The Remittance Economy

I have briefly described the concept of 'remittance economy' in a previous post. At its basic the concept of Remittance Economy means that remittances by workers abroad becoming a significant source of economic activity in the country; I am extending the definition to remittance money being spent creates growth in large cities, which in turn results in workers in large cities remitting money to their families smaller cities, towns and villages - thus creating a growth chain reaction.

Consider this - Syam Sundar lives in San Francisco and remits money regularly to his family staying in Bangalore. Syam's family employs a maid, shops lavishly in the city's malls and employs a driver. The maid, the workers at the mall - from shop salesmen to cleaners all send money to their families in tier 2 cities, towns and villages in India. The family's driver Sreejeeth hails from a small nondescript town in Karnataka called Madhugiri. Sreejeeth sends money to his wife every month who in turn spends it on their daughter's education and on daily grocery needs. The money which started from Syam in San Francisco has until now traveled to a school teacher in Madhugiri's elementary school and a grocer in Madhugiri.

Consider more - due to several immigrants like Syam Sundar sending in money regularly to their families in Bangalore, the need for Banking services in Bangalore has gone up. Bank branches in Bangalore now need to employ a larger number of executives from Tellers to Branch Managers. Most these junior / middle executives hail from smaller towns like Tumkur or Gulbarga or Bijapur or even from Kanpur in UP or Mandsaur in MP. They often spend money when they go back to their hometown also resulting in increase in income of the shopkeepers in these towns.

Thus, we see economies of the smallest of towns and cities are now heavily plugged into the global economy. If incomes of executives in San Francisco fall across the board - this mega slump has its effects felt all the way to these small towns. Unfortunately, a dip in a software exec's salary in San Francisco means that he probably needs to forgo his quarterly outing to Napa Valley - for a small shopkeeper in Gulbarga, it may mean loss of livelihood for a whole quarter and often his family going to bed without food for days.

When you look at these effects of the remittance economy, you realize that such tight coupling of global markets is not desirable. Many would argue that the economies of western megacities and eastern towns are linked with such a long rope that by the time a rising or falling trend in one reaches the other, other economic forces closer home (such as interest rate cuts by Reserve Bank of India) will smoothen the shocks and moderate the peaks.

However, India and China are examples of large remittance economies, where there are many interbalancing forces coexisting. But small remittance economies such as Philippines also exist and these tend to be more vulnerable to being influenced by global economic variations.

As this article on Philippines states:

Critics, including many overseas workers, say the government has developed an unhealthy dependence on the remittances, turning a blind eye to their social costs, especially divided families and the reliance on them to pay for services while failing to build a sound economy that produces good jobs at home.

A similar case exists in Tajikistan [link]-

the funds camouflage the stagnant domestic economy and have created profound changes in the social structure of the country.

There are 2 important points here - social costs and over dependence. Most of what is discussed above is related to economic over dependence. However, the larger concern of remittance economies lies in the social costs. Remittance as the primary driver of growth means that there is a large scale dislocation of the labour force - people must migrate to earn a living and send back the money home. As a result, families break, children need to grow with single parents, parents themselves are put under severe mental stress, and prostitution and promiscuousness rises.

Governments across the globe - even in developed economies need to realize that reliance on remittance as the primary mode of growth has a far greater cost than the quick advantages it gives. It is far more laborious to create jobs locally, to spend on growth of smaller towns and cities and create a economic juggernaut with local forces driving it. However, such a course of action is far more sustainable than the quick fix method of letting remittance play a role in spiraling development.

India is fortunate to have a large local market which shields the country's economy from export-import shocks. While some industries like Software may get hit very sharply by global recession, other sectors like manufacturing, FMCG and entertainment are the cushion which keep the economy afloat. So we may not be exposed to the risk of over dependence on global economy for our growth - which is probably the reason we were not hit as bad by the global recession. 

However, the social costs of running a remittance economy are slowly becoming visible in the country as restlessness grows, the economic divide deepens and moral compass starts shifting. The government must do its due to fund direct development of smaller cities and towns. 

As professionals - this is also a call which we should answer - we go back to our hometowns and find opportunities to grow them - start new businesses for the local, national or global markets; pave way for educating a new breed of professionals suited to make a career locally; start restaurants, spas, health clubs and other lifestyle shops - create avenues for people to spend; most importantly inspire others by showcasing how one can grow while not uprooting himself/ herself from their local surroundings.

The remittance economy is not something to be proud of - it may be the serendipity which has made us realize the potential of the nation called India; but it is not the lasting elixir to feed our billion plus souls with! We need to enrich ourselves from our own ideas, our own ideals and our own efforts!

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*Image Credit - Flickr user kthypryn