Reserve Bank of India Facebook page bank entrance and money"Maximisation of the developmental potential of remittances needs careful attention" [Picture: Facebook page of the Reserve Bank of India]

Drawbacks of remittances studies point out the adverse impacts of remittances in terms of the ‘dependency syndrome’, ‘excessive consumption’ and non-productive investments. The unaccounted flow of remittances or ‘havala’ is another nuisance that has allegedly converted ‘the new development paradigm’ into a ‘destabilising force’. Other than these, the social and human costs of remittances have been much more severe than expected in terms of the exploitation of workers in foreign countries, the vulnerability of left behind women, children and the elderly population, as well as labour shortages created in the home country by the emigration of workers. Unfortunately, several of these features are clearly evident in India. The absence of a coherent policy framework in India has not only impeded the maximum utilisation of remittances but also led to its misutilisation.

A major chunk of the remittance money is utilised for family maintenance, i.e. to meet the requirements of the migrant families in terms of food, education, health, etc. A significant portion also goes into bank deposits. The use of remittances for investment purposes remains very low. In the case of Kerala, one of the foremost states of India, having witnessed remittance-induced development, the ‘easy money’ came to be treated like allowances and went mainly on raising the living standards of the receiving family – i.e. a new house (often quite expensive and far in excess of requirements), a car, a large TV set and so on, with the amount remaining being usually deposited in banks, as a financial safety net. A very small percentage of the remittance money was used for productive investments. The case of Punjab is also not quite different where we also see evils like the rise in drug and alcohol consumption as a consequence of the availability of remittance money. However, in states like Gujarat, where remittances are sent by comparatively wealthier people in the USA and Canada, the volume is greater, and there is a marked preference for investing the remitted funds in shares and other financial market instruments.

The situation is all the more worrying in states like Uttar Pradesh, which is gradually picking up in terms of migrations to the Gulf (of mostly unskilled and semi-skilled workers) and the consequent inward remittances. Several districts in the state remain extremely backward in terms of socio-economic indicators in spite of having historically witnessed the migration of labour. This new wave of migration to the Gulf, the flow of remittances and the skills enhancement, too, has failed to make any significant impact on the local economy. In the absence of local livelihood options and the desperate need to earn money, the migrant labourers are often duped by agents and are made to pay large amounts of money, which they borrow locally at high interest rates by mortgaging land. In the countries of their destination, they face extremely hard living conditions with no institutional backing to address and redress their problems. They are subjected to myriad human rights abuses and exploitation, like fraudulent contracts, confiscation of passports, underpayment, late payment and worse, even non-payment of wages, withholding of residence permits and absence of health and safety protections. Thus, migrant workers are pushed from one exploitative situation to another. It is actually a kind of trap, from where it is difficult for the migrant worker to escape unless he manages to create an alternative livelihood for himself and his family, the avenues for which are scarce. The wives and families left behind face another set of challenges in terms of personal, psychological, managerial, social and children-related problems in a highly orthodox society.

The way ahead

Remittances can have a strong impact on development, at both the macro and micro levels. Their multiplier effects of consumption, growth of financial institutions, micro-financing, etc. all lead to development. Even the so-called non-productive investments contribute to economic and social development in the long term. But as one analyses the overall picture of the flow of remittances and their utilisation in India, it is evident that India has fallen far short of their optimum utilisation for development. The absence of opportunities for small- and medium-scale investments is leading to underutilisation/misutilisation of the capital contribution from the diaspora in the form of remittances.

The Indian diaspora constitutes mainly semi-skilled/skilled/highly skilled professionals – entrepreneurs, restaurateurs, retailers and wholesale businesses, belonging to the middle – and upper-middle-income groups. They look for credible opportunities of investment with assured returns on their savings and hard-earned money. Against this backdrop, facilitating investment options in small-scale and medium-scale enterprises, joint ventures, brown-field investments and micro-credits become pragmatic and viable opportunities for the diaspora. Such efforts will also encourage employment-generating activities and so reduce further emigration and save workers from exploitative conditions abroad by providing them alternative livelihood options in their own country.

What we require, therefore, is a coherent policy framework to harness remittances into generating capital for productive investment in small and micro-enterprises and also create employment for the would-be migrant worker as well as the returnee. Another major contribution can come through a collective use of remittances for philanthropic activities. It can be a remedy for specific deficiencies in the local infrastructure such as schools, clinics and roads. To convert the remittances into a viable instrument for sustainable investment, particularly in rural areas, instead of just a means for reducing individual household poverty, the government needs to intervene and streamline the utilisation of the remittances for productive use and diversification of livelihood options.

Maximisation of the developmental potential of remittances needs careful attention and a sustained policy intervention at both the micro- and macro-level.

Amba Pande works at the School of International Studies, Jawaharlal Nehru University and conducts research on Diaspora and Transnational migration.