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India gets remittances boost due to cost down

India gets remittances boost due to cost down
Highlights

Globally more than 250 million people live outside their countries of birth, and over 750 million people migrate within their countries in the coming decades due to demographic forces, globalisation and climate change that will increase migration pressures both within and across borders, as a result remittance flow to developing countries are estimated to have totalled US$436 billion in2014, which shows an increase of 4.4 percent over the previous year and remittances flows, including those of high –income countries, were estimated at US$583 billion in 2014, according to the latest world bank report.

Globally more than 250 million people live outside their countries of birth, and over 750 million people migrate within their countries in the coming decades due to demographic forces, globalisation and climate change that will increase migration pressures both within and across borders, as a result remittance flow to developing countries are estimated to have totalled US$436 billion in2014, which shows an increase of 4.4 percent over the previous year and remittances flows, including those of high –income countries, were estimated at US$583 billion in 2014, according to the latest world bank report.


On account of India, it continues to be the largest remittances receipt country over the years and there is an increasing trend witnessed in remittances received, due to recent depreciation of the Indian rupee has also led to increase investment-oriented remittances to India in 2015. From Rs.63.3 in July-end, the US dollar now trades at Rs.65.7 against the Indian rupee. In simple terms, every US dollar sent back would at present fetch more rupee than in July-end due to the recent weakness in local currency.

The remittances flow into the country is three times that of the current Foreign Direct Investment (FDI) in the country, with an increase in number of migrant workers, more money is expected into the country that indicates a good sign of economic activity and serves as good support to the balance of payments.

In 2015, remittances to India is expected to surge by 2.5 percent, which is above 0.5 percent rise in 2014.The remittances at internationally categorised as payments, hence payment banks in India have greater opportunities to receive remittances and as per RBI mandate, payment banks are to have 25 percent of their network in unbanked areas.
The report notes that to receive money through banks, contributes financial inclusion and eventually reduces remittances costs substantially in India.

With the increase in remittances to India, the cost of sending remittances likely to come down further with many initiatives of the government and RBI, like payment banks.

It is hoped that India’s new payment banks are expected to penetrate further to rural areas, which increases competition in remittances markets, which indicates remittances to India continue to grow steadily.

The RBI decision to grant in principle approval for 11 entities to set-up payment banks could help transform rural remittances market largely and the money transfer companies like Western Union, MoneyGram and UAE Exchange are offering goodies helps to spurt in remittance volume of 20-25 percent year-on-year is expected as rupee depreciation has further coincided with the festive seasons in India.

The entry of new players is also likely to increase competition and lower remittances costs and extend the formal market for more flow of remittances.

Unlike earlier, there is an increase in emigration from Northern parts of the country compared to southern India, as per state-wise figures granted emigration during the last five years. In 2014, UP is the highest -229,444 , followed by Bihar -98,721, Tamil Nadu – 83202, Telangana- 53104, Kerala-55,081 and West Bengal-51561.

In 2015, the remittances to India have increased to US$72178.5 million from US$70388.6 million with an increase of 2.54 percent over previous year, thus contributing 3.4 percent of GDP.

However, remittances to the developing countries are expected to rise by 4 percent in 2016 and 201, buoyed by the continuing recovery in the US and modest acceleration of economic activity in Europe.

As per remittances, worldwide the average cost for sending remittances of US$200 from UAE is 2.8 percent; similarly, from US to India, the average remittance cost is 3.0 percent for sending US$200. Both data are for the July-September 2015 quarter.

The global average cost of remittances remained at 7.7 percent targeted to be reduced to 5.0 percent as set by G-20 countries and World Bank.
Indian government efforts to establishing a fund to assist the Indian Diaspora in legal cases and of web portal to facilitate low-skilled migration is widely appreciated by the report. It also noted that government also raised the permissible limit on outward remittances from US$125000 to US$250000, with further allowances for education and medical expenses and eased limits on investment by Diaspora.

Currently, in India, the post office money order cost about 6.4 percent, hawala channels around 4.6 percent and banks 3 percent of momey transferred. It is bolstered by the extension of banking services and mobile money transfers could thus significantly reduced remittances cost in rural areas of India.

According to Remittance Price worldwide (RPW), the global average cost of sending remittance has declined to 7.68 percent in the second quarter of 2015 from 7.72 over the previous quarter of 2015 and below 8 percent consecutive quarter.

Over the same period, the Money transfer operators (MTO) Index, which tracks the prices of Money Transfer Organizations that are covered in RPW database with 85 percent of corridors, also experienced a decline of 2.2 percent points from 10.5 percent in the first quarter of 2009 to 8.2 percent in the second quarter of 2015.

In South Asia, the average cost of sending US$200 in the second quarter of 2015 was lowest compared to other regions, which shows a marginal decline from the previous quarter.

The three low-cost-corridors such as Saudi Arabia – Pakistan, Singapore- Bangladesh, UAE- Pakistan in south Asia have cost below 3 percent. However, the three highest corridors such as Singapore – Pakistan, Switzerland- Sri Lanka and Japan- India have cost well above 10 percent.
The difference may be due to partly low volumes, lack of competition in the remittances markets in some sending countries and rigid policies that limit competition in some markets noted the report.
G.Rajendera Kumar
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