Even though India does not rely on remittances by overseas Indians, it has still become a cause of worry for advisers of RBI governor Raghuram Rajan.
For the first time since 2009, remittances declined by 2.1% to $68.9 billion.
“Weak corporate sector and slowing remittances are concerns that monetary policy needs to take into account,” said the Reserve Bank’s technical advisory committee.
India is world’s largest remittance recipient and the World Bank warned of a dip a few months ago. World Bank said that remittances would decline by Indian diaspora owing to global economic slowdown and a sharp drop in global crude oil prices.
India does not depend on remittances to meet foreign exchange obligations as it is just about 3.4% of the GDP in 2014.
But, the decline points out towards lower structural liquidity.
“Domestic monetary policy has a limited role in calibrating this flow, but a slowdown has an impact on domestic liquidity. Lower remittances imply lower structural liquidity, which RBI might have to fill through OMO (open market operations) purchases,” Saugata Bhattacharya, chief economist, Axis Bank, told ET.
Credits Business Insider