Globalising People: India’s Inward Remittances in 2016-17 ARTICLE Globalising People: cost of remitting funds is becoming a key element influencing the size of remittances (Cecchetti and India’s Inward Remittances* Schoenholtz, 2018). As formal channels are costly due to regulatory requirements, remitters might Drawing on the fourth round of the survey of authorised be preferring less costly informal channels, though dealers on India’s inward remittances in 2016-171, they are less secure and prone to misuse for illegal this article finds that business tie-ups with various purposes (Kosse and Vermeulen, 2014). The G20 exchange houses have facilitated cheaper transmission has prioritised the issue of cost of remittances in its of remittances from the Gulf Cooperation Council agenda and is encouraging appropriate policies at the countries relative to those from other countries. country level. Kerala, Maharashtra and Karnataka are the major For India, the flow of inward remittances has recipient States. Money transfer operators maintain an been pivotal in financing the trade deficit (43 per cent edge over banks in terms of cost for cash-based low value in 2017-18). India continues to be the top recipient transactions. country with US$69 billion of remittances in 2017 sent by a large pool of skilled, semi-skilled and Introduction unskilled Indian migrants across the globe.2 The cost Remittances play a crucial role in the life and of sending remittances to India, therefore, assumes ethos of a wide swathe of developing economies, with critical relevance, especially from the point of view of significant welfare implications. In 2017, low and the potential use of informal/illegal channels. middle income economies received US$466 billion as remittances (World Bank, 2018). For several low income Since 2006, the Reserve Bank of India (RBI) has countries, these flows constitute more than half of been conducting surveys of authorised dealers (ADs) GDP. Remittances are a more stable source of external which act as intermediaries for remittances received 3 financing than cyclical private debt and equity flows by residents. This survey, the fourth in its series , and unlike the latter, involve no obligation to repay expands its ambit to canvas information on costs of or service - contractual or otherwise. This feature of sending remittances for the first time, as well as their these flows assumes importance from an external country-wise/state-wise distribution. sustainalibity perspective. This article is motivated by these new Remittances depend upon a host of factors, dimensions of information gleaned from the including macroeconomic conditions in source survey to seek a deeper understanding of inward economies, the stock of migrants, the fiscal policy remittances in terms of source, destination, stance in the host countries, oil price dynamics and size, modes of transfer and cost of remittances. the domestic policy regime for work related migration The rest of the article is divided into five Sections (RBI, 2015-16). Increasingly, it is observed that the (including the introductory section). In Section 2, the scope and methodology used in the survey are * This article is prepared by Shri Rajeev Jain, Shri Dhirendra Gajbhiye and Ms. Soumasree Tewari in the Division of International Finance, Department briefly discussed. Section 3 presents the survey of Economic and Policy Research (DEPR), Reserve Bank of India under the results in terms of the characteristics identified earlier guidance of Shri.Rajan Goyal, Adviser, DEPR. The views expressed in this article are those of the authors and do not represent the views of the Reserve 2 India accounts for around 6 per cent (16.4 million) of total international Bank of India. migrant stock. 1 Preliminary findings of the survey were published on the RBI’s website 3 Earlier surveys were conducted in July 2006, September 2009 and April on August 09, 2018. 2013. RBI Bulletin November 2018 45 ARTICLE Globalising People: India’s Inward Remittances in 2016-17 in the article’s mission. Section 4 discusses issues 3. Survey Results surrounding the cost of remittances. Section 5 sets out Remittance business is found to be quite diverse concluding observations that are intended to inform across banks. Business models of intermediaries vary, policy choices. depending on the source country, the prevalent mode 2. Scope and Method of the Survey of transfer and the size of remittances. Globally, the remittance market is serviced by 3.1 Country-wise Remittances commercial banks, money transfer operators (MTOs), 82 per cent of the total remittances received by foreign exchange houses and post offices as well as a India originated from seven countries, viz., the United wide variety of commercial entities acting as agents Arab Emirates (UAE), the United States (US), Saudi and sub-agents (Box I). Banks play a prominent role in Arabia, Qatar, Kuwait, the United Kingdom (UK) and intermediating remittances flowing into India. Oman (Chart 1). With over 90 per cent of overseas In this round of the survey, out of a universe of Indians working in the Gulf region and South East 80 ADs that report foreign exchange transactions to Asia (ILO, 2018) – mostly semi-skilled and unskilled the RBI, responses were received from 42 ADs which workers – the Gulf Cooperation Council (GCC) accounted for 98.3 per cent of total remittances countries accounted for more than 50 per cent of total reported in 2016-17. A separate questionnaire was remittances received in 2016-17, notwithstanding a circulated among three major MTOs that have large sharp decline in oil prices and fiscal tightening in these remittance operations in India.4 countries. The Indian diaspora in the US, characterised Box I: Microstructure of Remittance Channels Remittances transactions typically involve a sender, flow through both formal and informal channels. A specific a recipient, intermediaries in both countries and the channel may be formal in one country but informal in payment interface used by them. In practice, remittances another due to differential regulatory treatment (Figure 1). Figure 1: A Broad Framework of Remittance Channels Migrant/Short-Term Recipient/Beneficiary Worker/Sender Family in the In the Host Country Home Country Point of Remittance Transfers Network Linkage/Transfer Interface Point of Remittances Transfers (Intermediary in the Host Country) • Messaging and Settlement (Intermediary in the Home Country) • Commercial Bank Infrastructure • Commercial Bank • Money Transfer Company • SWIFT • Money Transfer Company • Credit Union • Telegraphic Transfers • Credit Union • Post Office • Telephonic Message • Post Office • Bus/Courier Company • Web-enabled Instructions • Bus/Courier Company • Collection Agents • Physical Transport of Cash and • Collection Agents • Friends/Relatives Goods • Recipient’s Location Source: IMF, 2009. 4 Previous rounds of the survey covered a sample of AD Bank branches; MTOs were not covered. 46 RBI Bulletin November 2018 Globalising People: India’s Inward Remittances in 2016-17 ARTICLE Chart 1: Country-wise Distribution of Remittances 30 26.9 25 22.9 20 14.8 15 er cent 11.6 P 10 6.5 5.5 5 3.0 3.0 2.3 1.0 0.9 0.7 0.6 0.05 0.03 0 US UK ong E UA Italy K Qatar uwait Oman Others K Canada ustralia Malaysia A Germany Hong Philippines Saudi Arabia Source: Survey based estimates. by high skills and high earnings, is the second largest Table 1: State-wise Share in Inward Remittances contributor. Per cent 3.2 State-wise Remittances State Share in Total Remittances Kerala 19.0 The survey reveals that 58.7 per cent of total Maharashtra 16.7 remittances was received by four states namely Kerala, Karnataka 15.0 Tamil Nadu 8.0 Maharashtra, Karnataka and Tamil Nadu. The flows of Delhi 5.9 remittances broadly mirror the State-wise composition Andhra Pradesh 4.0 of the stock of overseas migrants. The Southern States Uttar Pradesh 3.1 West Bengal 2.7 dominated with a combined share of 46 per cent in total Gujarat 2.1 remittances. These results are largely corroborated Punjab 1.7 by surveys independently conducted by multilateral Bihar 1.3 Rajasthan 1.2 agencies (viz., ILO, 2018), which have also highlighted Goa 0.8 a shift in cross-border migration flow from prosperous Haryana 0.8 States such as Kerala and Karnataka to States like Uttar Madhya Pradesh 0.4 Orissa 0.4 Pradesh and Bihar largely comprising of low or semi- Jharkhand 0.3 skilled contractual workers with low level of income. Uttarakhand 0.2 Puducherry 0.2 These two States accounted for 4.4 per cent of total Chandigarh 0.2 remittances in 2016-17 (Table 1). Jammu and Kashmir 0.2 Assam 0.1 3.3 Mode, Size and Purpose of Remittances Himachal Pradesh 0.1 Chhattisgarh 0.1 AD banks operate through different schemes Others 15.5 of payment transfers, ranging from traditional Total 100.0 modes like cheques and drafts to more advanced, Note: “Others” also includes those remittances for which banks could not identify the specific destination and, therefore, covered such transactions easier and faster transmission channels like online under “Others”. RBI Bulletin November 2018 47 ARTICLE Globalising People: India’s Inward Remittances in 2016-17 Chart 2: Mode of Remittances Chart 3: Average Size of Remittances (Instrument-wSise hare in TRotal emittances) (Bucket-wise SThare in otal Remittances) 80 75.2 80 70.3 70 70 60 60 50 50 40 40 er cent er cent P P 30 30 27.0 19.5 20 20 10 3.4 1.9 10 2.7 0 RDA/Vostro SWIFT 0 Direct Transfer Others Less than or equal Between US$ 200 - Greater than or Account (Including to US$200 US$ 500 equal to US$ 500 Cheque, draft) Source: Survey based estimates. Source: Survey based estimates. direct transfers (i.e., wire transfers), the Society for or equal to US$500 and only 2.7 per cent were of less Worldwide Inter-bank Financial Telecommunication than or equal to US$200 category (Chart 3).