RBI Deputy Governor Poonam Gupta Downplays Impact of West Asia Crisis on Remittances

Reserve Bank Deputy Governor Exudes Confidence in India's Balance of Payments

Reserve Bank Deputy Governor Poonam Gupta expressed confidence on Friday that inward remittances to India will not be impacted by the West Asia crisis. According to Gupta, India's Balance of Payments (BoP) will remain comfortable due to its inherent strengths.

India's BoP has several structural strengths, including solid remittances of over USD 135 billion, which have consistently shown healthy growth every year, even during the COVID-19 pandemic. Remittances have become a stable form of inflows for the country, with the migrant pool now diversified across geographies. The share of West Asia has declined to 40% of the total inflow, and migrants are now employed in various sectors, including IT, hospitality, health, education, and construction.

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Gupta noted that services exports and FDI inflows have been doing well, which provides a cushion against potential shocks. Portfolio flows have been weaker than in the past, but this has been countered by other parts of the balance of payments.

The conflict in West Asia has narrowed down to a stalemate in the Strait of Hormuz, and the rest of the region is not being targeted or impacted. Gupta believes that migrants who have not already returned will do so sooner, and as reconstruction efforts begin, they will be employed more than before. This means that remittances are expected to continue doing well.

On the issue of inflation targeting, Gupta said that regional heterogeneity in inflation may warrant a closer assessment when the government and the Reserve Bank of India review the framework in 2030-31. The review will also consider whether differential consumption or inflation patterns across states require a more nuanced approach. Another key area for discussion will be greater transparency in core inflation data, which has already begun.