The US president has said that he wants to use tariffs to encourage companies to build plants in the US rather than overseas to manufacture goods.
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Donald Trump‘s policies are turning out to be anything but ‘friendly’ for Indians.Story continues below Advertisement
First, it was the tariff threat, now it’s the turn of remittances. This one, unfortunately, can directly hit the pockets of NRIs in the US.
Yes, I’m talking about
the new tax proposal in the United States—aimed at skimming 5% off every dollar sent abroad by non-citizens—that could strike at one of the country’s quiet but critical economic engines: remittances.
This plan, part of a sweeping U.S. legislative package approved by a key budget committee on May 18, threatens to shrink the financial lifeline that millions of Indian households depend on. Remember, last year alone, Indians abroad sent home nearly $119 billion. Of this, $32 billion—more than a quarter—came from the United States.
This isn’t just about money. It’s food on the table, fees for children’s education, support for aging parents and often, the only buffer against poverty in many parts of the country.
Now imagine lopping off 5% of that. A $1,000 transfer would lose $50 to the U.S. tax system. Over time, that adds up to billions lost—not to lavish lifestyles, but to basic survival in towns and villages across India. The impact won’t just be emotional. It will be economic, and systemic.
This proposed tax could discourage many—especially lower-income earners—from sending frequent transfers home. In practice, that could mean a decline of $12 to $18 billion annually. These are not abstract figures. These are reduced grocery bills, postponed surgeries, and cancelled school admissions.
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Worse, it doesn’t stop there—the broader economy too will pay a price because of costlier remittances. Less money flowing in means weaker demand in rural economies. Local businesses—from tailors to teachers to small shops—could suffer. And with the rupee already under pressure, the decline in foreign currency inflows could further destabilize the exchange rate.
A weakening rupee means higher prices for everything India imports—most critically, oil—triggering inflation. Policymakers would then face a grim trade-off: raise interest rates to support the rupee and risk hurting growth, or let the currency slide and watch prices soar.
This tax proposal also arrives at a time when the domestic stock market is volatile, investor sentiment is shaky, and capital flows are increasingly sensitive to global headlines. A contraction in remittances could deepen market anxiety, especially in consumption-linked sectors where household spending is king.
Look at the numbers: The U.S. is home to an estimated over 5 million people of Indian origin, many of whom contribute actively to both the American and Indian economies. A move to tax their remittances, coupled with increasingly restrictive immigration policies, could erode this vital bridge. Fewer skilled professionals moving to the U.S. would eventually mean fewer earnings sent back—and a slower churn in the economic cycle that has helped India’s middle class grow over the past two decades.
But India is not without its defences. Unlike many developing economies, India isn’t overly dependent on exports. Its growth is fuelled primarily by domestic consumption. Infrastructure investment remains strong, and government spending continues to prop up sectors like manufacturing, logistics, and housing. The banking system is healthier than it’s been in years, with adequate capital and reasonable credit growth.
That said, the threat to remittances is real—and disproportionately so for India, the largest recipient of such flows globally.
In the long run, India’s economic momentum remains intact. Its demographics, policy direction, and entrepreneurial energy offer plenty of reasons to stay optimistic. But this remittance tax—if passed—is a reminder that even distant policy decisions can hit close to home.
India can absorb the blow. But it must brace for impact.
That isn’t all. There’s a lot more on the plate. Do check out on MC Pro.
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