Why proposed a cash transfer tax can harm India

Harvested deep in the distribution of Donald Trump “One, big, beautiful bill act” is a clause that can quietly take billions of money sent abroad.

It offers a 3.5% cash transfer tax Sent abroad by foreign workers, including green card owners and temporary visas, such as H-1B visas. For India, the recipient of the best translations worldwide – the consequences are serious, experts say. Other major recipients include Mexico, China, the Philippines, France, Pakistan and Bangladesh.

In 2023 Indians abroad Sent home $ 119 billion (88 billion British pounds) – sufficient to finance half of the goods trade deficit in India and overtake foreign direct investment, according to a Paper by the economists of the Reserve Bank of India (RBI). From this largest share comes from the United States. For millions of migrants, this includes the money related to the parent drug, a nephew or mortgage training at home.

A stupid tax on cash transfers can kill billions of migrant workers, many of whom already pay taxes in America. Probable result? Increasing informal, non -traceable money transfers and indentation in the most stable source of external funding in India.

India remains the best recipient of money transfer since 2008, with its share increasing from 11% in 2001 to 14% in 2024, according to the World Bank. The Central Bank in India says cash transfers are expected to remain strong, reaching approximately $ 160 billion by 2029. The country’s establishments are constantly moving about 3% of GDP since 2000.

The international population of migrants in India grew from 6.6 million in 1990 to 18.5 million in 2024, with a global share increasing from 4.3% to more than 6%. While the Persian Gulf still hosts almost half of all Indian migrants, qualified migration to advanced economies – especially the United States – has increased significantly, led by the global IT imprint in India.

The United States remains the main source of money transfers worldwide, with its share increasing from 23.4% in 2020-21 to nearly 28% in 2023-24, led by a highly post-foremise recovery and a 6.3% increase in workers abroad in 2022, a remarkably 78% of Indian migrants in US work.

Costs for cash transfers – conditioned by fees and currency transformation – have long been a concern for global policy due to their impact on families. Although world average costs remain above goals, India stands out as one of the most accessible destinations, reflecting the increase in digital channels and increased market competition.

A decline of 10-15% of money transfers can cost India $ 12-18 billion a year, tightening supplies in dollars and putting pressure on the rupee, according to Ajay, the Global Trade Research Initiative (GTRI). He believes that the central bank may need to step more often to stabilize the currency.

The bigger blow will land households in countries such as Kerala, Uttar Pradesh and Bihar, where money transfers are basic as education, healthcare and housing. The tax can “hit the consumption of households”, even when the Indian economy is struggling with global uncertainty and inflation, says a note in a note.

The money transfer tax can pull out the budgets of Indian households, consumption and investment in the attenuation, and undermine one of the most stable sources of currency in India, warns briefly by the Delhi Center for Study Studies. Maharashtra, followed by Kerala and Tamil Nad, continues to be among the dominant countries of the recipient.

Monetary transfer in India is largely used for consumption of households, savings and investment in assets such as housing, gold and small businesses. According to information about Pritam Banerjee policy from the brain tank, Saptarshee Mandal and Divyansh Dua.

The decline in the influx can shrink internal savings and reduce investments in both financial and physical assets. When the influx of cash transfers decreases, households are likely to “prioritize the needs of consumption (eg food, healthcare and education) over savings and investment,” the short.

A exploration At the Center for Global Development, based in Washington Brain Trust, it suggests that the proposed tax can sharply reduce official transfers, with Mexico faced with the largest hit – over $ 2.6 billion a year. Other major losses include India, China, Vietnam and several Latin American nations such as Guatemala, the Dominican Republic and El Salvador.

To be sure, there is still some confusion about the tax and the final approval is in anticipation of the Senate and the President’s signature.

“The tax applies to all the non-iconic and even the Embassy and UN Employees and the World Bank. But those who pay taxes may request a tax credit. In this way, the translation tax will only apply to those migrants who do not pay the guides. excuses, BBC said.

Dr. Rata writes in a LinkedIn note that migrants will try to reduce money transfers by turning to informal methods – manual transfer of money, sending money through friends, couriers, bus drivers or airline staff, organizing local currency payments or using friends in the US or Hala, checks And cryptocurrencies.

“Will the proposed tax determine unauthorized immigration in the US? Will it encourage it to be allowed to return home?” wonders Dr. Rata.

Not quite, he says. Working with a minimum wage in the United States earns over $ 24,000 a year – approximately four to 30 times more than in many developing countries. Migrants usually send home between $ 1,800 and $ 48,000 a year, calculates Dr. Rata.

“The 3.5% tax is unlikely to discourage these cash transfers. After all the main motivation for migration – migrants trying to cross the oceans and rivers and mountains – is to send money home to help helpless family members.”