Editorial 1: The remittances story
Recent Context: Recently, Migration and Development Brief analysis is published by the World Bank, according to it,
- Slower growth in OECD economies especially in the high-tech sector in the United States that could affect the demand for information technology (IT) workers and likely to impact the flow of remittances this year.
- India, which registered a growth of more than 24% to reach a record-high $111 billion in remittances in 2022, is expected to post a growth of just 0.2% in remittance inflows in 2023
- In its previous update of the Migration and Development Brief in November last year, the World Bank has revised up remittance number to $111 billion on the back of strong labour market conditions and wage hikes in the high-income destination economies, and higher energy prices in the GCC countries, a key destination for less-skilled migrants.
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Why are remittances expected to grow at a slower pace in 2023?
- According to the report, Remittances to India, which account for more than 60% of South Asian inflows, are expected to grow by only 0.2% in 2023.
- Remittance flows to the other six South Asian countries will also be limited by demand for migrants in the GCC countries where declining oil prices are expected to slow growth from 5.3% in 2022 to 3% in 2023
- The growth of remittances is likely to be the highest in Latin America and the Caribbean (forecast of 3.3%), as the labour market in the US continues to be strong.
- Remittance growth is expected to be the lowest in South Asia (0.3%), mainly because of the high base in 2022 along with slowing demand for highly skilled IT workers in the US and Europe.
- In addition, slowing demand for migrants in the GCC countries and weak balance-of-payments conditions and exchange controls are expected to divert remittances to informal money transfer channels in Pakistan, Bangladesh, and Sri Lanka,
What are the major sources of remittances for India?
- Almost 36% of India’s remittances are from the high-skilled and largely high-tech Indian migrants in three high-income destinations the US, United Kingdom, and Singapore.
- The post-pandemic recovery led to a tight labour market in these regions, and wage hikes boosted remittances.
- In addition, India’s other high-income destinations also had favourable economic conditions. High energy prices and low food price inflation in the GCC countries, which remain the single largest destination for less-skilled South Asian migrants had positive spillovers for all countries.
- As per the report
- High energy prices favoured employment and incomes of the less-skilled Indian migrants in the GCC countries, while the GCC governments’ special measures to curb food price inflation shielded migrants’ remitting potential.
- As a result, remittance inflows from the GCC countries, which today account for about 28% of India’s total remittance inflows, also soared in 2022,
What will be the trend in remittances in other regions?
- Remittance flows to low- and middle-income countries (LMICs) are expected to moderate to 1.4% in 2023, resulting in total inflows of $656 billion.
- In 2022, the inflows to LMICs are estimated to have increased by 8% to reach $647 billion. For the world, remittance flows are expected to reach $840 billion in 2023.
- Several economic factors that pushed up remittances in 2022 in the host economies of the migrants in the East Asia and Pacific region are projected to dampen them in 2023.
- “Central banks’ tight monetary stances to counter inflation,
- limited fiscal buffers to absorb shocks amid historically high debt levels, and
- continued global uncertainty regarding Russia’s invasion of Ukraine are likely to weigh down growth in the high-income countries
- Despite some respite from inflationary pressures, tighter financial market conditions are expected to exacerbate the ongoing slowdown globally. Lower fuel prices in 2023 will further dampen demand for migrants in the GCC countries, reducing remittance flows to East Asia and the Pacific Islands
- The global slowdown will also bother into the demand for manufactured goods with implications for East Asian migrants employed in the export factories of China, Malaysia, and Thailand’s manufacturing sectors, although China’s recent opening up after the Covid-19 pandemic will counter some of this negative trend
- In Europe and Central Asia, the growth in remittances is expected to fall to 1% due to a high base effect, lingering weakness in flows to Ukraine and Russia, and a weaker Russian ruble against the US dollar. Remittances may recover somewhat in the Middle East and North Africa with a decline in oil prices, as remittances to Egypt are expected to rebound
What was the trend for remittances in 2022?
- In 2022, India posted more than 24% growth in its inward remittances to reach $111 billion, higher than the World Bank’s earlier estimate of $100 billion.
