The remittance market in India:opportunities,challenges,and policy options

Millions of migrants worldwide send billions of dollars in remittances each year to their families or communities of origin. In many developing countries, remittances are an important source of family and national income and also are the largest source of external financing. Remittances are better targeted at the needs of the poor than foreign aid or foreign direct investment (FDI), as recipients often depend on remittances to cover daily living expenses, to provide a cushion against emergencies, or to make small investments in business or education. Therefore, remittance services should be safe, efficient, and reliable. This can be achieved by increasing competition, enhancing access to payment system infrastructure, improving transparency, and ensuring a sound and predictable legal and regulatory framework.

With an estimated US$49 billion in remittance inflows in 2009, India is the world’s foremost remittance destination. The size and potential impact of these inflows is large. Despite substantial progress over the past 15 years, the provision of accessible, efficient, safe, and cost-effective remittance services in India could be improved. This report undertakes a broad, detailed diagnostic of the Indian remittance market and analyze its characteristics based on the General Principles for International Remittance Services (GPs). It identifies some of the key actions and public policy

measures (especially in the areas of consumer protection, transparency, retail payments, competition, and risk management) for the improvement and future development of this market that would make it more contestable, transparent, accessible, and sound. Migration from India Understanding migration patterns and characteristics of migrants is crucial for identifying important remittance channels and designing policy interventions to enhance the remittance market. According to the Ministry of Overseas Indian Affairs (MOIA), India has the second largest Diaspora in the world, with around 25 million people living in

some 110 countries. Overseas Indians are divided into Nonresident Indians (NRIs) and People of Indian Origin (PIOs). Migration from India has had three distinct phases: (a) early migration of unskilled labor to work on mines and plantations in British colonies, (b) the late- 20th-century migration of unskilled and semiskilled workers to Gulf countries, and (c) the recent migration of high-skilled professional workers to industrial countries.

In chapter one, this report maps the patterns and characteristics of migration flows from India; in chapter two, it provides a detailed discussion of remittance flows to India in terms of their importance, sources, uses, trends, costs, and links to financial access.

In chapter three, the report describes the remittance market (the players, the regulatory framework, as well as the existing operational schemes), setting the stage for chapter four, which presents a diagnostic of the remittance market based on the General Principles for International Remittance Services (GPs). The diagnostic covers the legal and regulatory framework, payment system infrastructure, market transparency and level of consumer protection, market structure, level of competition among remittance service providers, as well as market governance.

It analyzes the existing situation in India and provides detailed recommendations (including lessons learned from international best practices) that are aimed at increasing competition in the remittance industry, providing broader access to payment system infrastructure, enhancing transparency, and ensuring a sound and predictable legal and regulatory framework. Several of the actions could set a basis for leveraging remittances to achieve other important public policy goals such as broadening financial access, expanding financial inclusion, and both strengthening and deepening the financial sector.

The report was prepared through (a) background research (data research and mining, literature review, collection of relevant material and information, and background research), (b) a field visit in 2009 (a team of experts visited India and conducted interviews and focus groups with all relevant stakeholders and major institutions active in the remittance market), and (c) surveys of both the authorities and the market players.

World Bank .Author: Afram, Gabi G.Document Date: 2012/01/01.Document Type: Publication. Report Number: 66235

The remittance market in India:opportunities,challenges,and policy options

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Migration, remittances and forests: disentangling the impact of population and economic growth on forests

International migration has increased rapidly in recent decades and this has been accompanied by a remarkable increase in transfers made by migrants to their home countries. This paper investigates the effect of the rural economic growth brought about by migration and remittances on Nepal's Himalayan forests. The authors assemble a unique village-panel dataset combining remote sensing data on land use and forest cover change with data from the census and multiple rounds of living standards surveys to test various inter-relationships between population, economic growth and forests. The results suggest that rural economic growth spurred by remittances has had an overall positive impact on forests.

The paper also finds that remittances caused an increase in rural wages and an increase in income, but a decrease in land prices. Considered together, however, the relationship between forests and remittances is driven largely through the income channel, indicating that the demand for amenities provided by forests in the rural Nepali setting may have been more important than factor prices in influencing land use changes for the period of the study..

World Bank. Author:  Tiwari,Sailesh;Bhattarai, Keshav.Document Date: 2011/12/01.Document Type: Policy Research Working Paper.Report Number: WPS5907.Volume No:1 of 1

Migration, remittances and forests: disentangling the impact of population and economic growth on forests

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Remittance flows to developing countries exceed $350 billion in 2011

Press Release No:2012/175/DEC. Geneva, December 1, 2011 (Washington DC, November 30,2011. Remittance flows to developing countries are expected to total $351 billion this year, and worldwide remittances, including those to high-income countries, will reach $406 billion for the current calendar year, according to a newly updated World Bank brief on global migration and remittances. The top recipients of officially recorded remittances, estimated for 2011, are India ($58 billion), China ($57 billion), Mexico ($24 billion), and the Philippines ($23 billion). Other large recipients include Pakistan, Bangladesh, Nigeria, Vietnam, Egypt and Lebanon.

