Gulf Overtakes North America In Remittances To India

14 years ago

Nearly 61 percent of remittances to India are used for family maintenance, according to a new Reserve Bank of India study. Another 20 percent are deposited in banks and just 4 percent are used for Real Estate and 3 percent for equity investments. In a reflection of the global economic crisis, the study found that the proportion of remittances invested in 2009 in property and equities (7 percent) declined sharply from 2006, when they accounted for 20 to 25 percent of all remittances.

Utilization patters varied significantly cross the country, according to the April 2010 RBI study, titled “Remittances from Overseas Indians: Modes of Transfer, Transaction Cost and Time Taken.” The use of remittances for family maintenance, most commonly food, health services and education, was lowest in Ahmedabad (35%) and highest in Ranchi (72%), Bangaluru (70%) and Bhubaneshwar (70%). Relatively higher proportions of remittances were banked in Delhi (31%), Ahmedabad (30%) and Kochi (25%). Higher proportions of remittances were invested in property and equities in Ahmedabad (12%), Mumbai (11%), Hyderabad (9%) and Bangaluru (8%).
The study found that the share of remittances from the Gulf regions grew during the global economic crisis in 2008-2009 and declined from North America and East Asia. As a result, for the first time, remittances from the Gulf now exceed those from North America. The proportion of remittances from North America declined to 29% in 2008-2009 from 33% in 2007-2008, while those from the Gulf grew to 31% from 29% during the same period.

Kochi and Mumbai receive more than half their remittances from the Gulf. By contrast, Ahmedabad, Bangaluru, Chandigarh, Delhi, Hyderabad and Kolkata received more than 60 per cent of their remittances from North America and Europe.

Nearly 42 percent of the remittances by volume were for amounts greater than Rs 50,000 ($1100) while 30 percent were for amounts under Rs 10,000 ($225).

Higher value remittances were concentrated in Ahmedabad, Bhubaneswar, Chandigarh, Delhi and Jaipur, while lower value remittances were concentrated in Bangaluru, Kochi, Kolkata, Mumbai, Patna and Ranchi.

Nearly 42 percent of the remittances are received monthly and nearly two-thirds at least once a quarter. The RBI study found an inverse relationship between size and frequency of remittances. “This broadly indicates that the centers which receive remittances of smaller magnitudes, receive them more frequently and are generally meant for family maintenance,” it concluded.

The study, conducted in November 2009, found that “inward remittances in India have not been impacted significantly by the global economic crisis.” It attributed this to the depreciation of the rupee and the hike in interest rates on NRI accounts “which might have induced the workers to remit their money to India as a hedging mechanism due to relatively better growth prospects.”
— Achal Mehra

Comparative Costs for Money Transfer

When it comes to the costs for money transfer services between India and the United States, the State Bank of India cannot be beat. The bank’s costs are just 1.2 percent per transaction against an average cost of almost 7 percent for sending $200 and 4.4 percent for sending $500, according to the World Bank.

Remittance costs include base fees imposed by service providers as well as foreign exchange costs. As a result, the costs, proportionally, are higher for smaller transactions than for larger ones.

While banks typically offer some of the best rates in the market, including no or nominal fees and the best exchange rates, their services are largely reserved for individuals with bank accounts or, in some instances, for those who register with the bank. Money transfer services like Western Union and MoneyGram are more expensive, but they offer the convenience of ease of use and are far speedier, with the money available almost instantly to recipients anywhere on the globe.

Remittance costs are often difficult to compare as they vary by country corridor, amount and mode of transfer. In addition, various providers, especially money transfer services offer promotions from time to time. The World Bank maintains a constantly updated public database, Remittance Prices Worldwide (www.remittanceprices.org), which allows consumers to compare remittance prices to and from different countries. Prices for remittance services vary markedly country to country. Remittance prices to India are lowest from United Arab Emirates (4.9%), Saudi Arabia (4.91%) and Singapore (5.02%) for a $200 transaction and highest in Japan (15.8%), Germany (10.38%) and Canada (9.45%). It is cheapest to send money from the United States to Ecuador (3.9%), Peru (4.0), Honduras (4.41%) and El Salvador (4.57%). — AM