Bringing The Earnings Back Home

Case Study: Kerala – A picture of darkening future of remittances:

• Kerala accounts for one-fifth of total inward remittance flows to India.
• In 2020, an estimated 1.2 million migrant workers from Kerala (30% of total emigrants from state) returned from Gulf Cooperation Council (GCC) countries for lack of jobs.
• Consequently, remittances from UAE fell by 17% last year.
• Fall in household income: In 2020, overseas remittance of almost half of emigrant households in Kerala fell by an average of Rs 20,000 a month.

Economic importance of remittances

• Significant contribution to economy:
  • From 0.7% of GDP in 1990-91, remittances currently account for 3.1%.
  • India continued to remain the largest remittance recipient country since 2008.
  • Larger than FDI/FPI inflows: In 2000-20, while gross inward remittance flows were $1.04 trillion, gross inward FDI equity flows and FPI flows were $521.5 billion and $233.7 billion.
  • Maintenance of Balance of Payments (BoP): In the last 10 years, remittances financed 47% of India’s merchandise trade deficit, providing much balance to current account.
  • Role in healthy accretion of foreign exchange reserves.
• Remained resilient amidst pandemic: Defying low forecasts of World Bank’s Migration and Development, India’s inward remittances remained stable at $83 billion in 2020, falling by only 0.2%.
• Critical role in ensuring macroeconomic stability:

Major concerns regarding the future of remittances

• Demand for labour to be rationalised in host economies: Due to slow and uneven pandemic recovery across the world. Consequently, this will moderate inward remittance flows to India.
• Less accommodative immigration policies of host countries: Due to the perception that new infections could be ‘imported’ with migrants as potential transmitters.
• Changing future of work and cross-border mobility: Pandemic has fast-tracked adoption of Industry 4.0 solutions in advanced economies.
  • Implementation of greater automation shall overwhelmingly affect Indian emigrants, particularly blue-collar workers engaged in high contact-intensive jobs in sectors like hospitality and recreation, manufacturing, personal care, and food and beverages.
• ‘New normal’ of uncertain and irregular cross-border labour: Owing to overcautious sovereign policies and politics of nativism in host countries, remittances and thereby, household income could see a steep fall. (See case study of Kerala).

Way forward: Towards a coherent institutional framework and more active policy attention

• Extending social protection measures: Assisting the re-integration of returning migrants into the domestic labour markets will convey GoI’s positive attitude towards emigration and remittance flows.
• Focus on migration diplomacy: Trade and investment agreements need to be geographically diversified and broad-based and intertwined with strategic interests in labour export.
• Financing workforce development programmes: So that current and prospective migrant can align their skills to jobs of the future through training, reskilling and upskilling initiatives.
• Reduce transaction costs of sending remittances through formal channels: The use of digital money and payments for remittance transfers can substantially improve the volume and efficiency.
  • At the same time, greater investments in strengthening data systems for capturing bilateral remittances are necessary.