India’s Pursuit for Lowering Cross-Border Remittance Costs

India’s Pursuit for Lowering Cross-Border Remittance Costs

Subject: Economy

Section: External Sector

• Proposal at WTO’s Ministerial Conference:
  • India proposed lowering the cost of cross-border remittances at the WTO’s 13th Ministerial Conference in Abu Dhabi.
  • The proposal aims to benefit low and middle-income countries, which accounted for 78% of remittances in 2023.
• Request to WTO’s General Council (GC):
  • India has asked the WTO’s General Council to initiate a work programme for recommendations on lowering remittance costs.
  • The National Payments Corporation of India is preparing a presentation for a session on ‘cost of remittances’ at the WTO’s committee on trade in financial services in Geneva on March 25.
• Highlighting the Need for Interoperability:
  • India emphasized promoting interoperability and interlinkages of digital payment infrastructures for cheaper, faster, and more transparent cross-border payments.
  • Global average cost for sending digital remittances is significantly lower at 4.84% compared to non-digital remittances.
• Support and Interest:
  • India’s proposal received support from countries like Sri Lanka, Nepal, and Bangladesh at WTO MC13.
  • The European Union (EU) also showed interest in the proposal.
• Next Steps:
  • Pursuing the matter at the WTO in various bodies, including the WTO General Council.
  • Proposal for the WTO GC to call upon the council for trade in services and committee on trade in financial services for a work programme on remittances.
• Objectives of the Work Programme:
  • Understanding the development impact of cross-border remittances.
  • Reviewing the cost, trends, and developments in remittance services.
  • Analyzing the impact of technology, new market players, providers, channels, and consumer behavior.

India’s efforts aim to make cross-border remittances more efficient, affordable, and accessible, benefiting a large segment of the global population.

India’s Proposal on Remittance Costs:

• India proposed to reduce the cost of cross-border remittances to less than 3%, aligning with the UN Sustainable Development Goals.
• The initiative received support from several World Trade Organization (WTO) members, except the US.

Expected Benefits:

• Lowering remittance costs could potentially boost inflows of remittances into India.
• It aims to reduce reliance on informal channels for remittance transfers.

Implications for Businesses:

• The initiative could be particularly advantageous for Indian businesses, especially those utilizing the Unified Payments Interface (UPI).
• It opens avenues for global expansion and increased competitiveness in the export market.

Remittance Statistics:

• In 2023, India received a substantial $125 billion in remittances.
• The associated costs of these remittances were estimated to be $7-8 billion.

Beneficiaries:

• Lowering remittance costs would directly benefit the Indian diaspora, especially migrant workers abroad.
• It would also support Micro, Small, and Medium Enterprises (MSMEs), potentially aiding their growth and competitiveness.

Understanding the Cost of Remittances:

• Remittances are financial transfers sent by migrant workers to their families or relatives in their home countries.
• The cost of remittances refers to the expenses incurred in sending money across international borders.

 Components of Cost:

•   These costs can include various elements such as:
•   Bank fees,
•   Intermediary fees,
•   Compliance fees,
•   Operational costs, and
•   FX (foreign exchange) rate margin.

Technological Innovations:

• Innovative technologies are emerging to reduce the total cost of cross-border transactions.
• These advancements aim to streamline processes, reduce fees, and provide more efficient and cost-effective remittance options.