The economic shock induced by COVID-19 has had a huge impact on remittances. Read on to find out what this means for India.
India received US$79 billion in remittances in 2018, making it the top remittance-receiving country in the world according to the World Bank. Remittances are thought to be so high given the large number of Indian expats – of which estimates suggest there are 17.5 million Indianmigrants around the world. Other studies report that approximately 1 out of every 20 immigrants around the world is born in India, a staggering statistic to say the least.
Given the size of the expat community from India, it’s unsurprising that Indians working in other countries have consistently been the world's top remitters. Nations around the Persian Gulf and the United States drive most of the remittances to India with large numbers of expats living in the United Arab Emirates (3.4 million), the US (2.7 million) and Saudi Arabia (2.4 million).
Not only do remittances have direct impacts like poverty reduction, specifically for rural areas, they also have positive indirect impacts that include the multiplier effects of consumption spending. This is achieved when remittances received are spent on basic needs to stimulate further demand for goods and services, which goes on to stimulate other outputs and employment. With the importance of remittances clearly outlined, it becomes easier to see the dangers of stemming the flow of this money.
The impact of COVID-19 on remittance values
The economic shock induced by COVID-19 has had a huge impact on remittances. Reports have shown that 75% of the world's migrants work in countries where three-quarters of the globe's COVID-19 cases have been reported, according to Knomad. With countries engaging in economic shutdowns to suppress the virus, migrants may find themselves on a reduced wage or with no job at all. In some instances, they may be protected by government stimulus packages, but oftentimes many may find themselves excluded if they don’t meet proper residency or citizenship requirements.
The value of remittances sent home often depends on the migrant’s financial means, motivation and ability to physically send money to India. Given the circumstances, Knomad reports a 20% projected global slump in 2020 for remittances. India is expected to be hit even harder, with remittances expected to fall by 23% from $83 billion in 2019 to $64 billion in 2020.
As many major economies dip into recession, Indians living in those countries are likely to send less money back home. Migrants are particularly vulnerable to job loss as they’re more likely to be employed in roles where they cannot work remotely or in less formal roles. Around 45,000 people have been repatriated to India as a result of being unable to support themselves, according to The Hindu BusinessLine. Others are returning home to be close to their families during these trying times. In turn, all of this reduces the remittance flow into the country.
Foreign policy can also heavily reduce remittances. Recently, Kuwait’s National Assembly approved a draft bill to reduce the presence of foreign workers in the country. On the topic, Prime Minister Sheikh Sabah Al-Khaled Al-Sabah said foreign workers should be reduced from 70% of the population to 30%, a reduction of 2.5 million people. Indian immigrants are expected to be capped at 15% of the population, forcing an estimated 800,000 of 1.45 million Indians in the country to leave. Kuwait, being one of the top sources of foreign remittances to India, will heavily reduce remittance flows into India by limiting immigrants.
Migrants fortunate enough to retain their jobs still face challenges sending money back to India. Money transfer companies may need to reduce operating hours due to lockdowns while suffering lost productivity due to work from home orders. In turn this can impact an individual's ability to send funds, especially when physical pick up or drop off is required. Companies dealing with volatile sending patterns and reduced revenue may also find it difficult to manage liquidity, leading to increased fees that eat further into remittance totals.
Providing support to migrants
Remittance-centric countries can provide much-needed support to those in need. For migrants who have returned home, the International Labour Organisation recommends a reintegration program. Returning migrant workers bring skills that can help boost productivity, and reintegration programs are instrumental for proper skill recognition and social protection. Public education is also an important component to help soothe concerns that returning migrants may steal jobs in an already competitive market.
For migrants still living overseas, the World Bank recommends social safety nets, employment retention policies and employment promotion policies. Safety nets may include direct support, such as cash-in-hand or access to free services to boost consumption and reduce poverty. Employment retention policies focus on incentivising employers to use subsidies or deductions to help retain staff. Employment promotion policies are geared toward matching workers with employers as well as adjusting any regulations, like visas, to ensure migrant workers can legally be employed.
Money transfer companies also have a part to play. If a country they operate in goes into lockdown they can start a dialogue with policy makers to be deemed an essential service. If physical trips to and from the store aren’t possible, companies should encourage the use of digital remittance channels and educate their customers on the benefits. Not only is this good for the customer, but it could also help money transfer companies manage their cash flow. Even while strapped for cash, people often still need to send money home – some major companies are reducing fees for the time being to help lighten the load. But without further intervention by governments and relief packages, how long will this temporary fix last?
