Remittances: Sweating it out in the Gulf

Mr Shaukat Ali does not have to canvas for hawala money from NRIs living in the poorer districts of Dubai any longer.

Earlier he used help blue collar NRI workers to send money back to their families living in India through the illegal hawala route, virtually charging no commission and offering better exchange rates.

After a gap of three years, he has now got his old job back with a British design and construction consultancy firm in Dubai, as a driver. The ebbing construction spree in the emirate nation and its after shocks on the Gulf economy had rendered him jobless. He is still not out of the woods as yet. But he hopes he does not have to go back to the squalid tin-sheet living quarters of menial NRI workers, soliciting business.

The fortunes of the emirate nations seem to be changing, slowly but surely. So are the fortunes of thousands of poor NRIs who have clung on in the periphery of the city. While some Gulf nations are witnessing the early pangs of economic revival, the impact is also felt in the ringing cash counters of banks in India.

NRI deposits

A recent report in this paper talked about the surge in NRI deposits last year. The report pointed out that there was a three-fold rise in NRI deposits to $11 billion in 2011-12. Meanwhile, aggregate NRI deposits held with Indian banks stood at $57.9 billion at the end of March 2012. That was no small figure in these times of surging current account deficit and falling value of the rupee.

But how reliable and dependable are these funds? The corpus of these funds seems to be reliable enough, while the same cannot be said about the seasonal flows. As the value of the Indian currency plummeted from around Rs 44.5 to 51.1, inflows into NRE deposits peaked to $7.5 billion last year. This surge became a flood when banks hiked NRE rates sharply: bringing in $4.5 billion during the last quarter alone.

Dictated in part by the sharp depreciation in rupee and spurt in interest rates, a portion of these deposits would remain vulnerable to reverse flows. Yet, by and large, the corpus remains relatively stable and has continued to grow over the years.

But another form of NRI funds, remittances offer a huge and even more stable source of foreign exchange. A World Bank 2012 report by Mr Gabi G. Afram, ‘The remittance market in India: Opportunities, challenges and policy options' points out that with an estimated $49 billion in remittance inflows in 2009, India has emerged as the world's foremost remittance destination.

Largest Diaspora

The growth in NRI deposits which had peaked to $11 billion last year pales into insignificance in comparison – the remittances were almost seven times higher than NRI deposit flows last year.

While acknowledging the size and potential of these huge inflows, the report adds that despite substantial progress over the past 15 years, providing accessible, efficient, safe, and cost-effective remittance services to India could still be improved. Not surprisingly, hawala transactions will continue to flourish among poorer NRIs.

According to the Ministry of Overseas Indian Affairs (MOIA), India has the second largest Diaspora in the world, with around 25 million people living in some 110 countries. Most of India's migration history commenced with skilled, unskilled and a few professional workers moving to South East Asian countries and the Middle East. This was and continues to remain a temporary migration with workers most often returning home at the end of their working years.

Migration to mainly English speaking industrialised countries was often by high-skilled highly-paid professionals who contribute a significant portion of the remittances. The migrants to South East Asia and Middle East are relatively lower paid and account for more of the NRI deposits. However, they eventually return and settle back home, bringing their long-term savings along.

India has been resolutely tapping NRI funds to shore up its foreign exchange reserves in times of crisis or need. And invariably, NRIs have always been supporting such moves, contributing significantly to such Government endeavours. However there is a caveat: It has always been a mutually beneficial pact with the Indian Government harnessing huge volume of foreign exchange and NRIs gaining in interest and exchange rates.

India has already tapped into the large Indian Diaspora during 1991, 1998 and 2000. During these years NRI bonds were issued which elicited huge response from overseas Indians. These funds were typically used to face crisis situations as well as to finance long-term investments in infrastructure projects, which have high social value.

Remit for the poor

While bonds and deposits could provide solace in times of crisis, it is remittances that are helping to keep the Indian economy ticking year after year. This stream of funds enables the poor and lower middle class dependants to feed and meet their daily needs. According to the RBI, more than half of remittances to India are utilised for the family's basic needs, food, education and health. The rest is deposited in banks, with around 20 per cent in land and property and 7 per cent in securities.

The volume of remittances has grown sharply over the years. But they were huge all along. Since 1999-2000, remittances have constituted 3-4 per cent of India's GDP. Remittances have also surpassed both FDI and aid flows into India.

The long-term flows of remittances from 1991 to 2009 show that slumps and setbacks were virtually absent. But an evaluation of quarterly trends reveals that the 2008 global crisis took its toll, however marginal and transient in nature.

Invariably, the resilient Indian emigrant stuck around and faced these periods of adversity. For those who were forced to return, more joined the ranks of expatriates in succeeding outflows.

The Gulf region was among the worst affected. However, people like Shaukat Ali got back their old jobs. Others found new jobs. The stream of job seekers tapping the Gulf and other global market began to boom again.

The Gulf economy is limping back to normalcy. Jobs are becoming more secure. So is the case with salaries and Gulf employees are becoming more confident. Remittance flows to India has picked up momentum and grew by 20 per cent during 2009-10.

> cj@thehindu.co.in

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