sale proceeds of immovable property in India by NRIs and PIOs. However, the lock-in is eliminated provided the amount being remitted does not exceed $1 million in any financial year out of the balances in their non-resident ordinary (NRO) accounts.