Indian Remittances at Risk: US policies may vanish ₹4.43 lakh crore from the Indian Economy

India Ratings and Research (Ind-Ra) warns that US immigration and remittance tax changes could reduce India’s remittance inflows by $5 billion in FY26. Though the impact on foreign reserves may be limited, over-dependence on the US poses long-term structural risks.

New Delhi: India's rating agency, India Ratings and Research (Ind-Ra), says that the new immigration and remittance tax policies recently implemented by the US will not significantly impact India's external balance but could reduce remittances (money sent by the Indian diaspora) by approximately $5 billion in FY26 (2025-26).

What is the impact of the new US policy?

The US has significantly increased H1B visa fees to $100,000. A "remittance tax" is also proposed under "One Big Beautiful Bill." These policies will put additional economic pressure on the Indian diaspora and could impact the number of Indians working in the US.

What is a remittance tax?

The U.S. will impose a 1% excise tax on certain international money transfers, also known as remittances, following the passage of the "One Big Beautiful Bill Act" in July 2025. The tax applies to transfers funded by physical instruments, such as cash, money orders, or cashier's checks and will take effect on January 1, 2026.

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Remittances: A Strong Pillar of India's Economic Security

India was the largest recipient of remittances in the world, with remittances worth $124.6 billion in FY25. These remittances have financed up to 48% of India's trade deficit. Remittances accounted for 3.18% of GDP in FY25, the highest level in a decade.

Excessive Dependence on the US

In FY24, the US accounted for 27.7% of India's total remittances, more than the UAE. This shows that India's remittances have become heavily dependent on the US economy and policies.

According to experts, India should now promote labor agreements with regions such as Europe, Canada, and East Asia.

Suggestions for Policy-Making

The government should encourage formal remittances through digital channels and tax incentives. Diversification of the remittance base is essential to avoid dependence on any one country.

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While the new US policies will not directly impact India's total foreign exchange earnings significantly, they could have symbolic and structural effects in the long term:

• The migration of skilled workers may slow.
• The rupee may come under pressure.
• The security of foreign transactions may decrease.

Therefore, policymakers will need to carefully monitor and prepare a strategy to ensure that this "small shock" does not become a major weakness in the long run.