Patralekha Chatterjee | Remittances at a new high, but there's a dark side too

Update: 2023-12-21 17:34 GMT
Traditionally, remittances have come from the Middle East but this scenario is changing. (Photo: AFP)

India remains the world’s remittance chart-topper. The good times, however, may not last forever. While the going is good, can we have a more rounded discussion on what this means?

First, the numbers. Remittance flows to South Asia are estimated to have grown 7.2 per cent in 2023 to reach $189 billion, tapering off from the over 12 per cent increase in 2022. The spike is attributable hugely to remittance flows to India, which are expected to reach $125 billion in 2023, according to the World Bank’s latest Migration and Development Brief.

India’s inward remittances may account for only 3.4 per cent of the country’s gross domestic product (GDP) but it is the highest recipient of remittances globally. India is followed by Mexico ($67 billion) and China ($50 billion) and currently accounts for 66 per cent of all remittances to South Asia. This is part of a broader picture -- total remittances to low and middle-income countries (LMICs) have been growing at an estimated 3.8 per cent in 2023.

Unsurprisingly, this is one global survey official India is not contesting. A statement by the Indian government’s Press Information Bureau lauds India for being the “global leader” in the remittance space and points out that the country has been in the top position in terms of remittance inflows since 2000, barring 2004, 2005 and 2007.

The reasons behind the remittance success story this year are well-known. There has been a reasonably robust recovery of job markets in the high-income countries of the Organisation for Economic Co-operation and Development (OECD), following the onset of the Covid-19 pandemic and employment growth during the recovery was more rapid for immigrants than for the native-born, experts say. Another reason for increased remittances to India is the region’s relatively low remittance cost -- around 4.3 per cent, which is 30 per cent lower than the global average of 6.2 per cent in the second quarter of 2023.

Traditionally, remittances have come from the Middle East but this scenario is changing.  Now, the remittances come not just from blue collar workers but also highly-skilled Indians in countries like the United States, Britain and Singapore. These three countries account for as much as 36 per cent of total remittance flows to India. There are also higher inflows from the Gulf Cooperation Council (GCC), especially the United Arab Emirates (UAE), which accounts for 18 per cent of India’s total remittances, the second-largest after the US.

There has also been another notable shift in the remittance space. Over the last decade, there are far fewer blue-collar workers from Kerala going to the Middle East. That void is now being filled by such workers from the Hindi heartland -- Uttar Pradesh and Bihar. According to one recent study by Huntr, a UAE-based organisation, there has been a 50 per cent increase in the migration of blue-collar workers from India to the GCC (Gulf Cooperation Council) in the first seven months of 2023.  

But being a global remittance chart-topper comes with its own challenges and potential risks.

The World Bank report flags a potential risk of a decline in real income for migrants in 2024 due to global inflation and low growth prospects. “In 2024, remittance flows to LMICs are expected to slow to 2.4 per cent, mostly reflecting a slowing of economic growth in several high-income countries. The risks to this forecast are tilted to the downside, given the potential for a further deterioration in the war in Ukraine and the conflict in the Middle East, increased volatility in oil prices and currency exchange rates, and a deeper-than-expected economic downturn in major high-income countries…” argued Dilip Ratha, lead economist and economic adviser to the vice-president of operations, Multilateral Investment Guarantee Agency, World Bank, in a recent blog.

There are other issues which scarcely feature in the euphoric discourse around India’s stardom in the remittance inflow space. Along with the well-known pluses, what are some of the less-talked about minuses surrounding the transfer of money from migrant workers to their families back home?

In many public presentations and articles, Prof. Binod Khadria, president of Global Research Forum on Diaspora & Transnationalism (GRFDT), an Indian think tank with a global scope, has drawn attention to some of these “darker” issues around remittances. Alongside celebration of remittances, “we also need to talk about the negative side or the darker side of remittances”, he wrote in an October 2023 guest column for the Indian Council of World Affairs.

Mr Khadria, a former professor of economics, Education & International Migration, Jawaharlal Nehru Universitytalks about the need to unpack the dynamics of remittances. Remittances, he points out in his column, “come from the income and wages that migrants earn and save in the country of destination”.  To maximize those savings, “the migrant workers cut into their basic minimum needs of consumption, medication, nutrition, housing and so on by making big compromises”.

Remittances can be costly to send; they entail transaction costs. Migration scholars like Mr Khadria say that one way of helping migrants and their families is to bring down the cost of such transactions to the optimum level. “There must be mechanisms for providing guarantees, securities and insurance to the migrants’ remittances that if something went wrong then there would be some other agency, maybe the government itself or other private sector insurance agencies, to take care and provide security. This, I think, will create the trust that is an essential ingredient -- trust in the diaspora, in the banking system, in the government, in the bureaucracy,” Mr Khadria argued in his column.

Mr Khadria says it is important to talk more about why and how this cost reduction matters to the migrants. So far, the focus has been on the “macro data in terms of the volume of the remittances that are coming to the origin countries of migrants”, but “if the transaction cost in the formal transfer channels were brought down, it would help the migrants shun the informal channels of the hawala market, which may be offering service at lower transaction cost, and even unstated guarantee of safe practice,” Mr Khadria said.

This makes eminent sense -- a reduction in transaction cost would mean more money in the pockets of families using the formal channels. This would have a multiplier effect on the market. 

What needs to change is framing the remittance story purely in terms of what such cash flows mean to the country. What matters equally is the perspective of the individuals who slog away in distant shores to help their families back home. 

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