Migration is a constant in the history of humanity. It has gathered the attention of nations and policy makers with the key focus on international remittances. Between 1990 and 2015 the number of international migrants rose by over 60% or 90 million. Indians are the largest diaspora in the world. 16 million persons from India were living outside their country of birth. Remittances are personal cash transfers from a migrant worker or immigrant to a relative in the country of origin. They can also be funds invested, deposited or donated by the migrant to the country of origin. This can also include in-kind, personal transfers and donations. Remittances are sent by migrants to their families or communities. These are mainly used for food, education, improved housing and health care. Remittances remained steady during the Global Financial Crisis of 2008. Remittances helped the state of Kerala in India to tide over the financial crisis during devastating floods in 2018. The level of remittances vary – it depends on many factors like accessibility of home village, employment opportunities, nature of work, cost of living and the ease of remitting.
If we observe mobility, we see that South Asian region has had a vast share of international migrants. We can broadly categorise South Asian migrants into two sets – the highly skilled migrants mostly migrating to the Western countries and the semi skilled and less skilled workers migrating to the Middle East countries. Migrants are in different occupations, endowed with peculiar skill sets and obviously have different remittance behaviour. Most governments in South Asia view worker migration as a means to reduce unemployment, decrease poverty, and earn foreign exchange through remittances. In terms of origin of remittances to South Asia, the Middle East countries are the largest recipients of South Asian migrant workers and the amount of remittances originated from the three countries, UAE, Saudi Arabia, and Qatar are estimated to account over 60% of the total remittance inflow to South Asia.
Till 1970’s the impact of remittances was seen as increasing conspicuous consumption in remittance receiving countries. Frank Trentmann in his epoch book Empire of Things notes how Asian consumption culture changed post migration. He says, in the state of Kerala that started sending migrants to the Middle East in the mid 1970’s, a small family was good: a big family with a cousin in Kuwait even better. The countryside began to be flooded with wrist watches, electric fans, iron boxes, fridges and cars, which were unimaginable a decade ago. Towards the end of 1970’s the focus shifted to the use of remittances for investment purposes and remittances substituting international aid in developing countries. The governments in South Asian countries also became increasingly proactive to support migrant workers and their families’ investments in small businesses and income generating activities for employment generation(For eg: The Pravasi Bharati Divas in India).
One of the characteristics of the remittance economy in South Asia is a high volume of remittances that are transferred through informal channels. Policy incentives, can nudge people to use formal remittance channels, which boost economic productivity in receiving countries. New policy measures have triggered a change in remittance behaviour in Pakistan and Bangladesh. The State Bank of Pakistan, Ministry of Overseas Pakistanis and Ministry of Finance jointly launched an initiative called Pakistan Remittance Initiative to allow for an ownership structure in Pakistan for remittance facilitation. The Roshan Digital Accounts was launched by the governement of Pakistan with the goal of attracting foreign currency deposits from Pakistanis working abroad. Despite the increase in return migrants and decrease in deployment of workers overseas, Pakistan saw a huge rise in remittances in 2019. This is at times attributed to the the remittance tax incentive intrododuced in 2019 and 2020. However, last year the deployment of workers to the Gulf Cooperation Council (GCC) countries, Malaysia, and Hong Kong SAR and China declined by 64 percent from Pakistan. In Pakistan, the number of migrant workers dropped from 625,000 in 2019 to 225,000 in 2020, largely due to a rise in returning migrant workers from the GCC countries. In Bangladesh too the remittance tax incentives has suddenly boosted the flow of remittances in 2019 and 2020. Another reason for the fomalisation of remittances in Bangladesh and Pakistan was because of the unique nature of the COVID pandemic. Sending money through visiting friends and relatives proved difficult due to travel restrictions and therefore remittances were now routed through formal channels. The worrisome factor in both these countries are the likely decline of remittances in the coming years due to large number of migrants in the GCC losing their jobs and returning to the home country.
While remittance outflows might have decreased among immigrants more vulnerable to economic downturn, they have remained more or less the same for people who have stable jobs. Most of the migrants used even their savings to support their families back home would handle crisis by finding creative ways to remain employed, like multi tasking, trying their luck in new ventures or working extra time. To remit money, these migrants may rely on their savings and also reduce their consumption expenditure. This actually explains the logic of steady remittance flows despite the COVID 19 pandemic.
At least the pandemic is an opportunity to boost digital payments, allow for ease of remittances by bringing down the cost of remittances and reducing the delay of remitting. Despite World Bank’s prediction of 20% decline in remittances to South Asia, the decline has been very negligible. The long term consquences of the pandemic on the remittances in countries like India need much more thought on policy as the number of return migrants is increasing and they have to be incorporated to an already tight labour market. A 2018 study by RBI on remittances is India, indicates that almost three-fifths of remittances received by households are used for family maintenance purposes. A rapid fall in remittances may force many migrant households back to poverty, debt and distress. A well thought out policy channelising long term benefits of remittances is actually crucial for all South Asian countries.
Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research.