India’s Strategic Diplomatic Initiatives to Sustain its Top Ranking in Inward Remittances
- In Economics
- 04:13 PM, Apr 12, 2024
- Mukul Asher
The Context: In December 2023, the World Bank published Migration and Development Brief 39, entitled Leveraging Diaspora Finances for Private Capital Mobilization1.
The title of the Report suggests that more innovative avenues for net inward remittances, going much beyond the money flows, are being explored. This is a positive sign as leveraging remittances for private capital mobilization could increase the future productive capacity of the country and generate livelihoods.
The Brief suggests that in addition to Diaspora bonds, and non-resident deposits (which for India, totalled USD 143 Billion as of September 2023), future inflows of remittances can be used as collateral to lower the costs of international borrowing by the emerging markets.
Much country-specific research however will be needed to translate these private capital mobilization ideas into practical policy.
The Brief suggests that the growing importance of remittances has spurred efforts to improve the timeliness and consistency of data on remittances flows, the main goal of the International Working Group on Improving Data on Remittances (RemitStat). This is a welcome step.
Remittances refer to money transferred by overseas workers and the diaspora to meet the needs of family, friends, and relatives residing in the home country. Thus, in the case of India, financial and other investments by non-resident Indians are not counted as remittances.
Broad Findings
The Brief estimates that in 2024, total gross remittance flows to LMICs (Low and Middle-Income countries) will be USD 690 billion (growth rate of 3.1 percent). In 2023, the top five inward remittance-receiving countries were India (USD 125 billion), Mexico (USD 67 billion), China (USD 50 billion), and the Philippines (USD 40 billion). The two largest sources of outward remittance flows were from the United States and Saudi Arabia.
Recent examples of Diplomatic initiatives to enhance future Remittances
In India’s new generation economic agreements, provisions enhancing the mobility of workers, professionals, business persons, and people are being incorporated.
These select examples suggest that India’s efforts as progressing towards a VISHVA MITRA (becoming a global friend), which is also trusted, are meeting with some success.
- India and Australia signed a migration and mobility pact during Indian Prime Minister Narendra Modi’s latest visit to Australia on May 24, 2023. The agreement aims to facilitate the movement of students, academics, and professionals between the two countries, promoting educational and professional opportunities between the two regions.
Under the agreement, graduates from Indian tertiary institutions who are on a student visa in Australia could work and enhance their professional development without requiring visa sponsorship for a maximum duration of eight years.
Longer duration stays for Indian students in Australia will increase the returns to the employers in training them, giving Indian students a competitive advantage.
- Media reports suggest that India and Taiwan have agreed to introduce Indian workers, mainly in manufacturing, in Taiwan. This is to help ease Taiwan’s need for additional trusted labour sources. There are about 0.7 million foreign workers in Taiwan, mainly from Southeast Asia. Taiwan’s ageing population, and very low fertility rate (in 2023, Taiwan’s total fertility rate, TFR, average number of children produced by a woman in her lifetime, was 1.09 as against the replacement rate of 2.15), have created an urgent necessity for additional trusted sources of labour2.
- Official statements suggest, there are currently about 18000 workers from India in Israel, mainly as caregivers. Both countries are expanding the scope of worker mobility from India to Israel. Thus, in January 2024, thousands of Indian labourers registered at government recruitment centres that were set up in the states of Uttar Pradesh and Haryana looking for candidates for jobs in Israel.
The first batch of more than 60 workers from India have arrived in Israel under a government-to-government agreement to bolster the country's construction industry facing a huge shortage of trained hands. This number is expected to grow considerably in the coming years3.
- In March 2024, the Maharashtra government signed a memorandum of understanding (MoU) with Baden-Wurttemberg, in southwest Germany (TFR 1.58 in 2021) to provide skilled individuals to the German state in sectors such as science, technology, engineering, construction, healthcare and hospitality, among others. People with technical skills from Maharashtra will undergo specialised training, including proficiency in the German language, to meet specific needs identified by Baden- Wurttemberg. The expected number of workers from India to Germany may eventually reach 0.4 million.
In September 2023, the first batch of 58 students from Maharashtra received job offers from employers based in Germany, Japan, the United Kingdom, and Finland. Six students have reached their respective destinations, while others are undergoing language training4.
- Migration and Mobility agreement between India and Italy was signed in November 2023; and with France, it became effective in October 2021.
- Such an agreement with Greece is under negotiation; while mobility is a key area of discussion in the India-United Kingdom agreement under negotiation.
