The Hindu Business Line : Remittances: The great leveller

Remittances — mainly by unskilled workers and labourers to the Gulf nations and elsewhere — play a significant role in fostering better health, education and other social indices.

Ms Josephine Culass is an NRI nurse working in Germany, who has built a multi-million-rupee house in India, sent her children to top boarding schools in Ooty and sends generous remittances to her aged parents back home. Over and above her savings abroad, she would have repatriated well over a crore of rupees during the last decade.

Bridging the divide

Ms Culass and thousands like her have been able to transcend the caste and social barriers of society and ensure better health and educational facilities for themselves and others. In bits and pieces, they have pumped in billions of dollars into the economy and helped bridge the social and economic divide in India. But how far have they been able to bolster the pace of economic development?

From the late 1970s to the early 1990s, the Chinese economy saw large investments by expatriates. Economists had pointed to these investments as a key driver of China's strident economic growth. India lagged behind, managing less than half the amount flowing into China. Today, India tops the list, attracting the maximum foreign remittances, followed by China, Mexico, France and Philippines.

Meanwhile, the nuances of the debate over remittances and development have changed. Economists no longer see foreign remittances as a necessary pre-condition for rapid development. It is as an important facilitator, not a pre-requisite.

In a recent study, economists at the World Bank highlighted that remittances play a vital role in reducing poverty, providing better health and education to people in recipient countries. The nuances of the study do not underscore the role of remittances on economic development as much as it does on social indicators.

Double-edged sword

Remittances can be a double-edged sword. Bereft of rapid industrial and economic development, large remittances shore up foreign exchange reserves, strengthen local currency and weaken exports. Conversely, large remittances and sufficient foreign exchange reserves enhance access to foreign capital — raising the prospects of rapid economic development.

Few would question that China's economic bull run today is spurred by inflow of FDI, than fromremittances. But rapid economic development spurred by inflow of FDI often does not promote equity, instead it often generates social and economic inequity.

The role of remittances is perceived as equally vital and, increasingly different. In periods of economic stress, FDI inflows often abate, and trigger a reverse flow — even as the pace of remittances accelerates. This is because FDI is a purely commercial flow with no social concerns, while remittances are commercial flows with a social intent.

FDI and equity

The question remains: Why does FDI trigger rapid economic development and why do remittances augment greater social and economic equity. The answer can be found in the disaggregate sources of the two flows. Few companies pump in billions of dollars as FDI to kindle economic development among maybe tens of thousand industrial workers.

While for remittances, millions of expatriates pump in billions of dollars — reducing the instance of poverty among millions of households, and fostering educational and health facilities - bringing greater social and economic equity.

Making a fortune

There can be no doubt that remittances played a significant role in fostering better health and education in Kerala. What is heartening today is the contingents of unskilled workers and labourers embarking to the Gulf, in search of their fortune — from poorer States of Bihar, Uttar Pradesh, Chattisgarh, etc. Individually, they may not bring back much in terms of remittances. But their foray could result in better education and health for their families. And in the long run, provide greater social and economic equity in their caste-ridden societies.

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