Downturn impacts foreign remittances

Written by Sharad Raghavan | New Delhi | Updated: Dec 2 2011, 09:27am hrs
Indias best bet for foreign capital, remittances from abroad, has also got affected by the global downturn. India, still the largest receiver of remittances in the world ($58 billion), has seen its pace of growth of remittances plateau out in the first two quarters of 2011.

According the World Banks Migration and Development Brief, Oil-driven economic activities have provided a cushion for remittances to Asian countries, (but) remittance flows to India appear to have been relatively more affected by the weak employment in the US and by the debt crisis in Europe. In the global league of largest recipient countries, China received just a billion dollar less than India in 2011 at $57 billion.

Global remittances have reached $351 billion in 2011, up 8 % over 2010. The largest inflow after India and China is to Mexico at $24 billion. Pakistan and Bangladesh follow at joint fifth with $12 billion inflow each. The annual remittances would cover about 15% of India's import bill for 2010-11.

Speaking about the report, Dilip Ratha, manager of the World Bank's Migration and Remittances Unit said the global uncertainty is such that while remittances to India haven't fallen, they haven't risen either. He says this is because fewer workers are choosing to go abroad to work in this time of uncertainty, even though those already abroad are not returning to India.

So, that is one explanation for the plateauing of remittances to India.

Another explanation for the plateauing is that as the rupee is weakening, rupee assets are becoming more attractive, inducing workers abroad to send more money back home, counterbalancing the effect of the global economic disarray.

According to the brief, Anecdotal reports from money transfer companies suggest that remittances from the GCC countries surged in the third and fourth quarters of 2011 because of the weak rupee.

The state of remittances has a lot of importance for India. At the household level, they directly affect the household income and the household's ability to purchase goods and services, and has a direct correlation to alleviating poverty.

That the remittances are levelling out isn't a bad thing, says Ratha.

It's only when this level goes down that there is a problem, but I think that is unlikely to happen. The numbers are so great, that even if they remain flat, it's okay, he said.

For the Indian government, remittances from abroad affect the rupee exchange rate, help pay for imports and, notably, help the government service foreign debt. Thus, the rise, fall or levelling out of remittances is of great interest to the government.

The US House of Representatives has passed a Bill that removes the 7% country-wise cap on the green cards it allots, and according to Rath, this is great news for India since it means more workers will be able to go to the US in the future, thus boosting remittances.

So, while it is ideal for India if remittances from abroad keep rising, the fact that they are levelling out isn't a cause of that much worry; the numbers are likely to rise again shortly, given India's store of high-skilled workers and the developed world's demand for them.

For instance, a large portion of India's remittances come from the Gulf countries, which have been relatively inured against the effects of the global economic scenario. In fact, they have even benefited due to rising oil prices.

So, Indian workers in these areas have been less affected than their counterparts in the United States and Europe.

According to the brief, workers in the Gulf regions, even if they have lost their jobs, have been able to find others and so the remittances from these countries hasn't fallen very sharply.