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Source– The post is based on the article “Indian Dollar Transfers That Beat Some GOI Welfare Spends” published in The Times of India on 20th June 2023.
Syllabus: GS3 – Indian Economy – Money and Banking
News- The article emphasis the importance of reducing the cost of remittances.
India crossed a milestone of achieving remittances inflow of more than $100 billion. India stands first globally in remittances receipts with a long lead over Mexico and China.
Another remarkable achievement is reducing the cost of receiving these remittances.
As per the World Bank, India has reduced the simple average cost of receiving remittances in the last 10 years from around 9% to 4. 65% for a typical $200 transaction. Which is cheaper than the global average of 6.30%.
What are the benefits of reducing costs?
Firstly, Cost saving = Higher spending power
Secondly, it reduce the current account deficit and being less volatile, provide stability to inflow of forex from abroad, and more importantly, remittances provide financial lifeline to families and relatives back home.
Thirdly, remittances play a significant role in poverty reduction and improving health and educational outcomes of the recipient households.
What are the challenges in reducing costs?
Global analysis shows that transaction fees are the prime contributor to the overall cost. It is typically higher, where the sender and the receiver are not able to access the formal financial system.
The costs are more where the services of an agent are used for collection or distribution of remittances.
Studies have pointed out that the frictions associated with verification, regulatory compliances, data exchange, non-interoperable tech platforms, and long transaction chains may cause the transaction costs to increase.
How is India overcoming these challenges?
PM Jan Dhan Yojana and pervasive use of direct benefit transfer under government programmes have been transformative in intensifying financial inclusion.
Zero cost, safe and efficient money transfer through digital public infrastructure in the form of Unified Payments Interface (UPI) is deepening the adoption of mobile mode for transactions.
Interoperable linkages like UPI-PayNow achieved by RBI and Monetary Authority of Singapore will enable users of each of the two fast payment systems to make instant, low-cost fund transfers on a reciprocal basis.
With the emergence of 2,000-plus startups and 20-plus unicorns in fintech in India in the last few years, the vibrant fintech ecosystem lays the foundation for innovative solutions and healthy competition.
What is the way forward?
Active support of other countries is critical to enable ease of validation, compliance and transmission.
India has been taking up this matter in various forums like G20, WTO and with its partners in free trade agreements.
Active pursuit of these strategies has delivered promising results till now and the future looks India’s experience and strategies surely provide a pathway forward.
