India’s Proposal to Reduce Remittance Costs

India submitted a proposal at the WTO’s 13th Ministerial Conference in Abu Dhabi to reduce remittance costs.

India’s Draft Proposal Highlights

India aims to achieve cheaper, faster, more transparent, and accessible cross-border payments through digitalization.

• High Cost: The global average cost for sending remittances is 6.18%, more than twice the SDG target.
• Digital Payment Infrastructure: India emphasises the importance of promoting interoperability and interlinkages of digital payment infrastructures.
• Cost Reduction: Digital remittances have a lower average cost of 4.84% compared to non-digital remittances.

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What are Remittances?

• Remittances are money transfers sent by migrant workers to their families or relatives in their home countries.

• Cost of Remittances

  • The cost of remittances refers to the fees and expenses involved in sending money across international borders.
  • These costs can add up and affect the total amount received by the recipient.

  • Components of Remittance Costs

    • Bank Fees: Charges by banks for processing the transaction.
    • Intermediary Fees: Fees charged by third-party services or institutions involved in the transfer.
    • Compliance Fees: Costs related to meeting regulatory requirements.

• • • Operational Costs: Expenses for maintaining payment systems and infrastructure.
    • FX (Foreign Exchange) Margin: The difference between the exchange rate offered and the market rate, which affects the final amount received.

• Factors Affecting Remittance Flows to India

  • Economic condition: The stability of the economy and growth of the host nations where migrants work affect the remittance flow.
  • Exchange rate: Changes in the exchange rate between Indian rupee and host country’s currency impact the amount of money sent. 
  • Migration policies:
    • Visa regulation: visa regulation and immigration policies impact migrants and their nature of job doing which impacts their ability to send money. 
    • Migrant’s legal status: Migrants with undocumented legal status face various issues such as low wages, higher working hours, and no job security. 

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• Benefits of Lowering Remittance Costs

• • Increase in Remittance Inflows: Lower costs can encourage more remittances to be sent to India, boosting the overall inflows.
  • Reduced Use of Informal Channels: By making formal channels more affordable, it reduces the need for people to rely on informal or unregulated methods for sending money.

World Trade Organization (WTO) Ministerial Conference

• The WTO Ministerial Conference is the top decision-making body of the World Trade Organization.
• It usually meets every two years to discuss and make decisions on global trade policies, agreements, and rules.
• Participants
  • Member Countries: Represented by trade ministers.
  • International organizations: organizations like World Bank, IMF, and other stakeholders participate as observers
• Key Functions:
  • Decision-Making: Makes decisions on WTO trade agreements.
  • New Agreements: Initiates or updates trade agreements.
  • Dispute Resolution: Resolves trade disputes between members.

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