Insights into Editorial: As the borders begin to close
Remittances are a lifeline for developing countries.
Remittances to low- and middle-income countries are on course to recover in 2017 after two consecutive years of decline as per World Bank’s report.
Remittances growth to the South Asia region is moderate due to continuing impact of lower oil prices and ‘nationalization’ polices leading to constrained labour market conditions in the GCC.
Remittances to India, the world’s largest remittance recipient, grew by 4.2 percent in 2017 to $65 billion, following a decline of nine percent in 2016.
Remittances to India
India is the world’s leading receiver of remittances, claiming more than 12% of the world’s remittances, followed by China and Philippines. These economies have benefited from increasing globalisation and the growing movement of goods and people between countries.
In recent years many banks are offering money transfers and this has grown into a huge business.
Kerala, Andhra Pradesh, Tamil Nadu, Punjab, Uttar Pradesh are the largest recipients of remittances in India.
India receives about 56% of its remittances from migrants in West Asia, with the remainder from mainly North America and Europe. UAE, USA and Saudi Arabia are the major source countries for remittances to India.
Asia remains the main remittance-receiving region, with 55 per cent of the global flows and 41 per cent of total migrants.
What is the importance of remittances?
Remittances are becoming a key source of funding for many projects in developing countries.
Twenty-three countries, led by India and followed by China, the Philippines, Mexico, Pakistan and Nigeria, receive over 80% of global remittances.
However, as a share of gross domestic product (GDP), the top five recipients are smaller nations: Haiti, the Kyrgyz Republic, Liberia, Nepal and Tajikistan.
In these low- and middle-income countries, remittances have helped lift millions out of poverty and unemployment and enhanced their standard of living and human development. . It can also help provide food, clothing and health care.
The positive impact of migration on economic growth and development through increased remittances is well established.
What are the limitations of remittances?
- The development of infrastructure projects needs sizeable funds which individual remittances cannot provide. For instance schools, hospitals, roads, bridges etc. need concentrated funds.
- Relying on remittances may mean that we lose some of our skilled labour force (Brain drain).
- Although remittances do generate substantial income they will never replace aid as some poorer countries will always require assistance from their developed counterparts.
- A sudden stop in the inflow of remittances can cause serious financial crisis in countries which are dependent on remittances rather than investments.
What are the reasons for the fall in remittances?
Since 2014, the year which saw highest remittances, the value of remittances to India has seen a modest decline: $68.9 billion in 2015 and $62.7 billion in 2016. There was a slight improvement last year — $65.4 billion. However uncertainties about remittances still remain.
These large chunks of remittances mainly come from West Asia and Europe & North America. The reasons are different for the decline in remittances from West Asia and Western Countries.
- Rapid changes in the economy and the socio-political climate in West Asia and the economic slump arising out of an unprecedented fall in crude oil prices have an impact on remittances.
- The Arab Spring in 2010 and subsequent counter-revolutionary moves by states had an impact.
- Nationalisation policies and regional governments in Gulf Cooperation Council (GCC) decided to prioritise filling their workforce with their nationals.
- For instance, “Omanisation” in Oman and Saudi Nationalisation Scheme or Nitaqat system aimed at replacing expatriate workers with trained national personnel.
- The younger natives of West Asia, who are increasingly becoming educated, will replace migrants in the coming years, in turn leading to a reduction in remittances, especially to the South Asian and Southeast Asian regions.
Europe and North America:
- The recent refugee crisis, the largest since World War II, has unsettled European economies, fuelling xenophobic and anti-immigration sentiments.
- Additionally, developments such as Brexit and the Trump presidency’s stronger immigration policies in the U.S. have further complicated matters.
- The rich nation starts to rely on its own workforce and tightly controlled their borders. This has badly impacted the remittances to developing countries especially India.
What needs to be done to the changing Kerala’s remittance economy?
Since the 1970s, the Gulf region has attracted millions of Malayalis, with remittances amounting to over 36% of the State’s GDP. Kerala is unique in this sense that no other large State in India depends so much on remittances.
The Kerala Migration Surveys have studied migration from Kerala since 1998. In 2016, for the first time in 20 years, the Malayali migrant community got smaller by 10% to 2.2 million. This resulted in a similar decrease in remittances to the state.
This was on account of nationalisation policies of West Asian countries. Unskilled and semi-skilled migrants from Kerala were not only replaced by migrants from other Asian countries such as the Philippines and Nepal, but also by other Indian migrants from Bihar, Rajasthan and Uttar Pradesh.
The changed environment in the state demands innovative policies targeted at skilling, reskilling and educating both prospective and returned emigrants.
The government should adopt measures to utilise local resources and create jobs.
Migration comes with a lot of social costs. A migrant worker might make more money, but (s)he also leaves a family behind. Women, children and the elderly who are left behind deal with issues such as loneliness, anxiety, depression and inadequate care. Hence government should come out with a policy to tackle this issue.
Migration and remittances will take on a more prominent role in national and international politics.
While the latter part of the last century was commanded by liberal ideas on migration and open borders, the near future seems to be influenced by populist, right-wing ideas. This negative reaction to migration among developed countries is likely to spread.
Therefore, it is imperative that developing nations that have relied on remittances formulate strategies to compensate for the restricted flow of remittances that is expected in the near future.
India must remember that with the rapid and large-scale economic and cultural changes in West Asia, Europe or the U.S., the future of emigration and remittances remains uncertain.
The Kerala Migration Survey 2018 and the proposed India Migration Survey 2020 would be helpful to explore these issues and evolve adequate policy responses.