- This represented 63% of South Asia’s remittance flows, which grew by more than 12% in 2022 to reach $176 billion.
- The top five recipient countries for remittances in 2022 were India ($111 billion), followed by Mexico ($61 billion), China ($51 billion), the Philippines ($38 billion), and Pakistan ($30 billion).
Why are remittances important? (Conclusion)
- Remittances measured almost 326% of foreign direct investment (FDI) inflows in 2022, and 1,036% of official development assistance (ODA) relative to 935% in 2019.
- Along with it Remittances are highly complementary to government cash transfers and essential to households during times of need
- As, In the aftermath of the Covid-19 pandemic, remittances are being viewed as a critical financial inflow and an important source of foreign exchange for several countries including those in South Asia.
- Therefore, Remittances have become a financial lifeline in many economies through the pandemic and will become even more so in the foreseeable future
Editorial 2: The World in WTO: How India can lead multilateralism at WTO
Recent Context:
- Recently G20 working group meeting was concluded on trade and investment which focused on the important issue of WTO reform.
- This has been on the global agenda for a while including that of the G20, whose members are key players in the WTO. However, any talk of WTO reform should not lose sight of the larger global context
The trade policy is foreign policy
- The WTO was created in that era that was aimed at legalising and policing economic interdependence.
- However, today’s world is dominated by geoeconomic considerations and heightened securitisation of international economic relations. The pursuit of unilateralism in international economic relations, especially by developed countries like the US, is on the rise with scant regard for WTO law.
- Economic policies such as industrial subsidies and local content requirements have made a roaring comeback;
- forgotten WTO rules like security exceptions now occupy centre stage and
- there is a deliberate effort to weaken trade multilateralism in favour of external plurilateral alignments keeping the big power confrontation in mind
- WTO is also criticised as it is naïve to believe that the developed G20 countries are interested in reforming the WTO for the better. A weak WTO perfectly suits the US as part of its foreign policy aimed at strategic rivalry with China.
- However, A group of economists believe that the push for WTO reforms must come from G20’s “middle powers” such as India, Indonesia, Brazil, and South Africa
Four critical areas that developing countries should focus on.
- While the term WTO reform means different things to different people, there are four critical areas that developing countries should focus on.
- First, one of the cardinal pillars of the international trading regime is the presence of special and differential treatment (SDT) principle in WTO agreements. Given the varying levels of development of different WTO member countries,
- SDT provisions give special rights to developing countries and obligate developed countries to treat the former more favourably.
- Howevr, only 21 per cent of the SDT provisions in various WTO agreements oblige developed countries to actually provide differential treatment to developing countries. Most SDT provisions are couched in the best-endeavour language.
- SDT provisions need to be given more teeth and efforts to weaken this treaty-embedded right in the name of WTO reform should be opposed tooth and nail.
- Second, the appellate body: The second tier of the WTO’s two-tiered dispute settlement body — remains paralysed since 2019 because of the US’s continued nonchalance.
- It allows to pursue trade unilateralism without many checks.
- However, the remaining G20 countries need to either persuade the US to change its position or resurrect the appellate body without the US.
- Third, given the slowness of the consensus-based decision-making in the WTO, from 2017 onward.
- There has been a shift away from this principle toward plurilateral discussions on select issues such as investment facilitation.
- While the plurilateral approach is a welcome development for rule-making and there is a need to develop a multilateral governance framework for plurilateral agreements
- This governance framework should include key principles of non-discrimination, transparency, and inclusivity in incorporating the results of plurilateral negotiations in the WTO rulebook.
- As forcing plurilateral agreements on non-willing members will accentuate the trust deficit between developed and developing countries.
- Fourth, it is imperative to address the transparency gap in the WTO, especially in terms of notification requirements.
- Although WTO member countries are obliged to notify all their laws and regulations that affect trade, compliance with this obligation is poor. This increases the cost of trade, especially for developing countries.
Conclusion:
- Trade multilateralism is vital salience for countries like India. Hence, India, under its Presidency of the G20, should work with others to drive the WTO reforms agenda aimed at making trade multilateralism inclusive.
