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Economy gains when people are safe

A slice of migration economics: A 10 per cent rise in the number of international migrants from a developing country's population can lead to a 1.6 per cent decline in poverty levels.
By Saikat Neogi | None
UPDATED ON MAY 29, 2006 02:00 AM IST

A slice of migration economics: A 10 per cent rise in the number of international migrants from a developing country's population can lead to a 1.6 per cent decline in poverty levels.

The rider: The benefits flow only when the workers are safe and secure. The gains are also subject to low remittance costs and high returns on the migrants' savings. Migrants, especially the unskilled ones, commit heavy economic price in terms of exorbitant fees paid to traffickers, bureaucrats and moneylenders before they set foot on the foreign soil.

Their plight gets further aggravated when they encounter crossfire in hostile or unstable countries or when institutionalised exploitation or denial of wages subjects them to extreme mental trauma, often leading to deaths or suicides. Sri Lanka and Philippines are beginning to mitigate this trauma by giving low-cost loans to potential migrants and tax incentives to registered recruiting agencies.

A formal system ensures that no human being is illegal or unaccounted for. Agencies like the World Bank, ILO and independent think tanks have suggested that India can gain enormously by going in for bilateral labour rights' agreements with themanpower deficient Gulf countries.

A good investment would be to appoint a labour attaché in all embassies in the Gulf to ensure that the employers fulfil their contractual obligations. The economic cost of such a policy has to be seen in terms of increasing the sense of workers' security and reducing suicide rates. Remittances will pay for some of the costs because they are an important source of finance for private investment in small businesses back home, boosting productivity and creating jobs.

Transaction cost of remittances to India is one of the highest in the world and the gap between official and unofficial exchange rates is the widest. This fuels hawala rackets serviced by funds from illegitimate activities like global drug trafficking, money laundering and terrorism. This shows that some of the hapless victims of terrorism could also be their unsuspecting financiers. Convenience and security of funds depend on the availability of appropriate financial intermediaries. Poor reach of Indian banks has made the government's InstaRemit money transfer scheme a non-starter.

What’s needed is a comprehensive policy to integrate tax savings, high interest fixed deposits and exchange rate guarantees with wide banking networks. In Mexico, the third largest recipient of remittances worldwide, these inflows are responsible for 30 per cent of the total capital investment in small enterprises. An IMF study estimates that one percentage point increase in remittance inflows can boost private investment by 0.6 percentage point through sensible economic policies. Ironically, in Kerala, which tops the chart in remittances inflow in India, only 7 per cent of the money is invested in productive assets.

It is obvious that a lack of prudent economic policies fails to break the vicious circle of unsafe money transfers, unwise consumption and unproductive investments leading to perpetuation of risky migration and slavery at work place.

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