Troubling Signs

Inward remittances by workers from developing countries have come down successively in 2015 and 2016. Whereas remittances to developing countries as a whole fell by 2.4% in 2016 after a decline of 1% in 2015, the fall was particularly steep at nearly 9% for India, the world’s largest remittance-receiving country. If this trend continues, it is bound to adversely impact not only the current account of the balance of payments but could potentially hurt particular states, notably Kerala, among others, which send out large numbers of migrants to work in countries in West Asia and elsewhere. The overall economic impact of inward remittances is mixed. However, even as the government continues to roll out the red carpet for private foreign investors, lower remittances coupled with stagnant flows of official development assistance (ODA)—as foreign aid is euphemistically called—will hardly be good for the country.

The estimates given are from a report titled “Migration and Remittances” published in April and prepared by the Global Knowledge Partnership on Migration and Development (KNOMAD), a multi-donor trust established and funded by the World Bank and government bodies in Germany, Sweden and Switzerland. The report points out that while remittance flows to developing countries fell after the 2008 global financial crisis, these bounced back within a year. Over the last two years, however, there has been a fall in remittances on account of a combination of circumstances, including low crude oil prices, weak economic growth in the countries of the Gulf Cooperation Council and Russia and fluctuations in exchange rates. The report states that the surveys conducted by it and by the International Labour Organization (ILO) show that recruitment costs paid by low-skilled workers to unscrupulous agents are extortionate, often as much as a year’s income, while transaction costs of sending funds to home countries remain high at an average of 7.5% of the amount remitted. In addition, there have been many reports of the miserable conditions under which construction workers from India are made to live in certain “prosperous” West Asian countries.