Castles on quicksand

India’s remittance economy is growing very fast and is expected to reach USD 125 billion in 2023. Last year, the remitted amount was USD 111.22, and in 2024, the remittance figure is expected to reach USD 135 billion. Compared to remittance inflow, the total foreign direct investment (FDI) inflow into India dropped to USD 70.9 billion in the financial year 2023. This was a 16 per cent decline from FY 2022. Though the Indian government has offered various schemes like Productivity Linked Incentives (PLI) to attract foreign investment, FDI inflow has declined. However, for developing countries, this is a global trend. “Remittance flows to developing countries have surpassed the sum of foreign direct investment and official development assistance in recent years, and the gap is increasing.” says the lead economist of the World Bank’s latest Migration and Development Brief released on December 18.

In 2023, remittances to low- and middle-income countries (LMICs) grew an estimated 3.8 per cent and have reached USD 669 billion. Remittance flows to South Asia are estimated to have grown 7.2 per cent in 2023 to reach USD 189 billion. The increase is attributable entirely due to increased remittance flows to India.

Failure of Make in India programme

Modi government’s flagship scheme, Make in India, launched in 2014, aimed to boost the manufacturing sector in India by enhancing existing India-based manufacturing companies and also by attracting investments from other countries by inviting global companies to ‘make in India’. However, the scheme has failed to boost up the share of the manufacturing industry. Manufacturing sector’s share in India’s GDP, at present, has remained around 17 per cent, against a targeted share of 25 per cent in 2022. The manufacturing industry in India had a 15.4 per cent share in the country’s overall GDP in 2015, reports CNBCTV 18.

It is reported that India’s merchandise exports have shrunk during 2023 from USD 452 billion to USD 429 billion — a decline of around 5 per cent. Unable to make a mark in the export of goods; India has taken the less challenging strategy of the export of human capital.

The Federation of Indian Export Organisations (FIEO) said in one of their recent reports that an analysis of sector-wise export performance for the last five years reveals the troubling pattern that India is experiencing a decline in global market share across labour-intensive sectors. The report mentioned that apparels, knitted garments, marine products, plastics, and gems and jewellery sectors have raised concerns due to their modest growth rates ranging from 1 per cent to 2 per cent. The labour-intensive sectors hold immense significance in India for their job creation potential.

Export of human capital

Incapable of exporting value-added manufactures, the ‘remittance economies’ of the less developed countries like the Philippines, Mexico, Nepal, and Bangladesh prefer to export labour. Among them, India has emerged as the largest ‘remittance economy’ of the world.

Export of Indians to foreign countries as labourers is not new. It started during the colonial British rule when thousands of ‘indentured labours’ were shipped from India to various European colonies. After independence, the large-scale export of workers from India started in the 1970s when demand for skilled labour began to rise in the post-oil boom economies of the Gulf. Skilled labour from Kerala was quick to grasp the opportunity and became the number one remittance recipient state of the country.

Y2K gave India an opportunity to export technically skilled manpower in addition to construction labour. The economic base of the remittance economy moved beyond Kerala to include neighbouring states that had invested in engineering and computer software training. Recently, Maharashtra has outstripped Kerala as the largest recipient of foreign remittance in India. RBI data shows that in 2020-21, Maharashtra has received 35.2 per cent of total Indian remittances.

Very interesting shifts in terms of NRI remittances in the last few years have been observed. In 2016-17, the GCC (Gulf Cooperation Council) countries accounted for 50 per cent of total NRI remittances into India, which has fallen sharply to just about 30 per cent in 2020-21. At the same time, the US, the UK and Singapore, which accounted for less than 25 per cent of remittances in 2016-17, registered over 36 per cent of total remittances in fiscal year 2020-21! In FY21, for the first time since NRI deposits were permitted into India, the overall market share of the US at 23.4 per cent was higher than the UAE at 18 per cent.

Rising unemployment

The Jobless growth model India is pursuing since the 1990s has created massive unemployment in the country. According to economist Amit Bhaduri’s (December 2023) conservative estimate, about 11 million persons currently enter the labour force every year, with at least 20 million as the carry-over unemployment from the past. As these huge unemployed youths don’t find suitable job opportunities in India, they are forced to migrate to other countries.

Government of India has also found it a best option to export human capital and earn valuable foreign exchange in the form of remittances. Indian policymakers realised that with the increasing number of unemployed workers in India, and the working age population of the developed world coming down, export of Indian labour will be a win-win situation for both India and the host nations. The reports that India and Taiwan are finalising a deal for Taiwan (a potential war zone) to host as many as one lakh Indian workers is a case in point. It is close to the heels of another reported move that Israel is considering bringing in a large number of Indian workers, possibly to replace Palestinians whose services the country wishes to forego as the two are now at war.

In addition to the government initiatives, many Indian workers now illegally migrate to other nations for a better living. According to details furnished in Parliament by the Ministry of External Affairs (MEA), the US authorities "encountered" with over 200,000 illegal Indian immigrants in the last five years with the highest cases of 96,917 reported in 2022-23. Last week, it was reported that a chartered flight ferrying 303 passengers to Nicaragua had been recently detained in an airport in France. It is just the latest instance for Indians seeking to immigrate to the US via the Mexican and Canadian borders.

Another area of concern is the permanent loss of human capital. Many Indians who migrate to foreign countries to earn their living decide to relinquish their Indian citizenship and accept the citizenship of their host countries. External Affairs Minister S Jaishankar informed parliament that a total of 16,63,440 Indian citizens had “renounced their Indian citizenship” in the period 2011-22. ‘Remittance economy’ is not a viable solution for a decent living.

Views expressed are personal