India is poised to enhance remittance inflows through digitalization, according to the Reserve Bank of India (RBI). The acceptance of UPI and the emergence of CBDCs can revolutionize remittances, reducing costs and increasing volumes. Fintech companies offer the most cost-effective services, with an average cost of 4.2% for every $200 transferred. The study projects remittances to reach $160 billion in 2029 from $115 billion in 2023. India's leading labor supply and ongoing skill development will sustain inward remittances. Digitalization improves transparency, efficiency, and financial inclusion, strengthening India's external sector and promoting economic resilience. The RBI's emphasis on efficient remittance channels fosters a future of seamless financial transactions.
According to the Reserve Bank of India (RBI), the global acceptance of the Unified Payments Interface (UPI) and the emergence of Central Bank Digital Currencies (CBDCs) have the potential to revolutionize remittances, reducing costs, increasing volumes, and boosting inflows to recipients.
In its latest Report on Currency and Finance, the RBI highlighted that fintech companies offered the most cost-effective remittance services, with an average cost of 4.2 percent for every $200 transferred in 2023. In comparison, money transfer operators charged 5.4 percent, while banks had the highest cost at 11.5 percent.
The report revealed that during Q4:2023, the cost of remittance from countries like Singapore, Malaysia, the UK, Kuwait, Italy, and Bahrain fell within the Sustainable Development Goals (SDG) target. However, the cost from Thailand and South Africa exceeded 10 percent, potentially due to the dominance of banks in those countries. In contrast, the former countries benefited from a competitive remittance industry, with banks facing competition from money transfer operators (MTOs) and fintech companies, as highlighted by the RBI.
Furthermore, a study published in the report indicated that a mere one percent reduction in the cost of remitting $200 led to a 1.6 percent increase in remittances. Based on observed trends, remittances to India are projected to reach approximately $160 billion in 2029, a significant increase from the $115 billion recorded in 2023.
India's position as the world's leading supplier of labor is expected to persist until 2048, while major advanced economies are experiencing a decline. The global demand for Indian migrant workers, coupled with ongoing workforce skill development, will continue to drive inward remittances, according to the RBI, providing a sustained boost to the Indian economy.
The study also revealed that fast payment methods such as UPI and direct transfers through fintech companies proved more cost-effective than traditional bank transfers or money transfer operators.
Digitalization has played a pivotal role in transforming cross-border remittances and global capital flows. It has enhanced transparency, efficiency, financial inclusion, and facilitated coordination and risk management.
In India, the ratio of remittances to GDP has steadily increased from 2.8 percent in 2000 to 3.2 percent in 2023, surpassing the ratio of gross FDI inflows to GDP (1.9 percent in 2023). This trend strengthens India's external sector and underscores the importance of remittances in the country's economic landscape.
As India embraces digitalization and leverages innovative payment solutions, the remittance sector is set to witness further growth, benefiting both senders and recipients. The RBI's focus on promoting cost-effective and efficient remittance channels paves the way for a future where financial boundaries are effortlessly crossed, bolstering the nation's economic resilience and prosperity.
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