Fostering Socio-Economic Growth: Indian Immigrant Remittances | S N Tripathy

Backdrop:

The remittance of Indian immigrants has been a catalyst for socio-economic development, as it has brought about significant positive changes in various domains, such as education, healthcare, and poverty alleviation in both the home country and the destination country. The remittance inflows have multiplier the Indian economy, increasing disposable income, consumption demand, and investments in various sectors. Moreover, the remittance inflows have facilitated the development of a more skilled and knowledgeable workforce in India, which has helped the country to achieve sustainable growth and development. The Indian government has taken various steps to protect the welfare of migrants. It has implemented several measures to improve economic prospects and employment opportunities in the home country, as well as to reduce remittance costs and mobilise diaspora savings and collective remittances. These efforts have resulted in a more formalised and regulated remittance system, which has enhanced remittances’ long-term development impact and facilitated their utilisation in financing local development projects. Overall, the remittance of Indian immigrants has played a significant role in intensifying global human and capital flows, supporting local livelihoods, and boosting national development, making it a critical factor in socio-economic development.

In the case of ’internal migration’, they are essentially rural-urban migrants within the country, whereas in ’international migration’, "migrants" are foreign-born residents of a recipient country. The identified push factors for this migration include poverty, unemployment, indebtedness, low-income potential, limited work opportunities, etc. In contrast, the pull factors are the desire to earn more, the desire for the urban lifestyle, migrant agents’ allurement about the brighter prospects of income, benefits, and remittances, etc.

Over the last two decades, the world has witnessed a steady migration of people from developing to developed nations in search of well-paying jobs, higher education, and a better standard of living. The number of people living outside their birth country has grown from 153 million in 1990 to 272 million in 2019, which has increased to 281 million in 2022, constituting 3.6% of the world’s population (World Migration Report 2022).

Remittance for Socio-Economic Development:

Migration, which can potentially serve as an engine of growth and development for the origin and destination countries apart from the migrants themselves, can have positive contributions in both places. In the place of destination, migration can rejuvenate workforces, render economically viable services, promote entrepreneurship, support social security and welfare schemes, and meet the demand for skills for emerging high-tech industries.

On the other hand, in the place of origin, positive contributions of migration are reflected in capital inflows through remittances and investments, transfer of technology and critical skills through return and circular migration. Thus, migrants sustain development and partnership through the monetary, human, and social capital they supply, their involvement in social networks and their contributions to exchanges between cultures.

Remittances, which frequently go towards social sector development of the recipient households in improved housing, nutrition, schooling, and health care, can create human capital by financing the education of children and health expenses while improving food security for poor households. This, in turn, helps families in developing markets not only reduce the poverty level but also avoid falling back into the poverty trap, as they provide a buffer to help deal with emergencies – such as someone falling sick. Regardless of the magnitude of remittances, it can potentially raise the people’s living standards from the migrants sent to the poorest regions by impacting their income, consumption, and savings. For instance, in Kerala, the foremost end use of remittances is household consumption, education, debt, construction and repair of buildings, and bank deposits for 86 per cent, 36 per cent, 27 per cent, 11 per cent, and 8 per cent of households, respectively (Zachariah et al., 2002). Furthermore, as E. Rhyne (2007) points out, "Remittances put large sums of money into circulation in countries in Latin America for the purchase of goods and services that boost the economy", which suggests that remittance flows have a positive impact on economic development.

Immigrants are not only inclined to boost output, create new opportunities for native workers, provide skills needed for growth, generate new ideas, and stimulate international trade but also contribute positively to long-term fiscal balances. Several examples of nations, such as Mexico, Nepal, and Indonesia, have demonstrated a significant reduction in poverty on account of remittance inflow. This is because higher remittance inflow implies higher disposable income in the hands of the remittance-receiving family, resulting in enhanced consumption demand. Such expenditure on goods and services propels economic growth through a stimulus to businesses and economic activities. Further, regular remittances to families in developing markets reduce the poverty level and help them avoid relapsing into the poverty trap, providing a buffer to help deal with emergencies.

Moreover, the consistent flow of global remittances positively affects macroeconomic growth. The foreign exchange inflow facilitates the increase of forex reserves, strengthens the currency, improves a country’s balance of payments, and enhances its credit rating. This increase in investor confidence and lower borrowing costs for the government and local businesses and households ultimately leads to higher economic growth.

Key facts and figures from World Migration Reports 2000 and 2022:
While some aspects have remained persistent- the proportion of female international migrants and the overall proportion of the world’s population who were migrants – other aspects have altered considerably. Global remittances, for instance, have increased from an estimated USD 128 billion to USD 702 billion, emphasising international migration as a driver of development (Table 1)

Table 1. Key facts and figures from World Migration Reports 2000 and 2022

Source: World Migration Report, 2022, P.10

The estimated number of international migrants has grown over the past 50 years. In 2020, almost 281 million people lived in a country other than their country of birth, or about 128 million more than 30 years earlier, in 1990 (153 million), and over three times the estimated number in 1970 (84 million).

Table 2: Decadal Trends in International Migration and Variations (1970-2020)

Source: United Nations, Department of Economic and Social Affairs, Population Division, "International Migrant Stock 2020".

Table 2 shows the decadal variation of international migrants from 1970 to 2020. The data reveals a steady increase in the number of international migrants over the years, with each decade seeing a significant increase from the previous decade.

The 1970s saw 84.8 million international migrants, which increased to 103.3 million in the 1980s, representing a variation of +18.5 million. This increase was further amplified in the 1990s, with the number of international migrants increasing by 47 million, reaching 150.3 million.

