Importance of Remittances

Remittances contribute to the financial and social inclusion of needy people worldwide and to the economic growth of a country. They also play an important role during financial crises. The recent World Bank report on remittances is a testimony to the fact that remittances flows have remained more resilient as compared to private debt and equity flows and foreign direct investment.

Remittances are stable and may even tend to be counter-cyclical in times of economic hardship. Remittances are now more than double the size of net official flows and are second only to foreign direct investment as a source of external finance for developing countries. In 36 out of 153 developing countries, remittances are larger than all capital flows, public and private.

Remittances could also help in reducing poverty, as it could be the poor who migrate and send money to their families. Some may argue that it is actually the rich who can migrate and send back remittances. Remittances could also be used to promote literacy. Studies show that the school dropout rate is lower and enrollment rate is higher in households that receive remittances.

There is tremendous potential for using remittances to encourage development in countries. Remittances could increase when the home country’s economy is going through a patchy phase. During such times, an individual might prefer to remit more to aid his family’s consumption back home. The money sent home could also be used to promote economic growth, increased investment and community development.

Migration and Remittances: An ecosystem that co-exist

Over the years, millions of Indians have found opportunity and livelihood outside of India. This scenario stands true for most developing nations that have seen a similar pattern of migration to the developed countries.

According to a recent study by World Bank, more than 215 million* people or almost 3% of the world’s population lives outside of its country of origin.

However, this decade the current migration flows in comparisons to the overall population have reduced than those witnessed in the last decades of the nineteenth century. This can be attributed to the development and progress within the developing nations providing better opportunity than before.

But remittances have not stopped growing. Remittances have witnessed steady growth along with other types of resource inflows like private debt and equity. Remittances have increased exponentially: up from US$ 132 billion* in 2000 to an estimated US$ 414 billion* in 2009, even with a slight decline during the economic slowdown. Among the developing nations India over past few years has stood no. 1 in the list of top remittance receiving countries.

India has always been amongst the top nations witnessing migration of its nationals to other countries.

Ranked 2nd amongst the top emigrants countries list only next to Mexico, this year an estimated 11.4 million* Indians would have migrated to other countries. This provides a steady source of remittance back to India that converges into investments in real estate, equity markets money sent back home for family maintenance, etc. India is estimated to top the list of inbound remittance with US$ 55 billion* by the end of this year.

China is marginally behind India and would record US$ 51 billion as inward remittance. Together, China and India account for quarter of worldwide remittances.

Thus, one can attribute a significant trend that starts from migration and continues with money being remitted back to the origin country. Some others patterns that can also be noted across nations would be an increase in foreign exchange, employment generation and an increase in inflows of non-resident money in local industries such as infrastructure and real estate.

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Source: * Migration and Remittances Factbook 2011- World Bank


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