Daily Editorial Analysis for 9th December 2022

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  5. Daily Editorial Analysis for 9th December 2022

The sustained growth in remittances

GS Paper: 3- Economy

Important for

Prelims exam: Remittances

Mains exam: Remittances, Significance of Remittances

Context:

Remittances to India are set to touch a record $100 billion in 2022, according to the World Bank’s latest Migration and Development Brief titled, ‘Remittances Brave Global Headwinds’. India received $89.4 billion in 2021 — this is the first time a country will reach the $100 billion mark.

What is a remittance?

  • It denotes a sum of money sent by one party to another. These days, the term describes the money sent by someone working abroad to their family back home.
  • In the case of India, the largest sources of remittances have been from Indians working in the Gulf Cooperation Council (GCC) countries (UAE, Bahrain, Saudi Arabia, Oman, Qatar, Kuwait), and the U.S./U.K.

General trend in remittances this year

  • World remittances are expected to touch $794 billion in 2022, up from $781 billion in 2021. This represents a growth of 4.9%, compared to 10.2% in 2021, which was the highest since 2010.
  • Of the $794 billion, $626 billion went to low- and middle-income countries (LMICs). Remittances represent an even larger source of external finance for LMICs in 2022, compared to foreign direct investment (FDI), official development assistance (ODA), and portfolio investment flows.
  • The top five recipient countries this year are expected to be India ($100 billion), followed by Mexico ($60 billion), China ($50 billion), the Philippines ($38 billion) and Egypt ($32 billion).

Reasons behind the sustained growth in remittances

  • According to the World Bank, one of the main reasons is the gradual reopening of various sectors in host-country economies, following pandemic-induced closures and travel disruptions. This “improved migrant workers’ incomes and employment situations and thereby their ability to send money home.”
  • An allied reason was the “migrants’ determination to help their families back home” during the tough post-pandemic recovery phase. The report notes that the 10.2% growth in remittances achieved in 2021, that too against the backdrop of the pandemic, owed a lot to the stimulus measures enacted “to underpin faltering high-income economies”, especially in the U.S. and Europe, which helped to support employment levels and maintain or increase incomes of migrant workers, enabling them to send money home.

Resilience of India’s inward remittance flows

  • The report points to a structural shift in India’s remittance economy, both in terms of the top destination countries, and the nature of the jobs held by migrants.
  • It notes that “remittances have benefitted from a gradual structural shift in Indian migrants’ key destinations from largely low-skilled, informal employment in the Gulf Cooperation Council (GCC) countries to a dominant share of high-skilled jobs in high-income countries such as the U.S., the U.K., and East Asia (Singapore, Japan, Australia, New Zealand).”
  • In fact, between 2016-17 and 2020-21, while the remittances from the U.S., U.K. and Singapore increased from 26% to 36%, the share from five GCC countries dropped from 54% to 28%. In 2020-21, the U.S., with a share of 23%, surpassed Saudi Arabia as India’s top source country for remittances.
  • With 20% of India’s emigrants in the U.S. and the U.K., “the structural shift in qualifications and destinations has accelerated growth in remittances tied to high-salaried jobs, especially in services,” states the report.
  • This made a big difference during the pandemic, when “Indian migrants in high-income countries worked from home and benefitted from large fiscal stimulus packages” while in the post-pandemic phase, “wage hikes and record-high employment conditions supported remittance growth in the face of high inflation”.
  • In the GCC countries, Indian migrants benefited from governments’ direct support measures to keep inflation low.
  • Finally, the report adds that Indian migrants may also have “taken advantage” of the depreciation of the Indian rupee vis-à-vis the U.S. dollar – it fell by 10% between January and September 2022 – to increase their remittances.

Significance of Remittances

  • Remittances boost or maintain consumer spending and lessen the impact of tough times, like the Covid-19 epidemic, on the economy.
  • Remittances account for a significant fraction of the global movement of funds.
  • Remittances turned out to be durable despite predictions that they would decrease as a result of the Covid-19 outbreak (in part because of travel restrictions and the economic crisis).
  • For migrants themselves as well as for family and friends still living in their home countries, remittances are a “essential and good” economic outcome of migration.
  • Now, excluding China, remittances outpace foreign direct investment by more than 50% and are more than three times higher than government development assistance.

Adverse consequences of migration

Brain Drain

  • The movement of skilled labour may lead to a “brain drain,” mainly from lower-income nations, and a “brain gain,” more generally known as “brain circulation,” in higher-income countries.

Families that are left behind

  • Community and family members who stay behind are also impacted by migration in addition to those who move:
  • An estimated 193 million migrant workers’ families are abandoned.

Discrimination & Xenophobia:

  • Hateful treatment or attitudes against migrants and refugees are possible.
  • Xenophobia is the practise of treating someone as outsiders due to their origin, language, culture, or physical appearance.

People Smuggling and human trafficking

  • While a large amount of migration happens without breaking any rules or laws, a sizable but unquantifiable percentage of migrants are taken advantage of by criminal networks.
  • Despite having different legal definitions, people smuggling and human trafficking are frequently difficult to distinguish from one another due to their many operational parallels.

About future trends

  • The report predicts that growth in remittances will fall to 2% in 2023 as the GDP growth in high-income countries continues to slow, eroding migrants’ wage gains.
  • For South Asia as a whole, the growth in remittances is expected to fall from 3.5% in 2022 to 0.7% in 2023.
  • In the U.S., higher inflation combined with a slowdown will limit remittance flows, while the GCC countries will also see cooling of remittance outflows following a slowdown.
  • The demand for labour is expected to soften as construction activities for the FIFA World Cup in Qatar have ended.
  • Nonetheless, remittances to India are forecast to grow by 4% next year, “supported by the large share of Indian migrants earning relatively high salaries in the U.S., the U.K. and East Asia”.
  • Their salaries, the report notes, “may be more resilient than those of lower-wage migrants, for example in the GCC”.

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