Remittances have become the unsung hero of India’s macroeconomic stability in the face of global economic challenges, unpredictable Foreign Portfolio Investments (FPIs), and a growing merchandise trade deficit.
In fiscal year 2026, India received US$ 140 billion in remittances, a figure that has continuously increased over time and shows a robust 35 million Indian diaspora, who send money back to the country for investments, savings and family maintenance costs.
Indian Diaspora is seen as the country’s soft power in terms of people, skill, culture which has potential to shape India’s interests abroad.
However, as we have already seen, the same soft power also helps India to bring the crucial “hard" currency back to the country. The nation’s current account deficit is kept under control by remittances and deposits.
Remittances support external balances
Reducing the CAD (current account deficit)
Structure of Balance of Payments (BoP): The Current Account and the Capital Account CAD) make up the BoP. The current account classifies remittances as “Invisibles."
Services, income, and transfers are examples of invisibles in India’s BoP. Remittances are classified as personal or private transfers, which are included in the Current Account’s Net Secondary Income (NSI).
Reducing Trade Gap: India’s economy is structurally CAD due to a growing merchandise trade gap, that increased from USD 6 billion in 2000–01 to US$ 284 billion in 2024–2025. Remittances alone accounted for 47.5 per cent of this massive trade deficit in 2024–2025.
A large amount of this trade deficit is compensated by remittances, which operate as a huge, liability-free surplus, keeping the total CAD within a safe and manageable range (typically targeted below 2.5 per cent of GDP).
Remittance inflows have, on average, covered the whole amount of India’s merchandise trade imbalance since the middle of 2013.
Maintaining the Rupee: Remittances offer a steady and constant supply of foreign currency (such as US dollars, euros, and UAE dirhams) into the Indian economy, in contrast to FPIs, which are seen as hot money and can cause quick capital outflows during global concerns.
There is a steady demand for the rupee when families change their foreign currency into INR for domestic consumption.
This protects the home currency from sudden declines brought on by unpredictable sell-offs by foreign investors.
Drives economic growth
Non-Debt Creating Inflows: Remittances are private, non-returnable transfers, in contrast to Foreign Direct Investment (FDI) and External Commercial Borrowings (ECBs), which entail future repayment obligations or dividend repatriations.
Currency Reserves: They help build and maintain India’s substantial currency reserves by reducing the need for the RBI to actively engage in the forex market.
