In recent years, India has witnessed robust growth in remittances to its shores. In 2023, inward remittances to the country shot up by 12.3 per cent to $125 billion (Dh450 billion). The UAE accounted for 18 per cent of this inflow.
According to the Migration and Development Brief released by the World Bank, this was 3.4 per cent of India’s gross domestic product.
There are several reasons for this inflow, including a bilateral agreement between the countries. “Remittance flows to India benefited particularly from its February 2023 agreement with the UAE for establishing a framework to promote the use of local currencies for cross-border transactions and cooperation for interlinking payment and messaging systems,” the report stated.
Drivers of growth
Resilient labour market, creation of new employment opportunities and job growth in the UAE and other Gulf countries have contributed significantly to the upward trajectory of remittances to India. “The remittance flows from the UAE to India have shown a continuous increase as resilient labour markets in GCC countries continue supporting migrants’ ability to send money back home,” says Abdel Kareem Al Kayed, CEO, Wall Street Exchange. “The steady income of the UAE residents also enabled a positive increase of remittances to India and other South Asian countries.”
The other reason for India’s growth in the sector is the low remittance cost in the country. It stands at 4.3 per cent, which is 30 per cent lower than the global average of 6.2 per cent as of the second quarter of 2023. “Low remittance costs, exponential trade growth, and the increase in labour demand continue to remain the main growth drivers in the remittance industry in the UAE,” says Al Kayed.
The UAE has also witnessed a rise in demand for quick and easy transfers and processes. “Customers always look for affordable transfer fees, faster transfer options and a simple process. There is also a surge in demand for secure and dependable methods to transfer funds domestically and internationally,” Al Kayed points out.
Embracing digitisation and cutting-edge technology, exchange houses in the UAE have introduced efficient and seamless transaction processes.
“A paramount focus is on enhancing financial inclusion by streamlining access to and usage of digital payments,” says Adeeb Ahamed, Managing Director of LuLu Financial Holdings.
“The industry is experiencing increased interoperability, paving the way for robust payment solutions. This includes the rise of Central Bank Digital Currencies (CBDCs) and the integration of blockchain-based and fiat currency-backed systems into the realm of consumer payments.”
Ahamed adds that traditional payment institutions are undergoing disintermediation, making transfers quicker and easier than ever before. “This enables seamless exchanges in cross-border remittances, peer-to-peer payments, and even customer-to-business retail transactions. The evolving landscape is fostering a conducive ecosystem for financial services.”
The transformation, he adds, is reflected in the introduction of various remittance products categorised by types, including Person to Person (P2P), Person to Business (P2B), and Business to Business (B2B).
Industry experts anticipate robust remittance flows between the UAE and India in 2024. “Our forecasts for 2024 are quite optimistic, expecting a robust growth ranging between 12 and 15 per cent in remittances from the UAE to India,” says Ahamed. “This indicates a positive trend in cross-border financial transactions. The expected growth underscores the resilience and strength of the remittance sector, contributing significantly to the economic ties between the two nations.”