With $79 billion India is the highest recipient of remittances from diaspora

WASHINGTON,D.C. — During last month’s spring meetings of the World Bank and the International Monetary Fund(IMF) that also traditionally lends itself to the release of several reports and briefs, one such revealed that India was the highest recipient of remittances from its diaspora with a staggering $79 billion in 2018.

India, according to the World Bank’s Migration and Development Brief, with this whopping total of remittances from its diaspora—which was $12 billion ahead of the Chinese diaspora’s remittances--retained its top spot on remittances.

Following India and China in third place was Mexico, with $36 billion, the Philippines, with $34 billion, and Egypt, with $29 billion.

The Bank said that India’s 2018 diaspora remittances was its highest in recent years with significant growth over the past two years--$62.7 billion in 2016 and $65.3 billion in 2017.

Much of this growth in the past year, the brief said was thanks to a significant boost that some natural disasters had caused, and pointed out that “remittances grew by more than 14 percent in India, where a flooding disaster in Kerala likely boosted the financial help that migrants sent to families.”

Remittances to South Asia, the Bank said, grew 12 per cent to $131 billion in 2018, outpacing the six per cent growth in 2017, and noted, "The upsurge was driven by stronger economic conditions in the United States and a pick-up in oil prices, which had a positive impact on outward remittances from some GCC (Gulf Cooperation Council) countries.”

The GCC is a regional inter-governmental political and economic bloc comprising Saudi Arabia, Kuwait, Oman, Qatar, Bahrain, and the United Arab Emirates (UAE).

In Pakistan, the Bank brief said, remittance growth was moderate, with a seven per growth, “due to significant declines in inflows from Saudi Arabia, its largest remittance source,” while in Bangladesh, remittances showed a brisk 15 percent uptick in 2018.

Overall, it said remittances to low-and middle-income countries reached a record high of $529 billion in 2018--an increase of 9.6 per cent over the previous record high of $483 billion in 2017.

Meanwhile, global remittances--which include flows to high-income countries—the Bank said, reached $689 billion in 2018, up from $ 633 billion in 2017.

Dilip Ratha, lead author of the World Bank brief and the head of KNOMAD(the Global Knowledge Partnership on Migration and Development), said, "Remittances are on track to become the largest source of external financing in developing countries.”

He said, “The high costs of money transfers reduce the benefits of migration,” and predicted that “Renegotiating exclusive partnerships and letting new players operate through national post offices, banks, and telecommunications companies will increase competition and lower remittance prices.”

The Bank brief bemoaned that the global average cost of sending $200 billion remained high, at around seven per cent in the first quarter of 2019, which continued to run counter to the 2030 global target under the Sustainable Development Goal (SDG) of reducing remittance costs to three per cent.

The high remittance costs across many African corridors and small islands in the Pacific has remained a bane to development, running higher than 10 per cent for the past several decades.

In another report, the Bank said that India’s GDP was expected to expand by 7.5 percent in fiscal year 2019-2020 “driven by continued investment strengthening, particularly private-improved export performance and resilient consumption.”

In its report on economic growth and development in South Asia, released during the spring meetings, the Bank said that the real GDP growth for India, is estimated at 7.2 per cent in fiscal year 2018-2019, noting that “data for the first three quarters suggest that growth has been broad-based.”

It said that “industrial growth accelerated to 7.9 per cent, making up for a deceleration in services,” and also noted that “agriculture growth was robust at four per cent.”

Domestic consumption remained the primary growth driver on the demand said, the Bank said, but also acknowledged that gross fixed capital formation and exports both made contributions toward sustained growth, and predicted that over the last quarter, growth was expected to remain balanced across sectors, thanks to inflation dynamics being subdued over most of fiscal year 2018-2019.

"On the external front, improvements in India's export performance and low oil prices should bring about a reduction in the current account deficit to 1.9 per cent of GDP," the report said.

With respect to “the internal front, the consolidated fiscal deficit is projected to decline, albeit slowly (to 6.2 and 6.0 per cent of GDP in FY19/20 and FY20/21 respectively). As the center's deficit is budgeted to remain unchanged at 3.4 per cent of GDP in FY19/20, the burden of adjustment will rest on the states,” the Bank added.

It said that a steady decline in inflation, was thanks to a sustained decline in food prices since July 2018, which was subsequently complemented by the softening of oil prices and concomitant appreciation of the rupee.

The Bank said that headline inflation stood at 2.6 per cent in February 2019, and the average for FY18/19 so far at 3.5 per cent, well below the RBI's (Reserve Bank of India) target-midpoint of four percent, the report said that as a result, the RBI reduced the policy rate by 25 basis points (to 6.25 percent) in February 2019.

But it acknowledged that India’s current account deficit widened in FY18-19, and the country’s “external position worsened significantly in the first half of FY18-19, as large portfolio outflows were triggered by U.S. monetary policy and fears of contagion from stress in some emerging market economies.”

“The nominal exchange rate depreciated, and foreign reserves declined by over eight percent over January to October 2018,” the report said, and acknowledged that since then, “the decline in oil prices and the United States Fed (Federal Reserve)signaling a slower pace of normalization than initially anticipated led to a partial reversal.”

The report added, “Portfolio outflows have reversed, and the rupee has appreciated by about four percent vis-a-vis the U.S. dollar since October 2018.”

The IMF in its World Economic Outlook report coinciding with the spring meetings, projected that India would grow at 7.3 per cent in 2019 and 7.5 per cent in 2020, “supported by the continued recovery of investment and robust consumption, amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy.”

It said that in 2018, India's growth rate was 7.1 per cent, as against China's 6.6 per cent, and projected that in 2019 China would grow by 6.3 per cent and in 2010, by 6.1 per cent.

"In the near term, continued fiscal consolidation is needed to bring down India's elevated public debt. This should be supported by strengthening goods and services tax compliance and further reducing subsidies,” the report said, and lauded the important steps “taken to strengthen financial sector balance sheets, including through accelerated resolution of non-performing assets under a simplified bankruptcy framework.”

But the IMF said, "These efforts should be reinforced by enhancing governance of public sector banks. Reforms to hiring and dismissal regulations would help incentivize job creation and absorb the country's large demographic dividend; efforts should also be enhanced on land reform to facilitate and expedite infrastructure development.”