India is staring at a double whammy – It is at the risk of losing a several billion dollars remittance lifeline as US President Donald Trump cracks down on migration. Not only that, the US is also proposing to tax remittances, a move that will add to the woes of Indians in the US who remit money back home. Globally, remittances from overseas workers play a crucial role in sustaining local economies. Developing nations like India heavily rely on these financial transfers, with numerous villages substantially dependent on overseas remittances. India stands as the largest beneficiary of such transfers, receiving approximately $120 billion in the previous fiscal year, matching the government’s yearly infrastructure expenditure, according to a Bloomberg report.
US Largest Contributor of Remittances for India
RBI’s remittance survey from March revealed that of the $118.7 billion received in 2023-24, the US contributed nearly 28 per cent, which is around $32 billion.The RBI study published in March this year revealed that skilled workers are increasingly relocating to developed nations, with the United States accounting for 27.7% of total remittances. In fiscal year 2023-24, advanced economies contributed more than half of the total remittances, indicating a notable shift in migration patterns.The United States has emerged as the leading source, with its share increasing to 27.7% in FY24 from 23.4% in 2020-21. The report noted that “the share of the UK has also increased to 10.8% in 2023-24 from 6.8% in 2020-21, which may be attributed to the ‘Migration and Mobility Partnership’ (2021) between India and the UK.”Additional contributions came from Singapore (6.6%), Canada (3.8%), and Australia (2.3%), whilst GCC nations (UAE, Saudi Arabia, Kuwait, Qatar, Oman, & Bahrain) collectively provided 38%.The United States also maintains its position as the world’s primary source of remittances. According to Devesh Kapur, a political science professor at Johns Hopkins University in Baltimore specialising in diaspora studies, Indian migrants typically transfer approximately one-fifth of their earnings to their homeland, varying based on their family circumstances.Also Read | Why have H-1B visa applications plunged? Blame it on steep fee hike & Donald Trump’s anti-immigration stanceWith increasing restrictions on immigration by US President Donald Trump and other leaders of affluent nations, this essential financial flow faces potential reduction. “The American dream is turning into an American nightmare,” says Prasad Thotakura, president of the Indian American Friendship Council in Dallas, which seeks to educate members of Congress about the diaspora.
Crackdown On Migration: Impact on India
The increased monitoring of skilled visa programmes, including H-1B, could significantly affect numerous Indian nationals. Although undocumented workers send a larger percentage of their earnings home, the bulk of remittances to India originates from legal migrants who typically earn substantial incomes, says Kapur.The existing routes for long-term employment in the US remain restricted. Due to high application volumes from India, its citizens face greater challenges in securing green cards, which are permanent work authorisations issued in limited quantities per country. Throughout Trump’s previous administration, enhanced security protocols extended the processing times for US visas and increased the green card waiting list. Between 2016 and 2019, there was a 13% reduction in legal immigration.On Monday, the US announced visa restrictions targeting “owners, executives, and senior officials” of Indian travel agencies involved in facilitating unlawful immigration to America.Also Read | Forced to destroy! US rejects 15 mango shipments from India, exporters estimate losses of $500,000The US Embassy issued an official statement saying: “The department of state is taking steps (Monday) to impose visa restrictions on owners, executives, and senior officials of travel agencies based and operating in India for knowingly facilitating illegal immigration to the US. Mission India’s consular affairs and diplomatic security service work every day across our embassy and consulates to actively identify and target those engaged in facilitating illegal immigration and human smuggling and trafficking operations.“The restrictions specifically focus on travel organisations in India that knowingly assist individuals in entering the United States through unauthorised channels.
The Big
Adding to woes, the Trump administration is bringing The One Big Beautiful Bill, which carries significant implications for many Indians residing in the US, including both non-immigrant visa holders (such as H-1B) and green card holders. The legislation stipulates a 5% remittance tax on all international money transfers made by non-US citizens.
Based on current remittance patterns, the Indian community in the US could face an additional tax burden of $1.6 billion, assuming remittance volumes remain steady.
The absence of a minimum threshold means the tax applies to transfers of all sizes. The regulation would affect various categories of Indian residents in the US, including H-1B workers, L-1 visa holders (on intra-company transfers), and green card holders. Whether sending funds to family members in India or making investments in Indian assets like securities or property, all transfers would incur a 5 per cent deduction by the transfer service provider (such as a US bank).The potential implementation of a US remittance tax targeting non-citizens has sparked concerns in India, as the country faces the risk of substantial losses in yearly foreign currency inflows if the legislation is enacted, according to the Global Trade Research Initiative (GTRI).“A 5 per cent tax could significantly raise the cost of sending money home. A 10-15 per cent drop in remittance flows could result in a USD 12-18 billion shortfall for India annually,” GTRI founder Ajay Srivastava said.Also Read | Why India can be a big winner of Donald Trump 2.0 era if it plays its cards right
India-US Relations
India ranks third in terms of unauthorized immigration to the US. Immigration remains a contentious issue between the US and India, despite their strengthening alliance aimed at counterbalancing Chinese influence.US corporations have increasingly established their presence across India in recent years, ranging from iPhone manufacturing facilities to advanced business process operations. The significant contribution of Indian talent to the American technology sector is evident, with Microsoft Corp., Alphabet Inc. and Adobe Inc. being led by executives of Indian origin.
Global Angle
Global remittances exceed $800 billion annually. These financial transfers are the second-largest external funding stream to developing nations, originating from diverse sources such as South Asian construction workers in Dubai, Mexican farm labourers in the US or Filipino nannies in Hong Kong.For nations like the Philippines and Pakistan, these monetary inflows constitute approximately 10 per cent of their gross domestic product, highlighting their significant economic importance.The decline in remittance access has severe implications. Pakistan experienced a 15% reduction in yearly remittances between 2021 and 2023, primarily due to disadvantageous exchange rates, which led to economic turmoil, according to a Bloomberg report. The situation necessitated intervention from the International Monetary Fund through a rescue package, whilst Pakistan narrowly avoided default. Simultaneous political instability further aggravated these economic challenges.Also Read | ‘Don’t want you building in India’: Donald Trump’s clear message to Apple CEO Tim Cook to ‘Make in US’; says India can take care of themselves
