Well-managed migration brings important benefits to countries of origin and destination, as well as to migrants and their families and one such form is the flow of Global Remittances.
Remittances are a new financial phenomenon and one of the main important sources of incomes based on its size and economic impact in the world. Data from (World Bank, 2015) indicates that global remittance has crossed 0.5 trillion dollars in 2015 which is 0.7% of global GDP in 2015.
Worldwide, an estimated 582 billion U.S. dollars was sent by migrants to relatives in their home countries in 2015, a 2% decline from 2014, when the amount was $592 billion, according to economists at the World Bank. This is the first drop in global remittances since 2009, when they fell by $28 billion amid the global financial crisis. Despite this recent decline, remittances sent by migrants are still about double of what they were a decade ago, before the sharp decline in the global economy during the late 2000s. And, with the exception of 2009, migrant remittances worldwide have steadily climbed since the World Bank began releasing estimates in 1970.
The impact of remittance on the economic system is more profound in lower middle income and low-income countries because, they receive around $252 billion of the total global remittance flow, which is about 51 percent.
The importance of remittances is increasing potentially and they are becoming one of the main important sources of foreign financial flows, especially in developing countries, both in size and growth rate. The true size of remittances, as well as unrecorded flows through formal and informal channels, is believed to be significantly large.
Income group and Region wise flows of Remittances.
High and Upper middle-income group countries together are sending 93% of the remittances to the World, whereas lower middle income and upper middle-income groups countries are at the receiving end of it. The picture becomes clearer if we include regions in the analysis which clearly indicates that the remittances are flowing from regions like North America and the Middle East to regions like South Asia, East Asia.
Europe and Central Asia is a mixed group where in almost 70% of the remittances is send by Countries like United Kingdom, Germany, France, Spain, Italy, Russian Federation and Switzerland.However, France, Germany, Spain, Belgium, Italy, RussianFederation, Poland, Ukraine, United Kingdom, Portugal are the top 10 countries constituting around 63% of the total remittances received.
Remittances from overseas workers are an important boost for household incomes in South Asia, lending support to private consumption, as well as foreign reserves. Over the years South Asian labour migration has ebbed and flowed between destination countries as both sectorial demand and immigration barriers have fluctuated. Increasing flows from the Gulf region have been among the most significant recent trends, mainly owing to construction booms in these countries. Since the fall in oil prices in 2014-15, Gulf real-estate development has slowed significantly, affecting the prospects for remittances growth in the medium term.
The Gulf countries have been a key destination for South Asian migrants for decades, with the UAE, Saudi Arabia, Oman and Qatar proving among the most popular recipients of workers from Bangladesh, Pakistan and Sri Lanka in the past decade.
For countries like Nepal Liberia, Tajikistan, Tonga,Haiti, Kyrgyz Republic Moldova, the Kyrgyz Republic and Lesotho remittances constitute as much as 20 to 30 percent of national GDP[1] and, in many other developing countries, remittances outstrip official development assistance as well as foreign direct investment (Grabel, 2009, p.87). Remittance literature has extolled this rising volume of remittances for having a substantial positive impact on development and poverty, especially in comparison to the impacts of official development assistance (“Impact of Remittances,” 2011).
There is evidence that remittances are fulfilling some of Sach’s prerequisites to development: Yero Baldé, for example, found that a 10% increase in remittances increases household savings by 7% and investment by 6.5% (Balde, 2011, p. 247). Other studies show that remittances raise household consumption as well as increase household investment in education and health care (Nallari and Griffith, 2011, p.126).
Top Countries involved in Global Remittances Flows[1]
Protectionism and Impact on Global Remittances
United States of America is the leading supplier of remittances in the Global domain accounting to almost 23% of the total remittances sent across the World, followed by Saudi Arabia and UAE. The dominance position in global remittances of USA has remained stable in the recent past contributing in the range of 23-24% of remittances outflows in the past 5 years, however, the share of Gulf countries of Saudi Arabia and UAE has increased in the range of 2-3 percentage points.
It is clearly evident from the table above, that more than 50 % of the transactions are catered to 5 countries. Moreover, countries like Mexico receives almost 98% of the total remittance flow from the US, Donald Trump espouses a protectionist worldview that runs across many of his policies, such as immigration. For instance, he has promised to “bring jobs back to the United States” and go after the 10 million or so undocumented immigrants who have “stolen” such jobs. U.S.–based Mexican immigrants send around $26 billion annually to their families back home in Mexico. Trump’s proposed legislation of a tax on remittances would hit Mexican families that rely on remittances from their U.S.–based relatives hard. The Mexican economy would also suffer as the multi-billion-dollar remittance inflow to Mexico adds substantially to the country’s domestic spending.
