The bump in remittances helped India paper over a burgeoning trade deficit on higher oil prices alongside a flight of capital from its equity market. The risks to the current account from slowing global trade and to the capital account from heightened financial market volatility persist. India may not have the additional comfort of heightened remittances going forward and would need to step up efforts to boost exports and be more inviting to foreign direct investment. Its pivot away from regional trade pacts to bilateral ones puts both exports and inbound investments at a relative disadvantage.
The size of inbound remittances also diverts policy attention away from the regional imbalance it fosters. Although emigration patterns are moving away from the south and towards the east, the pace is not rapid enough. Since white-collar emigration has a close association with IT skills, the process could be speeded up by creating new technology clusters in underserved areas. Blue-collar emigration is more widely dispersed. However, it does not have the same potential to increase remittances as the office work variety. India must manage its emigration better to derive more bang from the bucks its migrant workers send home.
