| Issue 22 Vol I, August 31, 2006 | Archive |
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Remittances Support Families and Boost
Development
Latest studies show that over three million people moved last year to North America, Europe, Australia and West Asia. One million alone went to America. Another 1.4 million moved to Europe and rest to Australia and other countries from the developing countries. This trend is expected to increase in the next decades for two reasons. People would always migrate for greener pastures and secondly more importantly that the developed with their falling birth rates are ageing. There are going to be less and less working people and more and more of consumers in the developed world. According to U N projections, Europe home to 730 million people would be down by 75 million, Japan with 128 million now would lose 16 million and South Korea would lose three million from its population of 48 million. Birth rates are falling and life expectancy is increasing, leaving less number of working people. But America will move from 300 million to 450 million, largely due to migration and increased birth rates. The biggest sources for migration are India, China and Mexico. All these immigrants would be sending big money home. These Punjabis not only support their families in various ways, but help development projects also. Any traveller to Punjab shall surely find it interesting to see not only the big bungalows that dot the villages and towns, but also hospitals, schools, public health projects and even palatial Gurdwaras constructed with the funds from these vedeshi Punjabis. When summer is over, big sports tournaments in rural Punjab are funded and organised by these sports lovers like the one in Hakimpur village near Banga. The single biggest contribution of remittances is the welfare and improved livelihood of the receiving household – be it in terms of basic necessities such as food or clothing, of better health and education, or to a smaller extent in terms of savings or business investments. Global flows of migrant remittances and transfer channels are these days’ topics of big interest. Yet many aspects which contribute to a better understanding of remittance flows or their role, however, are less well known. Financial experts and government organisations are now waking up to understand the nature and extent of these remittances. There is also much discussion about the channels this money earned by immigrants is sent to their respective countries of origin. India has contributed channels, the Hawala and Hundi, but is not alone. According to one estimate Twenty five million [2.5 crore] Non Resident Indians sent close to $22 Billion back home in 2005. These amounts along with direct foreign investment [FDI] have provided the impetus to the economy. Remittances also saved the country from a possible economic catastrophe during 1998-2000 when America had imposed economic sanctions on India, following the nuclear test. Much of the migrant workers of Indian origin are in the Middle East, Saudi Arabia, Kuwait, and Dubai & Bahrain. They are there with the sole purpose of making money and remitting it home. Of the $22 billion remittance received in 2005, about 60% came from Europe and North America and 40% came from Middle East. Reserve Bank of India reports that NRI money deposits in 2006 was to the tune of 35,134 million US dollars. World Bank estates show that worldwide immigrants who sent 80 billion $ in 2002 would be sending 150 billion $ in 2006. India is among the top recipients of money sent by expatriates in Britain, according to a survey conducted by the Department for International Development (DFID). It reveals that more than a third of ethnic minority households, which responded to a UK-wide survey, sent an average 870 pounds back home to their families living in some of the poorest parts of Africa and Asia last year. In almost 50 per cent of cases, people were sending money to their parents, 25 per cent to other close relatives like cousins and 15 per cent were sending money to spouses and children. At least 31 per cent of senders said the money would be used to buy food, 21 per cent said it would help with medical bills and 17 per cent reported the funds would help pay for schooling. Eighty per cent said the money would make a real difference to the lives of their relatives back home. Official statistics recorded $80 billion in workers’ remittances to developing countries for 2002. This is up from $72 billion in 2001 and, compared to $33.1 billion in 1991, remittances have more than doubled in the past decade. Growing at this pace Remittances have become the second largest capital flow behind Foreign Direct Investment (FDI) and ahead of Overseas Development Assistance (ODA). For example in 2001, remittances represented 42% of total FDI flows and 260% of ODA; remittance flows have surpassed ODA since 1995. Today remittances constitute the fastest growing and most stable capital flow to developing countries. Remittances have more than doubled in value in the past decade and also grown faster than migration - a trend which is likely to continue. Estimates for total remittances sent from the UK to developing countries range from £463 million to £2.8 billion in 2003.This comes to be 78% the total for official UK Overseas Development Assistance. The primary developing country recipients of UK remittances are India, Pakistan, Jamaica, China, Bangladesh, Nigeria and Ghana. Latin America and the Caribbean received the lion share of remittances in nominal terms with $25 billion followed by South Asia with $16 billion (2002). Relative to GDP, however, South Asia was the largest recipient with remittance receipts amounting to 2.5% of GDP. Flows to East Asia and Pacific with 14% of global remittance receipts and Sub-Saharan Africa with 5% are dwarfed by those to the other regions. It is estimated that on average one third of remittances flow through informal channels; for countries with weak financial sectors or tight forex controls, sending money via informal channels is more common. In part, regulatory requirements for financial service providers both in remittance sending and receiving countries are deterrents in accessing formal services. Especially for markets with high volumes of remittances, however, remittances might offer an opportunity for financial services to extend geographically and offer ancillary financial services, such as savings. Money is transmitted at the formal end through Banks and Money transfer operators (MTOs) like the Western Union and MoneyGram and post offices. At the informal end are service providers as well as personal arrangements like Hundi or Hawala agents as part of an organised network. Shop owners, business people like import-export traders, or individuals who ‘do a favour’ personally carrying the remittance either oneself or sending it with a family member or friend. Deciding factors regarding the investment of remittances include restrictions on forex holdings, such as opening of forex denominated bank accounts denial of repatriation of savings / funds ‘taxation’ of remittances through forex rate controls or withholding of portions of remittances the range of financial investment products available ‘red tape’ in setting up a business. Fees for sending money transfers of £100 range from £2.50 to £40. This implies a percentage cost of between 2.5% and 40%. Fees for sending £500 range from £4 to £40. This is because fixed charges are much higher in percentage terms for smaller transfers. This illustrates the relatively high cost that can be faced by low-income migrants wishing to send small amounts back to families and friends. A few banks and building societies surveyed (four out of the ten) also set minimum fees (the highest being £25). This is a big amount and all players including remittance agencies wished to grab a piece of this action. Almost all commercial banks requested the Reserve Bank of India for minor change in rules to permit them to enter the remittance market. They designed products to grab a bigger and a bigger piece of the remittance business. Other unofficial channels like Hawala have a significant amount of business. They operate only on remitting small amounts of money in a money order type of transfers. Prior to big banks entry into the remittance business, Hawala enjoyed considerable clout. Now it is the choicest mode of money transfer for terrorists and intelligence agencies. Banks like ICICI, State Bank and UTI Bank are the big operators. They are offering Quick Remit Online Settlement Service, Remit Card and web based remittance. The government though aware of the need of making money transfer simpler and straight for Indians aboard, is caught up in rules and regulations. Why can not any bonafide person send money through banks at cheap transfer rates directly and recipients pay no taxes and are not asked to keep accounts. |
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HOW
much of India’s and in that sense Punjab’s prosperity is contributed by
remittances sent through formal or an informal channel from foreign lands,
is yet to be fully grasped. But it is significant given the size of
migration to other countries. In fact, there is no country in the world
where Punjabis have not migrated. There was no surprise when newspapers
reported that nearly 40,000 Punjabis were working in Lebanon alone. England,
Canada, America besides some countries in West Asia is just second home for
Punjab.