Summary of this article
RBI confident remittances stable despite ongoing West Asia crisis
Remittance inflows exceed $135 billion, show consistent growth
Diversified migrant base reduces region-specific risks significantly
Reserve Bank Deputy Governor Poonam Gupta on Friday exuded confidence that inward remittances to India will not be impacted despite the West Asia crisis, and that the country's Balance of Payments (BoP) will be comfortable.
"India's BoP has some inherent strengths...two are on the current account side, and one is on the capital account side. Our remittances are solid, USD 135 billion plus, only move in one direction, which is a healthy growth every single year, even during COVID, they declined by a tiny bit," she noted.
Services exports have been doing very well, and even FDI inflows. These are structural strengths, which means shocks may happen, but these strengths would be there, she said at the ICPP Growth Conference here.
"So, when I look at all of these components, I am quite confident that our balance of payment has this inherent strength," she said.
On the flip side, she said, portfolio flows have been weaker than in the past, which has been countered by other parts of the balance of payments.
On remittances, Gupta said that the share of West Asia has declined to 40 per cent of the total inflow and the migrant pool is now diversified across geographies.
They are now working in various sectors, including IT, hospitality, health, education, and construction, she said, adding that even if one or two sectors are impacted, it does not have much bearing on inflows.
"So, all of these have made remittances a very, very stable form of inflows for us. So, to come to the more real-time question of how West Asia is likely to impact remittances, the numbers for March were better than before...perhaps, it was a wealth effect that migrants who have returned brought their accumulated savings. It's possible some of it may be that," she said.
The conflict is more narrowed down to a stalemate in the Strait of Hormuz, and the rest of the region is not being targeted or impacted, she said.
"Migrants, if they have not already returned, would return sooner, and as reconstruction effort starts, they will be employed more than before....so all of this means that I am not worried at all about remittance...continuing to do well," she said.
On the issue of inflation targeting, Gupta said regional heterogeneity in inflation may warrant a closer assessment when the government and the Reserve Bank of India will next review the framework.
The next review of the inflation targeting framework is due in 2030-31, as it is reviewed every five years.
Gupta wondered whether differential consumption or inflation patterns across states warrant a more nuanced approach.
As a possible question that may be asked at the time of the next review, she said. Another key area for discussion during the next review would be greater transparency in core inflation data, work on which has already begun, she said.
Following the monetary policy meeting in April, RBI Governor Sanjay Malhotra had said that the central bank will give projections for core inflation hereon. Other areas of discussion may be a lower inflation target band, updating the consumption basket more frequently, every three to five years, and the weightage of food and precious metal prices, among others.
The flexible inflation targeting framework was reviewed in March 2026, wherein the target was retained at 4 per cent, with a tolerance band of 2 per cent on either side. The monetary policy framework was introduced in May 2016 with the implementation of the flexible inflation targeting framework. In the first review conducted in March 2021, the target and range were retained for a period of five years, ending March 2026.
Gupta said that the flexible inflation targeting framework provides flexibility in the wake of heightened uncertainties and supply-side disruptions and helps stabilise growth over the business cycle. It also limits the need for frequent changes in policy rate, thereby reducing the risk of policy-induced volatility.
