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NRI remittances on the rise

Sending money home remains the top priority for most NRIs. After arriving in the host country, the first task is to start earning; and then sending a major part of their earnings back home to the family.

india Updated: May 06, 2008 14:42 IST

Sending money home remains the top priority for most NRIs. After arriving - legally or illegally - in the host country, the first task is to start earning; and then sending a major part of their earnings back home to the family.

Just like arriving can be legal or illegal, sending money can also be legal or illegal - by official transfers through a bank if the NRI has legal status or through the black market in case of illegal status and/or a better exchange rate.<b1>

An estimated 5.7 million Indian workers abroad sent home $27 billion in 2007 to make India the top receiver of migrant remittances, according to the latest World Bank data released in March 2008. Instead of the Middle East with its estimated five million NRI workers, the US with about 2.4 million NRIs was the main remittance source.

The NRI remittances are over three times the Foreign Direct Investment (FDI) to India. So should the Indian government look after NRIs more than foreign investors? Yes and No. NRI remittances are primarily sent to family members to support them for their survival.

Once these remittances improve their living standards, they are invested in consumer goods, housing and land, and bank deposits, according to a new IMF study published recently. Very rarely are these remittances used to establish new businesses and industries.

So India still needs to roll out the red carpet for foreign investors because investment is one of the drivers of economic growth. And anyway, NRI remittances make up only about three percent of India's GDP.

"In many developing countries, remittances provide a lifeline for the poor," said Dilip Ratha, senior World Bank economist. True. The IMF study shows that workers' remittances can contribute up to a whopping 25-20 percent of the GDP of some countries like Haiti, Tonga and Bosnia; 20-15 percent for Yemen, Jordan, Lebanon, Haiti and Albania. Many NRIs and Indians think that the GDP of Pakistan relies a great deal on remittances from its workers abroad but Pakistan does not feature among the top 20 recipient countries in this list.

The IMF report, "Macroeconomic Consequences of Remittances", by six economists has a surprising omission - India - in its list of top 20 recipient countries for 2004, the year that has comprehensive global data on this subject. The top slot is occupied by Mexico at $16.6 billion in remittances for 2004. Yet the World Bank's "Migration and Remittances Factbook 2008" gives the figure of $27 billion for India in 2007. This figure cannot be for just that year because NRIs have been sending money home for over half a century. It's not just this chart without India as the text categorically states on page 10, "Mexico was the largest developing country recipient of workers' remittances in 2004 with US $16.6 billion, followed by the Philippines, Lebanon, China and Morocco (figure 3.3)". No mention of India among the top 20 although Pakistan stands at number seven.

Without batting an eyelid, the IMF report goes on in the next sentence, "Taking a longer term perspective, the five largest developing country recipients of workers' remittances over the period 1990-2004 were, in order, India, Mexico, Lebanon, Egypt and Turkey (figure 3.4)." Ahaa! For the long haul, India enters the top spot! How did this selected amnesia occur about India...after all, the World Bank is situated right across the street from IMF offices in Washington?

The report's conclusions do contain some home truths. Initially, the workers send money to support their poor families. Later, they send more for domestic investment in white goods, housing and land; and for bank deposits for future security. This comprises most of the remittances. The workers also insist on how their remittances should be used since the recipients act as their agents.

The IMF study found that the benefits of remittances in generating higher and continued levels of consumption may come at the expense of long-run growth. High remittances may actually decrease economic growth in some countries due to lower productivity.

So the recipient governments should devise economic and other policies to promote economic growth, stable exchange rates to discourage illegal transfers and social welfare. Some of these negative outcomes can be seen in Punjab and Kerala with high migrant workers' remittances although these are not evident on the Indian economy as a whole driven by high domestic investment, production and consumption.

Concludes the report, "Globalisation and the aging of some developed country populations will ensure that demand for migrant workers remains robust for years to come. Hence the volume of workers' remittances is likely to continue to grow and, with it, the challenge of unlocking the maximum social benefit from these transfers." In simple words, the NRI money will keep flowing in more and more.