September 19, 2012
The source of remittances
C. P. CHANDRASEKHAR
While exports of services receive considerable attention, the role and importance of private transfers or remittances to India are only occasionally emphasised. Yet, it has been known for some time now that India is among the highest remittance receiving countries in the world, and that at around 4 per cent of GDP, net private transfers contribute to reining in the current account deficit on India’s balance of payments.
In 2011-12, net private transfers to India consisting large of remittances from outmigrants, stood at $63.5 billion. This compares with net earnings from exports of software, business, financial and communication services of $58.1 billion and a relatively meagre net foreign investment inflow of $39.2 billion. Given this importance of remittances, knowledge of the region-wise and occupational category-wise distribution of the sources of remittances is of considerable significance for policy.
Traditionally it has been held that the Gulf countries and North America were the two dominant sources in terms of region, with Europe following as a distant third. In 2008-09 for example, the Reserve Bank of India has estimated, based on a survey of remittance-receiving households, that close to a third (30.8 per cent) of total foreign remittances came from the Gulf countries, 29.4 per cent from North America, and 19.5 per cent from Europe.
However, North America has been privileged for one reason. The impression that dominates analyses of the subject is that migrants to the US, Canada and Europe were predominantly skilled, with those to the first two countries being engaged largely in software and technology-related services. On the other hand, migrants to the Gulf countries are seen as being largely semi-skilled or unskilled and engaged in the petroleum, construction and services industries.
Earlier estimates of the region-wise sources of remittances had suggested that in the 1980s and 1990s, remittances from migrants to the Gulf dominated the total, but that a structural shift in favour of remittances from North America occurred towards the end of the 1990s. This geographical shift in the distribution of remittances by source was, therefore, seen to reflect a shift in the sources of remittances away from those in semi-skilled and unskilled occupations to those in high-skilled occupations, especially in the services arwea.
However, evidence from a survey conducted by the Reserve Bank of India (http://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/IEPR277SP0812.pdf
) and posted recently on its website suggests that the picture may be more complex. The reference years for the survey were 2007-08 and 2008-09. As the accompanying chart indicates, according to that survey, the principal sources among the sample of migrants sending remittances to households in India included not only Software professionals, but also Entrepreneurs and those in partnerships, and Self-employed professionals. Thus, while more skilled migrants seem to be numerically more important in the sample of those making transfers, the occupations involved seem quite diverse. Software professionals dominate (26 per cent) but are by no means the majority.
Secondly, the distribution across countries of those whose occupation is identified as Software Professional diverges substantially from the traditional perception. If the survey is correct and representative, 16.7 per cent are in Dubai, 11.2 per cent in Sharjah and 10.4 per cent in Qatar, as compared with 16.4 per cent in USA, 11.2 per cent in UK and just 2.2 per cent in Canada. There could be many reasons for this evidence that goes contrary to the prevailing perception. One could be that the sample is biased. Another could be that while aggregate revenues earned from export of IT and IT-enabled services to North America dominates the total, there is a substantial amount of provision of software-related services on-site in the Gulf countries by companies that have a commercial presence there and employ Indian professionals.
Such evidence is not just a curiosity. Revenues from export of services through presence abroad need not be restricted only to companies. If individuals as short-term migrants earn incomes, a part of which is remitted to the home country, they are a source of income from abroad delivered in foreign exchange. These remittances can, therefore, be treated as another form of income from exports of services. This would imply that India’s revenues from export of services is more diversified than normally presumed and, therefore, perhaps more resilient. This gives one more reason why remittance receipts should be given more importance than they usually receive when compared with services exports or foreign capital inflows.