By Prof. Raj Kishore Panda* in Bhubaneswar, July 26, 2021: Remittances by migrants have grown in number and volume in the country with rise in migration both internal and international in recent years. Notwithstanding the fact that India has been continuing to be the world’s foremost remittance destination (World Bank, 2012), domestic remittances/remittances by internal migrants assume great importance in the country because of its predominant share in the total volume of remittances and its role in reducing transient poverty by keeping the consumption spending stable among the vulnerable sections of the rural households. However, with the outbreak of the Covid-19 pandemic and the lock downs imposed at the national and state levels from time to time, inter-state labour migration has been hard hit resulting in massive dip in migrants’ remittances in the country.

As per media reports the flow in domestic remittances have fallen in the country by 90 percent during the first half of 2020. Since 80 percent of the total domestic remittances are directed towards rural households it is apprehended that a sharp fall in such transfers last year has adversely impacted the livelihoods of these vulnerable sections pushing them back to poverty. However, over and above the last year’s extraordinary situation caused by the pandemic severely affecting the ability of the migrants to remit, scholars working on India’s remittance market are almost unanimous that the domestic remittances in the country are highly informal and unregulated and this has made the such transfers not only expensive and prone to risk but also antithetical to the development goal of inclusive finance.

Against this background, the present attempt by way of providing an overview of the of the Indian domestic remittance market as it exists today and argues for more institutionalization as a part of financial inclusion policy benefiting the internal migrants who constitute the most vulnerable section in the country. It is stated that remittances support economic growth. More particularly, since domestic remittances involve poor people having higher marginal propensity to consume, it is presumed that such remittances would generate a positive multiplier effect and thus help in higher income growth. In case of India since the 1990s, there has been sharp rise in inter-state migration in the country.

Based on Census data between 2001-11, the growth in number of internal migrants has surpassed the growth in population (the number of migrants grew by 45% while population growth was 18%). Economic Survey of India, 2017 has reported that the magnitude of inter-state migration has been estimated to be close to 9 million annually between 2011-2016 with total number internal migrants in the country pegged at 139 million. Domestic remittances being positively linked with internal migration we find a massive increase in the volume of domestic remittances in the country in recent years. As reported in the Economic Survey, 2017 the total volume of remittances in the country are expected to be Rs two lakh crore per annum.

However, despite the massive rise in domestic remittances in the country, the bulk of these remittances continue to be channeled through informal remitters like the friends and relatives and private agencies to the families of the migrants living in rural areas. Unlike China where nearly 70 percent of the domestic remittance flows through formal agencies like banks (25%)and post-offices (45%), in case of India the formal agencies such as banks, post-offices taken together hardly handle 25 percent of these transfers. More than 75 percent remittances are sent through the informal remitters. No doubt in recent years NEFT services have been introduced in the banks for easy and immediate transfer of money. Mobile banking has also taken root in rural areas. Yet not much remittances take place through these formal service modes in view of migrants’ lack of access to banking facilities and non-availability of internet facility in remote rural areas.

As regards the causes behind the continuing dominance of informal remitters in the Indian domestic remittance market there are studies which put the onus on the government for its apathy in bringing desirable changes in the system. It is said that despite the fact that the number of domestic migrants and the volume of their remittances outnumber the number of international migrants and the money they remit, the attention paid to the former is under- shadowed by the latter. This is reflected when we find dearth of official data available at the aggregate all-India level on domestic remittances transacted in the country annually. The NSSO in its 64th Round ( 2007-08) made first attempt to collect data on remittances at the household level along with migration. No doubt the data provide a lot of valuable information on migration and remittances yet being limited to a single year, the scope of the data for policy analysis remains limited.

Besides, as we are well aware of, the domestic migrants largely belong to socially and economically disadvantaged communities and for them migration is a much needed livelihood option with consequent remittances used for several purposes. However, studies indicate that for these migrants staying in temporary sheds in big cities and metropolis, accessibility to formal agencies like banks for remitting money is very remote. These people lack documents required by the banks to access basic services including remittance services.

With post-offices playing a little bigger role in money transfers of these migrants, studies indicate inordinate delay in delivering the remittances. All these problems associated with formal transfer compels the migrants to depend on informal transfer methods which are no doubt more risky and expensive but user-friendly. For relatively poor states like Uttar Pradesh, Bihar, Rajasthan and Odisha having higher out-migration and higher remittance dependency the prevailing remittance system in the country becomes a bane in their poor socio-economic development.

Internal migration and remittances are important for poverty reduction. With rise in inter-state migration the volume of domestic remittances has increased significantly in the country over the years. In view of the fact that low-income households and poorer regions are mostly benefited from domestic remittances there is need for increasingly institutionalizing the existing remittance channels with faster delivery mechanism. As a first step mapping of the migration corridors to identify high remittance dependent areas is crucial for designing policy in this context.

*Formerly, Professor of Economics, Utkal University & Director, Nabakrushna Choudhury Centre for Development Studies , (ICSSR Institute) Bhubaneswar.

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2 Comments on "Indian Domestic Remittance Market: An Overview with Policy Suggestions"

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A R Mahapatra

The aspect highlighted in the article needs proper and careful immediate attention of Govt to ameliorate the sagging plight of the internal migrants. Economy as a whole start from the basic activities involving these labour hands and thus adequate attention, apart from what is being consistently done by the Govt, need to more deeply given at micro level. As a retired Professor, Dr Panda’s contribution in bringing different aspect of economics to the fore, is really commendable.

Govinda Choudhury

This write-up focuses on an important aspect of migration. Remittance channels is least researched issue for internal migration. This article rightly focuses on a burning issue especially in the context of recent experience during the pandemic. More work is required on the issue.