New Delhi: Uttar Pradesh (UP) and Bihar, two of India’s poorest states that account for almost 25% of the country’s population, are rapidly growing in importance as destinations for remittances, or money being sent home by Indians, from West Asia.
If the trend continues, it could provide a big boost to the quality of life in the two states, just as it did in Kerala, a state synonymous with remittances from West Asia.
There’s a distinct trend over the past three to four years of remittances from West Asia flowing into eastern UP and Bihar, said Manish Misra, head of global remittances at ICICI Bank, among the biggest in the business. He points out that this is probably being driven by the demand for both skilled and unskilled labour.
“Immigration is something that’s here to stay, as there will be labour arbitrage,” Misra added, referring to the labour-cost differential between countries.
Data on the flow of remittances to the two states is not available, as banks and payment service companies such as Western Union (WU) do not disclose this information on a geographical basis. Executives often flag Kerala, Punjab, Andhra Pradesh, Gujarat and Tamil Nadu as states that see a high flow of remittances.
A country’s remittances are an important part of its balance of payments, essentially a record of all transactions made by a country over a period of time. India receives the most remittances in the world, ahead of China and Mexico, according to the World Bank. In 2005-06, it received $24.6 billion (Rs1.09 lakh crore) as remittances, 43% more than the total foreign investment that came into the country. India has about 10% share in the global remittances market, which WU estimated at about $269 billion in 2006.
A Reserve Bank of India study last year said that a predominant portion of remittances (54%) is spent on food, education and healthcare. Another 20% goes into bank deposits. As remittances continue to grow, they are likely to cushion recipients from the dips in other economic activity, mostly agriculture.
The growing importance of remittances in India, and that of the country in the remittances market has attracted a clutch of payment service companies.
Money Gram International, the second largest global payment service company, set up an office in the country in April. The Indian unit’s primary aim is to rapidly expand its geographical reach, said Harsh Lambah, country head of Money Gram India. WU, the largest global payment service company, signed a pact with Indian Postal Services in 2001 to use the latter’s ground presence across the country.
The original source of most remittances was West Asia, which attracted a large number of Indian workers in the 1970s, especially from Kerala.
Now, West Asia has being replaced by the United States as the largest source. North America accounts for about 40% of remittances for India, followed by West Asia at 35%, according to ICICI Bank’s Misra.