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Business News/ Opinion / Columns/  Remittances and software are forms of labour export
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Remittances and software are forms of labour export

Money sent home cushions us from a rising trade deficit but education imports are a growing worry

Nasscom, the industry body, is confident that India will reach more than $200 billion in export revenues in a couple of years (Photo: Bloomberg)Premium
Nasscom, the industry body, is confident that India will reach more than $200 billion in export revenues in a couple of years (Photo: Bloomberg)

This year marks the 17th annual occasion on which India welcomes its diaspora in a grand function called Pravasi Bharatiya Diwas. The welcome is led by none else than the Prime Minister himself. It is a tradition that started during the term of Atal Bihari Vajpayee, and celebrates the success of the expat Indian community, citizens or not. The term ‘pravasi Bharatiya’ literally translates as ‘itinerant Indian’, perhaps one who was wandering the high seas, travelling the world and eventually returning to the homeland. The date of 9 January is chosen to celebrate the coming home of Mahatma Gandhi from South Africa in 1915. It is always a source of amazement that Gandhi started his India innings practically from scratch, at the ripe age of 46. Remember that the life expectancy of an average Indian then was less than 40. The Diwas has grown in scope and pomp over the years, and the event coincides with investor summits and much showcasing of economic opportunities for global investors. The global Indian diaspora today is estimated to be more than 30 million and its influence is growing. The Prime Minister of the UK is of Indian origin, and so is the twice-elected PM of neighbouring Ireland. The vice-president of the US is the daughter of an Indian who went to study at the University of California in Berkeley. Heads of state in Suriname, Guyana, Portugal, Mauritius are all of Indian origin. There are dozens of leaders sprinkled across politics, business and academia in America, and also in other English-speaking countries like Canada, the UK and Australia. These numbers will only increase in the coming years. The PM called them “brand ambassadors" of India, so they had better be on their best behaviour always! One of every sixth human being on the planet lives in India, and hence the diaspora is just a small extension of the people of this vast homeland. The love of overseas Indians for the land of their ancestors can be matter of debate. But what is beyond dispute is the loyalty of workers who send money home.

Every year, the World Bank tracks remittances received by low- and middle-income countries. This is money sent ‘home’ by migrant workers, often in small amounts, for family expenses. The remittance flow to India has been remarkably impervious to recessionary conditions in the developed world. During 2022, total remittance flow was an estimated $626 billion. Of this, a big chunk of about $100 billion was received by India, the world’s top recipient. India has been the topmost remittance receiver for 23 of the past 27 years. Such inflows currently constitute 3.3% of India’s GDP and have been rising at around 8-12% per annum, faster than our growth in national income. It provides an important cushion that softens the blow of India’s sometimes wide trade deficit. This gap is also bridged by capital inflows, which are either into equity or debt, the latter of which increases India’s foreign indebtedness. For the past two years, India’s balance of payments, net of all inflows, has been negative, but money sent home as remittance has been a great saviour. This remittance flow used to be dominated by money sent by blue-collar workers in Gulf countries. Even in 2022, Qatar, Saudi Arabia and the UAE make up about 45% of all inflows, with another 10% from Oman and Kuwait. The US and UK make up another 26%, and reflects a new and growing trend of inflows from workers in the software, tech and financial services sectors. In Kerala, more than one-fifth of the state’s income is from remittances.

Is this something to be proud of or not? That’s an interesting dilemma. A large outflux of economic migrants to distant lands speaks of a shortage of economic opportunities at home. At the same time, it is only the well-educated and confident aspirants who are employable and can land jobs abroad. Which means that Kerala must be a fount of good education and builder of human capital that equips its people to relocate to all parts of the world. In turn, Kerala has to import migrant workers from India’s more backward states like Bihar and Jharkhand. But its government takes care of the educational needs of children of migrant workers as the host state. Recently, the topper of a state board exam in Malayalee medium was the daughter of a Bihari worker. Other states can take some cues on how they can play host to workers from elsewhere.

India’s success in attracting remittance flows is matched by its success in software exports. Nasscom, the industry body, is confident that India will reach more than $200 billion in export revenues in a couple of years. Exporting software services is like the export of disembodied human capital. India is also emerging as a hub for research and development, and also a source of patent producers for major global tech companies.

So inward remittances and outbound software together represents the most competitive of India’s exports, namely labour. It would be even higher if the World Trade Organization agrees to India’s longstanding demand for an easy, streamlined work visa which doesn’t get mixed up with immigration policies and hurdles.

While growing remittances are welcome, one worrying trend of recent years has been a steady increase in outbound payments. This fiscal year, they will reach $22 billion and have been growing in double digits for four years. These payments represent an import of education (kids going abroad) and of tourism. If foreign campuses spring up in India, this import bill will rise further. Inbound remittance benefits could erode if this goes on, and hence calls for a massive upgrade of our education and human-capital sector.

Ajit Ranade is a Pune-based economist

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Published: 10 Jan 2023, 10:23 PM IST
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