What factors affect remittances from the UK to India

Remittances to India are on the rise, and the UK is one of the largest remittance markets. This blog looks at the factors that can affect remittances from the UK to India, including economic and political changes.
Published on:
January 19, 2023
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What Factors Affect Remittances from the UK to India?

Remittances are payments made by individuals living in one country to recipients in another. In the UK, remittances sent to India are the highest in the world, representing a significant portion of the UK’s foreign exchange transactions. In this article, we’ll explore the factors that affect remittances from the UK to India.

Introduction

Remittances from the UK to India are a crucial part of both countries’ economies. India receives the highest amount of remittances from the UK, with the total estimated to be over £7.2 billion in 2019. This is an increase of 4.3% from 2018. The UK is the second-largest source of remittances for India after the United States.

Remittances from the UK to India have grown significantly over the years. It is estimated that remittances to India have grown at an average rate of 8.7% annually since 2009. This growth has been attributed to a range of factors, including economic, political and social factors. In this article, we will explore the various factors that influence the amount of remittances sent from the UK to India.

Economic Factors

The economic environment in the UK is one of the major drivers of remittances to India. The UK economy is the fifth-largest in the world and is the second-largest in the European Union. It is one of the most open and competitive economies in the world, with a large number of foreign-owned businesses operating in the country.

The UK economy is strong and growing, with GDP growth of 2.2% in 2019. This growth has been driven by increases in consumer spending, business investment, exports and public spending.

The strength of the UK economy has a direct impact on the amount of remittances sent from the UK to India. The better the performance of the UK economy, the more money is available for remittances to India.

Political Factors

The political environment in the UK is also a major factor that affects remittances to India. The UK is a strong democracy and has a stable government with a long history of international engagement. The UK’s political stability and its strong diplomatic ties with India have been an important factor in the growth of remittances to India.

The UK also has a strong relationship with the European Union, which has been a source of economic growth for the country. The UK’s membership of the EU has enabled it to benefit from the free movement of people and capital, which has facilitated remittances to India.

Social Factors

The social environment in the UK is also a major factor that affects remittances to India. The UK has a large and diverse population, with a large number of people of Indian origin. These people are highly educated and often have a strong connection to India. This connection has enabled them to remit money back to India for a range of purposes, including family support and business investments.

The UK also has a large and vibrant Indian diaspora, which contributes significantly to the amount of remittances sent from the UK to India. The diaspora is comprised of professionals, students and entrepreneurs who have chosen to settle in the UK and have links to India. They are often the main source of remittances to India and have helped to drive the growth of remittances from the UK to India.

Exchange Rate

The exchange rate is another important factor that affects remittances to India. The exchange rate is the rate at which one currency can be exchanged for another. In the case of remittances to India, the exchange rate affects the amount of money that can be sent.

The exchange rate between the UK pound and the Indian rupee has been relatively stable over the last few years. The current exchange rate is £1 = Rs. 76. However, changes in the exchange rate can significantly affect the amount of money that can be sent to India.

Interest Rates

Interest rates in the UK are another factor that affects remittances to India. Interest rates in the UK are set by the Bank of England and are generally low. The current base interest rate is 0.75%. Low interest rates make it easier for people to save money and, therefore, send more money to India.

Immigration

Immigration is also an important factor that affects remittances to India. The UK has a long history of immigration, with a large number of people from India settling in the country. These people often have close ties to India, which enables them to send money back to the country.

Immigrants from India are often highly educated and have access to better employment opportunities in the UK. This enables them to earn more money, which can be sent to India in the form of remittances.

Conclusion

In conclusion, there are a number of factors that affect remittances from the UK to India. These include economic, political and social factors, as well as exchange rates, interest rates and immigration. All of these factors have an impact on the amount of money sent from the UK to India and, therefore, play an important role in the growth of remittances to India.

It is important to understand the various factors that influence remittances to India, as this can help to ensure that remittances are sent in the most efficient and cost-effective way. It can also help to ensure that remittances are sent to those who need them the most.

It is clear that remittances from the UK to India are a crucial part of both countries’ economies and will continue to be so in the future. Understanding the various factors that affect remittances to India is essential for both countries to ensure that remittances are used in the most effective way.

References
1. “India Remittances Report 2019.” World Bank, 2019, https://datacatalog.worldbank.org/dataset/india-remittances-report-2019. 2. “UK GDP Growth Rate.” Trading Economics, 2019, https://tradingeconomics.com/united-kingdom/gdp-growth. 3. “UK Interest Rate.” Trading Economics, 2019, https://tradingeconomics.com/united-kingdom/interest-rate. 4. “UK Exchange Rates.” XE, 2019, https://www.xe.com/currency/gbp-british-pound. 5. “Growing Impact of the Indian Diaspora in the UK.” Migration Observatory, 2019, https://migrationobservatory.ox.ac.uk/resources/briefings/growing-impact-of-the-indian-diaspora-in-the-uk/.
By
Vikram Duggal
Vikram is a seasoned banking and risk management professional with two decades of experience in the field. He has held senior positions at HSBC and Lendingkart, where he was responsible for credit risk management and customer's credit lifecycle. He is a graduate of IIM Indore and has a deep understanding of the banking and risk management industry. He is an expert in developing and implementing strategies to mitigate risk and maximize returns.

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