While the economic slowdown is dampening employment prospects for migrant workers in some high-income countries, global remittances, nevertheless, are expected to stay on a growth path and, by 2014, are forecast to reach $515 billion. Of that, $441 billion will flow to developing countries, according to the latest issue of the Bank’s Migration and Development Brief, released today at the fifth meeting of the Global Forum on Migration and Development in Geneva.

“Despite the global economic crisis that has impacted private capital flows, remittance flows to developing countries have remained resilient, posting an estimated growth of 8 percent in 2011,” said Hans Timmer, Director of the Bank’s Development Prospects Group. “Remittance flows to all developing regions have grown this year, for the first time since the financial crisis.”

High oil prices have helped provide a cushion for remittances to Central Asia from Russia and to South and East Asia from the Gulf Cooperation Council (GCC) countries. Also, a depreciation of currencies of some large migrant-exporting countries (including Mexico, India and Bangladesh) created additional incentives for remittances as goods and services in these countries became cheaper in U.S. dollar terms.

Remittance flows to four of the six World Bank-designated developing regions grew faster than expected --- by 11 percent to Eastern Europe and Central Asia, 10.1 percent to South Asia, 7.6 percent to East Asia and Pacific and 7.4 percent to Sub-Saharan Africa, despite the difficult economic conditions in Europe and other destinations of African migrants.

In contrast, growth in remittance flows to Latin America and the Caribbean, at 7 percent, was lower than expected due to continuing weakness in the U.S. economy, while the Middle East and North Africa, affected by civil conflict and unrest related to the “Arab Spring”, registered the slowest growth (2.6 percent) among developing regions.

The Bank expects continued growth in remittance flows going forward, by 7.3 percent in 2012, 7.9 percent in 2013 and 8.4 percent in 2014.

There are, however, some serious downside risks to the Bank’s outlook for international remittance and migration flows. Persistent unemployment in Europe and the U.S. is affecting employment prospects of existing migrants and hardening political attitudes toward new immigration. Volatile exchange rates and uncertainty about the direction of oil prices also present further risks to the outlook for remittances. 

More recently, some of the GCC countries, which are critically dependent on migrant workers, are considering tighter quotas for migrant workers to protect jobs for their own citizens.

“Such policies may impact remittance flows to developing countries in the longer term,” said Dilip Ratha, Manager of the Bank’s Migration and Remittances Unit and a co-author of the Migration and Development Brief. “But in the medium-term the risk of disruption to these flows is relatively low.”

Remittance flows would receive a further boost if the global development community achieves the agreed objective of reducing global average remittance costs by 5 percentage points in 5 years (the ’5 by 5’ objective of the G8 and the G20).

Remittance costs have fallen steadily from 8.8 percent in 2008 to 7.3 percent in the third quarter of 2011 due to increasing competition in large volume remittance corridors such as UK-Nigeria and UAE-India. However, remittance costs continue to remain high, especially in Africa and in small nations where remittances provide a life line to the poor.

“In addition to streamlining regulations governing remittance service providers, there is a pressing need to improve data on remittance market size at the national and bilateral corridor level,” said Ratha. “That will stimulate market competition and also help in more accurate monitoring of progress towards the ‘5 by 5’ objective.”

The World Bank has made considerable strides in developing financing instruments for leveraging migration and remittances for national development purposes. Diaspora bonds can be a powerful financial instrument for mobilizing diaspora savings to finance specific public and private sector projects, as well as to help improve the debt profile of the destination country. The Bank has established a Task Force on the Implementation of Diaspora Bonds to facilitate the provision of technical assistance to developing country governments.

“The Bank now houses considerable expertise in this area and we look forward to working with client governments in developing alternative sources of financing for development projects,” said Ratha.

Outlook for Remittance Flows 2012-14

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Remittances and natural disasters: ex-post response and contribution to ex-ante preparedness

Macro- and micro-economic evidence suggests a positive role of remittances in preparing households against natural disasters and in coping with the loss afterwards. Analysis of cross-country macroeconomic data shows that remittances increase in the aftermath of natural disasters in countries that have a larger number of migrants abroad.

Analysis of household survey data in Bangladesh shows that per capita consumption was higher in remittance-receiving households than in others after the 1998 flood. Ethiopian households that receive international remittances seem to rely more on cash reserves and less on selling household assets or livestock to cope with drought.

In Burkina Faso and Ghana, international remittance-receiving households, especially those receiving remittances from high-income developed countries, tend to have housing built of concrete rather than mud and greater access to communication equipment, suggesting that they are better prepared against natural disasters.

Author: Mohapatra,Sanket;Joseph,George;Ratha,Dilip;Document Date: 2009/06/01.Document Type: Policy Research Working Paper.Report Number: WPS4972. Volume No: 1 of 1 

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