For the longest time, the business process outsourcing (BPO) industry has served as one of the Philippine economy’s bright spots. It has created many high-paying jobs for our young professionals and earned dollars for the economy in a way that is even starting to overtake dollar earnings from remittances. But with Trump’s win, some economists claim that this industry “could suffer”. Vietnam may have similar negative effects as 56% of the total remittances received has the USA as its source country.
India and the changing global landscape
According to United Nations International Migration Report of 2015, India has the largest diaspora in the world, followed by Mexico and Russia.In 2015, 16 million people from India were living outside of their country, compared to 12 million from Mexico. Other countries with large diasporas included the Russian Federation, China, Bangladesh, Pakistan and Ukraine. Of the twenty countries with the largest number of international migrants living abroad, 11 were in Asia, 6 in Europe, and one each in Africa, Latin America and the Caribbean, and Northern America.
India and China are the topmost recipients of the global remittances flow. United Arab Emirates (19.9%),United States(17.03%),Saudi Arabia(16.3%), Kuwait(6.8%) and Qatar(6.2%) are the five topmost countries responsible for remittances inflows to India in 2015.These in total had contributed to approx. 66% of the total remittance inflows to India which is around USD 68.93 Billions in the year 2015.
The Gulf countries have been a key destination for South Asian migrants for decades, with the UAE, Saudi Arabia, Oman and Qatar proving among the most popular recipients of workers from Bangladesh, Pakistan and Sri Lanka in the past decade. Kuwait is also becoming a significant host country for all South Asian countries. India has around 30 Lakhs overseas Indian’s in Saudi Arabia, 28 lakhs in UAE and 9 Lakhs in Kuwait [3].
The US was India’s second largest remittance partner in 2015, accounting for more than $11 billion. However, its share in India’s total remittance inflow is around 17%, implying that India is not economically too dependent on it as economies like Mexico, Vietnam and Philippines. However, according to the Reserve Bank of India, the country’s software services exports are worth $74 b for the financial year 2015-16, of which around 60% goes to the US. Hence, any drastic measures could impact India’s services sector exports and its job market, and remittances coming from them.
Trump’s ‘America First’ stance focused on American workers is expected to restrict temporary work visas that could severely impact India’s employment and remittances as well as hamper diplomatic ties between the two nations.
Cushion for India
The impact of decelerating remittance inflows on economies’ external accounts may cause for concern for South Asian governments. Remittances have traditionally supplied ample support to current accounts, providing a source of foreign-exchange reserves to defend against volatility and depreciation of currencies, as well as helping to ensure continually expanding access to external finance.
However in Indian scenario the two cushioning effects are into play , first India has a diversified pool from which it draws remittances which is slightly tilted towards the Gulf, secondly the stable forex reserves of the magnitude of 386 USD Billions(as on 7th July,2017) .The recent hike in Fed’s interest rate also did not had a major impact on Indian Rupee
Recent Policy Stance
India believes that setting global standards on trade in services under the WTO will help make visa regimes in developed countries more transparent and less restrictive for its skilled professionals. India has threatened to drag the US to the WTO over its higher and discriminatory visa fee regimes for Indian software professionals.
India is also pushing for greater market access in services through the ongoing negotiations for the Regional Comprehensive Economic Partnership agreement. It is also trying to build an institutional framework for collecting statistics on trade in services.
Given the importance of Mode 4 and the barriers being faced in this regard, India submitted a paper on “Mode 4: Assessment of Barriers to Entry”, (JOB/SERV/229) in March 2016 at the WTO highlighting the increasingly complex nature of barriers to mode 4 entry that has emerged from the experience of Indian service suppliers in major export markets of India like the US, the UK and Canada. These inter-alia includes subjective definitions of sub-categories under the Intra-Corporate Transferees (executives, specialists, managers/senior managers) resulting in rejection of bona fide applications and undermining the commitments, and non-portability of social security benefits.
2 – Remittances Data (www.worldbank.org/prospects/migrationandremittances)
3 – Population Of Overseas Indians, http://www.mea.gov.in/images/pdf/NRIs-and-PIOs.pdf
Aditi Pathak, IES currently working as an Assistant Director in Department of Commerce, Ministry of Commerce. She holds a Masters degree in Economics from Delhi School of Economics and a graduate degree from Shri Ram College of Commerce, Delhi, India. ...
Niraj Lodha is currently pursuing PGDM (MBA) from Indian Institute of Management, Calcutta. Niraj has previously worked in WIPRO Ltd. as an ETL developer for over two and half years. ...
