5% Levy May Impact Indian Families, Rupee Stability, Warns GTRI
New Delhi, May 18 – A proposed 5 per cent tax on international remittances sent by non-citizens in the United States is triggering alarm in India, with experts warning of a potential dip in remittance inflows and added pressure on the Indian rupee. The proposal, part of a wider US legislative initiative titled ‘The One Big Beautiful Bill’, was introduced in the US House of Representatives on May 12.According to the Global Trade Research Initiative (GTRI), the tax would apply to remittances sent by non-US citizens, including green card holders and temporary visa workers such as those on H-1B and H-2A visas. US citizens would be exempt from the proposed levy.
India Faces High Exposure Amid Record Remittance Inflows
India, which received USD 120 billion in remittances in 2023-24, is particularly vulnerable to such a policy change. Nearly 28 per cent of these inflows originated from the US, according to GTRI.“The proposed tax could significantly raise the cost of sending money home. Even a 10 to 15 per cent decline in remittance flows could mean a USD 12 to 18 billion shortfall for India annually,” said Ajay Srivastava, founder of GTRI.
Currency Risks and Household Impact
A reduction in foreign currency inflows would strain India’s forex reserves and could weaken the rupee, warned Srivastava. He estimated that the rupee could depreciate by Rs 1 to 1.5 per US dollar if the full impact of the remittance cut materialises.This could force the Reserve Bank of India (RBI) to intervene more frequently in currency markets to stabilise the rupee.
Moreover, the economic repercussions would likely be felt most acutely in states like Kerala, Uttar Pradesh, and Bihar, where remittances serve as a critical lifeline for millions of households. These funds are widely used for essential needs such as education, healthcare, and housing.
Development Financing at Risk
Srivastava also expressed concern that the proposed tax could undermine global development financing by disrupting cross-border capital flows. “This move risks reducing household income in poorer nations and weakening global demand, particularly in economies already dealing with inequality and instability,” he said.WTO Context Adds to Relevance
The development is particularly significant in light of India’s ongoing efforts at the World Trade Organization (WTO) to lower the cost of cross-border remittances and capital transfers. India has advocated for easing financial flows to bolster economic development across the Global South.As debate over the bill unfolds in the US, its potential global ripple effects are already drawing attention far beyond American shores.