India beat China, Mexico, the Philippines and France to become the top recipient of migrant remittances in 2007, the latest World Bank Migration and Remittances Factbook 2008 reported. India received $27 billion from Indian expatriates last year, followed by China ($25.7), Mexico ($25 billion), the Philippines ($17 billion) and France ($12.5 billion).
“In the case of India and many other countries, remittances provide a very large source of foreign exchange to finance critical imports such as oil or even food. So there is a huge impact at the macroeconomic level. But at the individual and household levels, the impact is even more striking because, for a lot of poor people, remittances are usually all they have,” said Dr. Dilip Ratha, senior economist, Development Prospects Group, and manager, Migration and Remittances, The World Bank, who co-authored the Factbook with economist Zhimei Xu.
Ratha added that it remains to be seen to what extent the remittance surges would impact India’s exchange rate. Empirical economic research has determined that remittances lead to real exchange rate appreciation in the receiving country. This is especially true in the case of smaller, developing economies.
While South-South migration nearly equals South-North migration, wealthy countries are the main source of remittances, led by the United States at $42 billion in 2006, the Factbook stated. Saudi Arabia ranks as the second largest, followed by Switzerland and Germany. For 2007, remittances flows worldwide are estimated at $318 billion of which $240 billion went to developing countries. These flows do not include informal channels.
The study was based on data from the International Monetary Fund (IMF) Balance of Payments Statistics Yearbook, which, in turn, directly receives data from the Reserve Bank of India (RBI). “In the case of India, the two relevant variables are workers’ remittances and compensation of employees. We add the two,” said Ratha.
Workers’ remittances are remittances made by migrants who are residents of foreign countries for at least a year. Migrants who have been abroad for less than this period are categorized as non-residents, and therefore providers of labor services on an export basis. Their remittances are classified as compensation of employees. The bulk of remittances to India were in the former category, while the latter consisted of less than $0.5 billion for 2007, Ratha said. “But both have the same sort of impact on development,” he emphasized.
Ratha said the study did not include demographic categories such as the age, gender and skill-set of individuals who remit funds back home, primarily due to the unavailability of such information on a global scale. “The impressionistic, anecdotal facts are that there is more mature migration in the West. There are a lot of Indians who have been coming to the United States or Europe for a long time, and they are well established. They tend to be highly skilled like doctors, scientists, economists, engineers and now, of course the IT types,” he said.
But even the historically immigrant-friendly West faces an increasing trend in out-migration by Indians who are returning to their country of origin in the wake of a booming Indian economy and lackluster economic outlook in the United States. Indian immigrants in the United States are also channeling their savings to India for investment purposes.
“There has been a very big upswing in remittances to India from the United States because more people are servicing their wealth management needs in India,” said New York-based Dave Majumdar, head of marketing for South Asia, Western Union Company. “In the past year, there has been a growth of between 15 and 20 percent in remittances to India through Western Union. I’ve not seen any impact of the U.S. recession on remittances to India or other South Asian countries.”
In line with the surge in funds transfer, the company expanded its agent locations in India by nearly four percent in the last year to more than 50,000 locations. Western Union charges customers a fee of $10 per transfer, which increases by $5 for each additional transfer of $500. “The money transfers in minutes,” claimed Majumdar.
According to Mumbai-based Sanjay Nair, global head of HSBC Non-Resident Indian (NRI) Services, “There has been a marked increase in NRI remittances from the United States. The volume of remittances from the United States has gone up by 60 percent in the first two months of 2008 compared to the same period last year.”
Currently, the bank has more than 17,000 NRI customers in the United States. “HSBC has made it quite convenient for NRI customers to send money home through its free remittance offerings such as Fastcheque, Fastclick etc. Competitive exchange rates offered by HSBC also act as an attractive proposition to NRI customers,” Nair said. “Both our customer base as well as the value of remittances have seen a steady increase driven by our acquisition strategy and focus on the free remittance proposition.”
At Industrial Credit and Investment Corporation of India Bank, whose Money2India remittance service is offered free of cost to the customer, technology-enabled products that ride over traditional correspondent banking channels have helped reduce costs while introducing convenience. The bank has seen an upswing both in an increase in the volume of funds sent by existing customers as well as an increase in its NRI customer base. “The growth in the U.S.–India remittance market (for all players) is believed to be in the range of 40 percent last year,” said G.V.S. Ramesh, New-York-based head of ICICI’s NRI Services.
“Remittances through us have gone up by at least 30 to 40 percent in the last year,” said Pradeep Kumar, head of NRI Services in the United States, State Bank of India (SBI) in New York. Currently around 10,000 individuals in the U.S. transfer funds through SBI to India. “A large amount in the last two years are for investment purposes in India,” Kumar pointed out.
This year, SBI is set to tie-up with more Indian banks across the United States to provide the customers of those banks with money transfer services.
According to Ruchika Kohli, director of marketing at San Francisco-based Xoom.com, India is one of the key countries for the firm for remittances. “We have a very robust growth projected for the coming year,” she said.
Xoom.com claims to transfer money within 48 hours to India with pay-out options, such as bank deposits at any bank in India, money pick-up at over 4,400 locations (set to increase in the current year), and home delivery. Remittance fees start at $5 and all transfers above $700 are free for users of the firm’s value service.
Ratha commended the Indian Government for reducing barriers to remittances. He referred to the liberalization of outward remittances for current account purposes. “Individuals can send money abroad to their child for education, for purchasing airline tickets, etc. The access to the dollar has improved. That means the incentives for NRIs to send money home have increased as well because, if need be, they can take the money [out of India],” Ratha said.
In February 2008, the Federal Bank launched Fed-India Remit Service, a Web-based service for remittances from NRIs in the United States. More information is available at https://www.fednetbank.com/fedremit/fedremit_help.htm