- On 10 March 2024, Member States of the European Free Trade Association (EFTA), Iceland, Liechtenstein, Norway, and Switzerland – and the Republic of India signed a Trade and Economic Partnership Agreement (TEPA). Under TEPA, the EFTA countries are expected to invest 100 billion USD in India, which in turn is expected to lead to 1 million new jobs over the next 15 years. Such investments are likely to increase opportunities for India workers and professionals in EFTA countries.
- India and ASEAN (Association of Southeast Asian Nations) are renegotiating their economic agreement. Eight sub-committees have been constituted under the India-ASEAN free trade agreement joint committee for the review of the pact. They aim to conclude the review in 2025 and address the long-standing demand of Indian businesses to eliminate barriers and misuse of the trade pact. Greater mobility is also being given consideration5.
India’s NSDC (National Skill Development Corporation) has been tasked with fulfilling the growing need in India for skilled workforce across sectors and narrowing the existing gap between the demand and supply of skills; while preparing India’s workforce for meeting global needs.
It is reported that destinations such as Germany, Spain, France, Ireland, Dubai, New Zealand, and Malta, are becoming attractive due to streamlined visa processes, increased accessibility to information, and rising incomes, making global education more feasible for Indian students. This diversification augurs well for the future flow of remittances to India6.
The above select examples of Bharat’s strategic diplomacy designed to sustain India’s high ranking in net inward remittances suggest that not only sources and occupations globally from which potential remittances can be generated in the future are being diversified, but that states and regions from which India will in the future generate remittances are also undergoing a major change. This could be a fruitful area of evidence-based policy-relevant research. The states should recognize and consider how net remittances generated by people in their respective states can be better leveraged towards their development, as part of their contribution to Viksit Bharat by the end of the Amrit Kaal in 2047.
Cost of Sending Remittances
The Brief finds that “The cost of sending remittances to developing regions remained high in the second quarter of 2023, at 6.2 percent—more than twice the Sustainable Development Goal target of 3 percent by 2030. Average costs remained the highest in Sub-Saharan Africa (7.9 percent) and the lowest in South Asia (4.3 percent). Only two of the G20 (Group of Twenty) countries (the Republic of Korea and Saudi Arabia) met the G20 goal of reducing remittance costs to 5 percent. This is higher than the global goal of remittance costs not exceeding 3 percent”.
Remittance costs of several G20 countries continue to remain high
India needs to use its diplomacy to lower remittance costs from key countries, including Japan (7.1 percent), Australia and France (6.0 percent), and Canada (6.5 percent). It has taken some initiatives, such as permitting banks from 18 countries have been permitted by the Reserve Bank of India (RBI) to open Special Vostro Rupee Accounts (SVRAs) for settling payments in Indian rupees. But banks are the most expensive channel for remittances, and more focused initiatives are needed.
The global cost of remittances in 2023 Cost of Remittance is estimated to be about USD 46 billion. India is pushing for reducing the cost of cross-border remittance at WTO (World Trade Organization) through interoperability and interlinkages of digital payment infrastructure (welcome our UPI like we welcome your Master/Visa card). However, some countries, such as the United States and Switzerland, are reportedly opposing this initiative. G20 group could consider facilitating progress in this area,
India also has large cross-state workers whose remittance needs are high. Domestically, initiatives to reduce the costs of remittances by India Post and other agencies are also needed.
In FY 2023-24, UPI’s (Unified Payments Interface) total transaction value stood at INR 19.78 trillion and the number of transactions (payments) at 13.4 billion. NPCI (National Payments Corporation of India) and its global arm, NPCI International, are assisting the government and the RBI (Reserve Bank of India) in taking UPI global. International entities have also signed a few partnerships7.
There has been a suggestion meriting consideration that the Indian government could take the lead in setting up a low-cost remittance arrangement for both domestic and overseas remittances using its India Stack digital infrastructure.
References
1.https://www.knomad.org/sites/default/files/publication-doc/migration_development_brief_39.pdf-Accessed on 2 February 2024
2. https://www.taipeitimes.com/News/front/archives/2024/02/17/2003813663-Accessed on 17 February 2024
4. https://www.hindustantimes.com/cities/mumbai- news/states-skilled-labour-poised-to-go-global-1017094on75504.html-Accessed on 2 April 2024
5. https://economictimes.indiatimes.com/news/economy/foreign-trade/india-asean-discuss-review-of-trade-agreement/articleshow/107830588.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst-Accessed on 19 February 2024
7. https://yourstory.com/2024/04/indias-digital-payment-highways-going-global-dilip-asbe?utm_source=piano&utm_medium=email&utm_campaign=27390&pnespid=__jPzZAM8.HY8rKvtUWvsOIU504P8yklmgswE08uqRKV2HRPGzj24eo7Qgii4AadPDDLiqU-Accessed on 12 April 2024
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