The Hindu Business Line : Foreign remittances

The phenomenon of migration and remittances, without doubt, has been Without doubt, migration and remittances have been among the greatest integrators and levellers levelers of the 20th century. To a certain extent, it has reduced inequity, ameliorated poverty, increased the demand for education and improved the quality of life among several developing countries.

To the ageing population of the developed world, it has brought a young-blooded workforce, increased efficiency of labour markets and helped to bridge cost differentials between the First and Third World countries.

Statistics available from the International Monetary Fund statistics indicate that there is are direct correlations between migration, remittances and economic development. For example, migration from Asia, which accelerated during the eighties and nineties, is not only reflected in increased remittances but also in accelerated economic development.

By contrast, Africa and Oceania countries had a minimalist role in global migration and today account for a low volume of remittances and tardy economic development. The countries of sub-Saharan Africa, which have one of the lowest levels of remittances, are among the least developed nations in the world.

The numbers

If the figures from the IMF and that of the Government of India are comparable, approximately 18 per cent of the global remittances came to India in the year 2003, estimated at $17.18 billion - by all accounts not a mean amount. Remittances to developing countries surged to $93 billion in 2003 - growing by over 200 per cent since 1990.

Even if the numbers are not comparable, this significant inflow would still reinforce India's strength in global migration and remittances flow-charts. Figures available from the World Bank for 2004 reveal that remittances into the county grew by 33 per cent in 2004 and touched $23 billion - making it the world's top remittance receiver.

Waves in the making

Multilateral global organisations point out that remittances are the most benign forms of capital flows. They are usually targeted at improving the educational and health status of individual families, which, in turn, generates a better quality of life and goes on to produce better qualified and more efficient workers in successive succeeding generations.

This has very much been in evidence This was very much in evidence in the Indian context. The first wave of post-independence emigration commenced during the fifties and sixties to Persia (Iran/Iraq) and Siam (South-East Asia). Following the oil boom of the seventies and eighties, a second wave migrated to the Gulf countries. Their remittances ushered in relative affluence in certain pockets of India and kindled a new and often localised demand for better healthcare and technical education facilities. These purchasing power-backed demands soon created better educational institutions and healthcare facilities. The nineties witnessed the advent of the Internet and the IT era, fuelling a global demand for computer and software professionals - especially from the US and Europe. Having established a foot-hold in the global migration map, India was quick to translate this demand into an opportunity. It was churning out a large number of engineers, IT professionals and management graduates by the early nineties.

As luck would have it, this churning synchronised with heightened global demand for IT and software professionals and managers. The net result was a third wave of migration - this time more specifically targeted at the developed countries of US and Europe.

Expanding the canvas

The Global Monitoring Report 2004 of the IMF states: "Main source of remittance continues to be the US where the rise in remittances coincided with the economic boom of the 1990s and the liberalisation of the temporary migration (especially in the technology sector). Remittance to South Asia rose by more than one-third in 2001-03..."

But this third wave of emigration was not restricted to the flight of technically-qualified personnel to the US and Europe alone, but also reinforced earlier migration trends. It expanded the canvas of migration to a larger number of unskilled manual labourers laborers from new States such as like Bihar, Uttar Pradesh, Chhattisgarh and Rajasthan Chattisgarh, Rajastan etc. for road project and construction work in the Gulf.

The affluence of the second wave of migration, which was mainly restricted to pockets of Punjab, Gujarat and Kerala, was being thinly extended to vast areas of the Gangetic plains, ameliorating abject poverty and ushering in greater equity. In effect, spoils from migration and remittances have not only created pockets of affluence but are but is far more extensive - both spatially and temporally. Figures from the Planning Commission reveal the depth and reach of the Indian migration. Private receipts under Invisibles on the Current Account, a broad indicator of the total value of remittances, indicate that it had grown to $17.18 billion in 2002-03. In the next three years, remittances surged by 43 per cent to $24.56 billion in 2005-06. Without doubt, migration and enhanced remittances have played a critical role in accelerating the economic development of the country. And the Indian paradigm just conforms to the global scenario.

Spelling stability

The IMF perceives remittances as one of the most stable forms of capital flows, which are virtually unaffected by calamities, economic distress or political turmoil. The intentions behind these unilateral flows are most often altruistic - better education, healthcare, housing and improved lifestyle for those at home. In contrast, FII and FDI flows create liabilities and results in outward flow in income, interest and principal. These flows are driven by expectations of economic return and would often cease at the first sign of economic distress. They are pro-cyclical and trigger an outflow in such eventualities.

Several recent developments have helped foster the growth of migration and remittances to India. New policies have been initiated to increase competition among banks and money transfer agents, increasing efficiency of service and reducing transactions costs. It is estimated estimates that reduction in transaction costs by 5-10 per cent would increase global remittances by $5-9 billion. Reductions in India have been more significant. The country has also removed several foreign exchange restrictions to augment the flow of cross border funds. Finally, with the growth and development of financial markets, access to banks and exchange houses, both in the source and receiving countries, has have improved. The growth in migration and remittances from the country is a vital ingredient in India's integration with the global markets. The larger the Indian Diaspora, the greater will be the quantum of remittances and the inherent affluence and equity that it would bring to the country.