Saturday, 13 Jun, 2026
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Remittances are cushioning the external account, not transforming it. Long-term resilience will depend on attracting investment, reviving FDI and reducing the trade deficit, rather than relying on diaspora income
India’s latest external sector numbers tell two stories. One inspires confidence; the other raises concern.
The reassuring part is that the country ended 2025-26 with record remittances from Indians working overseas, allowing the economy to withstand a period of volatile financial markets and weak foreign capital inflows. The worrying part is that these remittances have become the country’s biggest external cushion precisely when foreign direct investment (FDI) and portfolio flows have slowed sharply.
That distinction matters. Remittances support household incomes and stabilise the balance of payments, but they cannot substitute for long-term investment that creates factories, jobs and productive capacity.
Despite capital outflows from financial markets and subdued net FDI inflows, India recorded a Balance of Payments (BoP) surplus of $7.22 billion in the January-March quarter of 2026. The principal reason was a surge in remittances—an inflow many feared would weaken because of the conflict in West Asia.
Instead, Indians working abroad sent home $31.07 billion during the quarter, the highest quarterly remittance inflow in 13 years and 34 per cent higher than a year earlier.
The annual numbers are even more striking. Workers' remittances touched an all-time high of $110.47 billion in 2025-26, up 26 per cent from $87.55 billion in 2024-25. It was the first time workers’ remittances crossed the $100-billion mark in a single financial year.
This should not be confused with the more widely quoted remittance figure, which has remained above $100 billion for four consecutive years. That number represents a broader category called private transfers, of which workers’ remittances account for more than two-thirds. The category also includes withdrawals and redemption of non-resident deposits, personal gifts and donations, including contributions to religious and charitable institutions, and gold and silver brought into India through passenger baggage.
Private transfers rose 15 per cent to $151.71 billion in 2025-26, while net transfers — after adjusting for outward remittances—increased 16 per cent to $144.07 billion.
Several factors appear to have fuelled the jump. Economists believe uncertainty arising from the conflict in West Asia prompted many overseas Indians to send more money home as a precaution. At the same time, the sharp depreciation of the rupee during 2025-26 made every dollar, dirham or pound worth more in rupee terms, encouraging higher remittances.
Government officials have indicated that remittance flows have remained resilient even after March, suggesting that the geopolitical tensions have not yet disrupted this vital source of foreign exchange.
Yet the remittance story is also changing in ways that deserve attention.
New Delhi’s dependence on the Gulf is gradually declining. According to the Reserve Bank of India’s latest remittance survey, the combined share of the UAE, Saudi Arabia, Kuwait, Qatar, Oman and Bahrain in inward remittances fell from 47 per cent in 2016-17 to 38 per cent in 2023-24.
The lost Gulf share, however, has largely been replaced by advanced economies such as the US and the UK. While this reflects the growing presence of skilled Indian professionals abroad, it creates a different set of risks. These economies are increasingly confronting the disruptive effects of artificial intelligence on employment, particularly in high-skilled occupations that employ many Indians.
The broader concern, however, lies elsewhere.
Remittances have become India’s strongest external buffer because more durable sources of foreign capital have weakened. Net FDI inflows amounted to less than $9 billion combined over 2024-25 and 2025-26. As a share of GDP, net FDI has been on a declining trend since 2010, raising questions about India's ability to attract long-term investment despite being one of the world's fastest-growing major economies.
Government officials acknowledge that reviving FDI will require a steady sequence of reforms rather than a single policy announcement. They also concede that reducing gold imports — another persistent pressure on the current account — is difficult because gold demand in India is driven not merely by investment but also by cultural traditions, weddings and household savings preferences.
To strengthen the external account, the government has already announced measures such as removing taxes on foreign investors' bond investments, introducing a swap scheme for Foreign Currency Non-Resident (Bank) deposits and facilitating overseas borrowing by public sector enterprises.
The risks, however, have not disappeared. India's current account deficit remains heavily dependent on oil prices, and crude continues to trade at elevated levels. Analysts also expect importers to take advantage of any temporary appreciation in the rupee to purchase dollars more cheaply, while India's relatively low real interest rates make it less attractive to global yield-seeking investors.
The latest numbers therefore offer reassurance, but also a warning.
Economists are of the view that no economy can rely indefinitely on its workers abroad to compensate for weak investment at home. Remittances sustain consumption. They do not build factories, finance infrastructure or generate the productivity gains needed for sustained economic growth.
India’s external accounts may be comfortable today because of record remittances. Their long-term health, however, will depend on restoring investor confidence, reviving FDI and narrowing the trade deficit. Until then, diaspora dollars will remain an invaluable cushion—but they cannot become the foundation of India's growth story.
