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PM Modi’s visit to the Non-Resident Indians (NRIs) in the UAE

Dilip Ratha's picture
Q&A with Natalie Obiko Pearson, Bloomberg News

1. Why are remittances so important to India's economy?


India received $70 billion in remittances last year, and is expected to receive over $72 billion this year. That makes remittances one of the largest sources of foreign exchange for India, larger than its IT exports. Remittances directly flow to the migrants’ families, helping them finance purchases of essential items, housing, school and medical services. Remittances act like an insurance for Indian households, increasing in times of need (such as weddings, funerals, natural disasters). They also act like an insurance for the country, rising in times of financial difficulties, such as when external private capital flows decrease and the rupee weakens. They reduce poverty and increase human capital by enabling schooling and medical services. They also provide much needed funding for business investments for households.

2. Do Indians tend to send a lot more money home compared to overseas workers of other nations? Or is it simply because there are so many Indians abroad?  

Not really. Richer and high-skilled migrants send more money but less as a share of the income. Conversely, poorer and lower-skilled migrants send home smaller amounts, but a much larger portion of the income. Thus, non-resident Indians (NRIs) in the GCC countries send a lot of money home. See the last point below.
 
As a general rule, migrants from richer developing countries send more money home. Thus, Mexicans send more remittances per capita than Indian, because the cost of living in Mexico is much higher. The per capita income of Mexico is nearly 7 times that of India.
 
Also migrants who have no possibilities of settling down abroad send more money home than those who can get permanent residence abroad. Thus, NRIs in the GCC countries tend to send more money home to India than the NRIs in North America or Europe.
 
A third factor affecting remittance propensity is the cost of migration. Low-skilled migrants in the GCC countries often pay in excess of $5,000 to recruitment agents as fees for obtaining the job, for jobs that pay less than $2,000 per year. Such migrants have to send all they can save for 24 months or longer just to pay off the recruitment fees. By contrast, skilled migrants (for example, Indian IT workers in the US and Europe) don’t have to pay any recruitment fees, and indeed, their travel and document costs are often paid for by the employers. Thus, NRIs in the GCC countries send more money home to India. By the way, most of these recruitment fees paid in India are illegal and should be scrapped. This is an important topic for Mr. Modi to take up.
 
There are 14 million Indians abroad according to population censuses of various countries, according to our calculations. This figure is almost certainly an under-estimate. According to the Ministry of Overseas Indian Affairs, the estimated number of Overseas Indians (NRI and PIO) is 28.4 million.  

3. The World Bank estimates that Indians sent home $70 billion in 2014. Would that capture funds being sent back through hawala networks or other informal/underground methods? Would the true amount be even larger?  

The $70 billion only records the amount reported by the Bank of India. It did not capture the amounts send through hawala. Unrecorded remittances send through family and friends are not included in this amount either. Some studies estimate that the hawala market in India could be as large as 30 to 40 percent of the recorded remittance transfers.

4. What would a leader like Modi be looking to do as he addresses a diaspora community in the UAE that accounts for the most remittances to India? Would he be looking for ways to encourage them to send their money home in a way that it can be better harnessed or invested?  

According to available calculations, nearly $37 billion (or 52%) of remittance flows to India originate in the GCC countries: UAE $12.8 bn (18%), Saudi Arabia $10.7 bn (15%), Kuwait $4.7 bn (7%), Qatar $4.1 bn (6%). Compare that with US $11.1 bn (16%) or Europe around $5 bn (7%). Yet, the US and Europe attract a lot of attention from the government when it comes to diaspora policies, presumably because of these diasporas are higher-skilled and more influential relatively speaking, compared to the lower-skilled migrant workers in the GCC countries. GOI needs to pay more attention to the wellbeing and goodwill of NRIs in the GCC countries, especially in the UAE and Saudi Arabia.
 
I have four suggestions for Mr. Modi when he visits the UAE.
 
As mentioned above, high and illegal recruitment fees are a major impediment to migration of the poor Indians to the GCC countries. These fees greatly subtract from remittances reaching the poor households. Mr. Modi should make this a priority to lower recruitment costs for low-skilled migrants by better regulation of recruitment agencies in India, and including this issue in bilateral discussions with the governments of the UAE and other GCC countries. Recruitment contracts should be transparent and enforceable, to avoid abuses of vulnerable migrant workers, especially women workers.
 
Remittance fees are still relatively high for Indian workers in the GCC countries, relative to what is possible with modern technology. This is especially true of remittances to rural households in India. Since remittances are private money, they should not be “harnessed” via taxation or decree. Rather, improving the business environment back home, especially in the poorer communities, would automatically achieve that. Also encouraging regulators to allow the use of mobile phones for remittance services and for bill payments for school, utilities, business purchases would help.
 
NRIs, especially the wealthier ones in the GCC countries, save billions of dollars each year. Interest rates on these savings are nearly zero these days. Mr. Modi should consider mobilizing these savings by offering somewhat attractive interest rates (say 3-4%) – for financing projects that are of interest to the diasporas, for example, trains, airports, highways and hospitals.
 
Finally, the NRIs can be a great ally in Mr. Modi’s campaign to promote hygiene and cleanliness in India. NRIs can effectively propagate these values to their families and friends. 

Comments

Submitted by pramod kumar sur on

I 100% agree with you Dr. Ratha. I am a Doctoral student in Economics from Osaka University, Japan. I am also interested in migration and development. One of the best way to manage the recruitment fees is through government to government initiative. It is not impossible. For example, South korea accepts low skilled workers through its EPS program from 15 different countries. The best thing about this is that it is a government to government initiative and all the formalities are done either by the government department like the Foreign Employment department or through their own establishment in the respective countries. For example in Sri Lanka, Fillipines, Bangladesh it is managed by the government department where as in Nepal it is managed by EPS Korea in Nepal ( http://epsnepal.gov.np/). There are a lot of instances where the workers going from Nepal to GCC or Malaysia have to pay 2-5 times of the money paid to go to South Korea. I could say that, this could be an example for the government in managing the recruitment fees. I hope Mr. Modi could have an arrangement to have a program like this.

As you have rightly pointed out that low skilled workers send more money than the highly skilled workers or those who have a chance to permanently settled in the destination country, i would recommend Mr. Modi to promote immigration which can be a catalyst for the so called skill india program as well as eradicating poverty.

Submitted by sudhakar on

Nice one. Ban recruitment agencies and educate the workers on which visa they are travelling.

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