Remittances boost Indian economy

NEW DELHI: It has been a silent transformation in India''s foreign transactions. The receipts categorised as "invisibles" in the RBI''s books have turned out to be India''s real strength in its external sector.
Invisibles, comprising earnings out of services exports, remittances from Indian workers, income from financial assets and earnings from foreign tourists, have rapidly been catching up with merchandise exports as the principal foreign exchange earners for the country.
Several forces are at work, says a report prepared by the division of international finance of the RBI''s department of economic analysis and policy, explaining why "invisibles" have become so important. One, there have been structural shifts in the economy, in which services have a dominant position and drive growth. Two, economic reforms have enabled productivity and cost efficiency to set a cutting edge to international competitiveness. Three, the IT revolution has enabled the reaping of the returns to India''s knowledge advantage. Lastly, the changes in the country''s macroeconomic environment have made the country the preferred habitat for the financial savings of its diasporas.
In 1991, invisible receipts were only 2.4% of India''s GDP. This had steadily increased to 8.8% by 2003-04. Net invisible earnings have underpinned the dramatic strengthening of India''s external accounts through the 1990s and the first quniquennium of the 2000s.
In the external payments crisis year of 1990-91, there was a net outflow of $200 million in the invisibles account. By 1995-96, net invisible earnings had increased to $5.4 billion, growing to $9.8 billion by 2001-01 and further to $15 billion in 2001-02 and to $17 billion in 2002-03. In 2003-04, net inflows were a massive $26 billion and with net invisibles earning amounting to $14.2 billion in the first half of 2004-05, the current fiscal is expected to end with a further build-up in these earnings.
Broad trends indicate that inward remittances from Indians located overseas have surged in response to the economic reforms since 1993. These private transfers amounted to $ 23.183 billion last fiscal, up from $ 13.065 billion in 2000-01.
India''s traditional advantage in exports of labour has benefited in recent years from a distinct shift in the destination pattern of the outflow of its nationals away from West Asia in favour of Europe and America. In 2003-04, India was the world''s leading recipient of remittances, accounting for about 20% of global flows. This position is expected to be maintained in 2004-05.
According to the International Monetary Fund(IMF) data, India ranked 18th among the world''s leading exporters of services, with a share of 1.3% in world exports. It moved up from 27th position in 1990 when its share was 0.6%.
Among commercial services, India is fast emerging among the top 10 tourism exporting countries of the world. According to the World Travel and Tourism Council, India became the second fastest growing tourism economy in the world. Foreign tourists spent $4.122 billion in India last fiscal, up from $ 3.497 in 2000-01.
But in the travel account, the net earnings were not massive. There has also been a spurt in outbound tourist traffic from India. Currently, about 4.5 million Indian annually travel abroad, which exceeds the number of international tourist arrivals in India. Last fiscal, Indian spent $ 3.511 billion in travel account, of which business travel cost $ 2.47 billion and education related travel cost $ 237 million.
The other broad trend is that the IT industry in India has fortified its position as a world leader. In business process outsourcing (BPO), India has maintained its lead as the best outsourcing destination, particularly for the US and European companies.
India accounted for 3.4% of global IT spending in 2003-04. In IT-enabled services, India renders two-thirds of all offshore services worldwide.