The 2000s saw another significant increase of 41.1 million international migrants, totalling 191.4 million. The trend continued in the 2010s, with a variation of +80.6 million, bringing the total number of international migrants to 272 million.

While the data for the 2020s is only up to 2020 and is based on estimates, it shows a continued trend of increasing international migration with a variation of +9.4 million.

Overall, the data highlights the continued growth in international migration over the decades, driven by various factors such as economic opportunities, social and political factors, and family ties. This trend is expected to continue in the future, with increasing globalisation and growing interconnectedness between countries.

The United States has emerged with the highest remittance outflow, with a notable increase from USD 48.3 billion in 2010 to USD 68.6 billion in 2020. This increase can be attributed to the high number of foreign workers in the United States, particularly from Mexico. Saudi Arabia, Switzerland, Russia, and the United Arab Emirates also saw substantial growth in remittance outflows over the decade. The increases in these countries can be traced back to the significant number of foreign workers from India, Pakistan, and Bangladesh. Similarly, Germany, Kuwait, Qatar, the United Kingdom, and Malaysia also experienced growth in remittance outflows due to the large number of foreign workers from various countries.

These figures indicate the growing importance of remittance outflows in the global economy. Remittances are a significant source of income for many developing countries, and the increase in remittance outflows reflects the growing number of foreign workers in various countries. These workers send a significant portion of their earnings back to their families in their home countries, providing an essential source of income for many households.

However, these remittance outflows can also create challenges for the economies of the countries where these foreign workers are employed. For example, the reliance on foreign workers in specific industries can create labour market imbalances and dependency on sectors. In conclusion, the information presented on remittance outflows from various countries provides insights into the importance of foreign workers in different economies. It highlights the growing significance of remittances as a source of income for several households globally.

Table 3: Top 10 Receiving Countries for Remittances in 2020 and Percentage Change from 2019

Source: World Bank, "Annual Remittances Data". Data for the year 2020.

Table 3 shows the top 10 receiving countries for international remittances in 2020. India retains its position as the receiving country with a total inflow of $83.1 billion, slightly higher than the previous year’s inflow. China, the second-largest recipient in 2019, has slipped to the second position with a 13% drop in remittance inflows. Mexico has climbed up to the third position with a significant increase of 11.4% in remittance inflows.

Table 3 also shows that most countries in the top 10 have experienced increased remittance inflows in 2020 despite the ongoing pandemic. Bangladesh has seen the highest increase of 19.2% in remittance inflows, followed by Pakistan with a 12.5% increase. This increase can be attributed to the fact that many migrant workers are sending more money back home to help their families cope with the economic impact of the pandemic.The table shows that remittances continue to play a cruciak role in the economies of several developing countries, providing a crucial lifeline to families and helping to support local businesses.

The way forward:

The movement of people across international boundaries has effective implications for growth and poverty alleviation in both origin and destination countries, mainly when circular and return migration involves the return and utilisation of skills and capital. However, for this to happen, a crucial prerequisite is that there must be options for employment and entrepreneurial initiative in the home country. Therefore, if the country of destination is to encourage the return of migrants, it may need to explicitly and extensively incorporate measures to improve economic prospects and employment in home countries, including exploring possible obstacles to voluntary return and circular migration in their national policies and practices.

This issue is prominently featured in the United Nations’ 2030 Agenda for Sustainable Development. The agenda underscores the importance of "protecting labor rights and ensuring safe and secure working environments for all workers, including migrant workers, especially women migrants, and those in precarious employment." It also highlights the necessity of exploring how migration and remittances can contribute to enhanced development financing. This can be achieved by reducing remittance costs and harnessing diaspora savings and collective remittances.

The role of immigration in intensifying global human and capital flows, supporting local livelihoods, and boosting national development is evident in Kerala. The World Bank (2006) has aptly remarked that "sound macroeconomic policies, political stability, and improvements in the investment climate in destination countries are prerequisites for making the best use of remittances."

Moreover, the formalization of money transfers through the formal banking system is considered pivotal in enhancing their long-term developmental impact. This viewpoint was emphasized during the Roundtable on remittances and other diaspora options at the Global Forum on Migration and Development in 2007. It was acknowledged that improving the formalization of transfers creates opportunities to amplify the developmental effects of remittances. It does so by offering avenues for individual savings, investments, or support for local development projects.

References:

• Global Forum on Migration and Development. (2007). International Organization for Migration. Geneva, Switzerland.
• International Organization for Migration. (2022). World Migration Report 2022. Geneva, Switzerland.
• Rhyne, E. (2007). The Role of Remittances in Leveraging Sustainable Development in Latin America and the Caribbean. Testimony before the Subcommittee on Domestic and International Monetary Policy, Trade and Technology of the Committee on Financial Services, U.S. House of Representatives, Washington DC, 7 March.
• United Nations, Department of Economic and Social Affairs, Population Division. (2020). International Migrant Stock 2020.
• World Bank. (2006). Migration and Development Brief 2: Remittance Trends. Development Prospects Group, Migration and Remittances Team.
• Zachariah, K.C., Mathew, E.T., & Irudaya Rajan, S. (2002). Social, Economic and Demographic Consequences of Migration on Kerala. International Migration, 39(2), 43-71. Published by Wiley.

(Author: Prof (Dr.) S. N. Tripathy Former Professor of Economics, Gokhale Institute of Politics and Economics, Pune)