India’s focus on remittances costs at the G20

India’s focus on remittances costs at G20 to benefit Indian workers .

The meeting of the G20 leaders in Antalaya, Turkey on November 15th– 16th, 2015 was held at a time when global macroeconomic environment remains fragile, international security concerns are posing severe challenges, and mitigating the impact of climate change has become more urgent.


The terrorism concerns have been underscored by the attack on civilians by Islamic terrorists in Paris on November 13, 2015, which killed 129 and injured more than 350 persons (as of November 15, 2015).

The G20 Group (hence forth the Group) comprises twenty of the World’s major advanced and emerging economies comprising about 85 percent of global GDP. The Group, of which India is a member, also has regional non- member representation, making it a much broader global gathering.

Such a broad gathering provides opportunities for India to help shape the global dialogue reflecting its priorities. It also enables India to pursue bilateral diplomacy in a multilateral setting; an area where it has exhibited competence and focus since prime minister Modi led government was elected in May 2014.

An example of fruitful bilateral diplomacy during the just concluded G20 Meeting in Turkey includes the conclusion of Indo – Australian civilian nuclear agreement. This will assist in India’s energy security, while creating mutually beneficial energy and security cooperation opportunities with one of India’s important economic partners in the Asia-pacific region.

During the Group’s meeting, India also unveiled the theme when it becomes Chairman of BRICS (Brazil, Russia, India, China, South Africa) in February 2016. The emphasis on solutions is particularly noteworthy in the proposed theme, “Building Responsive, Inclusive, and Collective Solutions”.

Such diplomacy contributes to enhancing India’s economic and strategic space, improves its resilience and global positioning, and thereby contributes to improving welfare of the Indian households.These subtle inter-linkages have not been sufficiently understood by the analysts and academic researchers. They have also not been well communicated by the government leadership and agencies. There are also sadly some sections of the media, intellectual community, and opposition political parties who by undermining India’s position in the world through trivial and negative reporting of India’s multilateral and bilateral diplomacy initiatives are undermining welfare of the Indian households. In a globalized era where marshaling country’s strengths in all its forms, including projecting country’s image domestically and abroad has become essential to improve welfare of the population, their behavior becomes even more objectionable.

Remittance Cost Reduction as Integral Part of G20’s Financial Inclusion Theme
Under the broad priority theme of “financial inclusion” identified by the G20 host country, Turkey, India has focused on the issue of reducing transaction cost of remittances of cross border workers. India has also emphasised facilitating cross border labour mobility and skills portability.

India has urged the G20 group to set the target date (well before 2030), to reduce remittance costs to 3 percent. India’s urging of greater cross-border labor mobility and skills-portability will also benefit India as a major net exporters of cross border workers, with extensive diaspora spread globally, numbering around 35 million persons.

Moreover, technological, regulatory and process oriented initiatives to further reduce cross border remittance cost, could have spill-over benefits for India’s domestic remittance costs and practices. This is an area that merits consideration of India’s researchers and remittance industry.

Globally, the World Bank has taken the lead in researching on the remittance costs. Its two recent publications, “The Cost of Sending and Receiving Money” published in June 2015, and “Migration and Development Brief“, April 13, 2015, provide the relevant data. Unless otherwise noted, the data in the next several paragraphs are from these sources.

The stock of international migration is expected to be about 250 million in 2015. In 2014, global remittances by cross-border workers were USD 436 billion, and are expected to grow by about 1 percent to reach USD 440 billion in 2015. These are officially – reported or traceable figures, with real figures likely to be higher.

In 2014, India’s official receipt of cross border remittances was USD 70.4 billion (3.7 percent of GDP), about a sixth of the global total. This roughly corresponds to India’s share in global population. A more disaggregated data are however needed for policy-oriented analysis.

The importance of expanding the cross border remittance flows to India is underscored by noting that in 2013-14, Reserve Bank of India estimated India’s merchandise trade deficit (not including services transactions) at USD 136 billion, almost twice India’s cross- border remittance flows. With such high and persistence merchandise trade deficits, and given that India’s and global trade has been slowing significantly in value terms, the importance of addressing remittance issues cannot be overemphasized.

The World Bank reports that in June 2015, global cost of sending remittances was 7.66 percent (G20 average was 7.56 percent), a significant decline from 9.67 percent in March 2009. When the flows are weighted by the relative size of each corridor, the global costs falls to 5.92 percent in June 2015,as compared to 8.18 percent in March 2009. The above represent significant saving for households given the USD 440 billion in global remittances.

Remittance costs for India at 6.88 percent in June 2015 (7.91 percent in March 2009) have been lower than global average. But they have not been as low as Mexico , which at 5.3 percent exhibits the lowest remittance costs. Collaborative Initiatives by Mexico, particularly of its Central Bank, with its counterpartin its large remittance- sending source, the United States, have played a role in this commendable outcome.

Indian think tanks and government organisations need to undertake policy-oriented, result-driven research to find similar opportunities for further reducing India’s remittance costs. At 6.88 percent, the total cost of sending cross border remittances to India is USD 4.8 billion(70 billion times 0.0688), a non -trivial amount. These are recurring costs each year.

A one percentage point reduction in remittance costs would potentially improve Indian household income by about USD 0.7 Billion each year (difference between remittance costs at 0.688 and 0.588 multiplied by USD 70 billion). This vividly demonstrates the importance of focusing on reducing remittance costs to benefit households.

The World Bank also finds considerable variations in remittance costs among modes of remittance. Thus, post office mode is found to be the cheapest (5.14 percent), followed by online ( 5.48 percent), cash (6.94 percent), and from bank account to bank account (11.2 percent). For the last mode, however , the average does hide special deals provided by some bank which reduce remittance costs.

To the extent the Group succeds inaccelerating reduction in remittance costs towards 3 percent goal well before 2030, this would significantly benefit the Indian households. However, for India both cross border and domestic remittance costs are of relevance. Various initiatives, such as payment banks, which are permitted restricted banking transactions, are permitted to engage in remittances; mobile banking and others need to be systematically completely implemented, and analysed with a view to reducing remittance costs. Security of and confidence in remittance processes also needs to be improved by focusing on technology and organisational improvements such in governance of post offices in India.

The above analysis represents an addition to the growing evidence that it is reform initiatives centering on seemingly small steps, but with large impacts that constitute the essence of useful economic reforms. Cumulatively, such reforms have far larger positive impact on household welfare, than those receiving attention of policymakers, media, and many academics and thinktanks.

Alas, low level of economic literacy prevents sufficient recognition of this lesson from the development experience, and its incorporation in design, implementation and public dialogue concerning reform initiatives. The public policy researchers however must continue to search for similar opportunities for improving household wefare, key ultimate goal of public policies.

Photo: GovernmentZA

The original article has been updated to reflect some changes.