Why in the news?
India submitted a draft proposal to reduce the cost of cross-border remittances at MC13. However, it was not included in the final Abu Dhabi Ministerial declaration.
Key Highlights related to the proposal
- Remittance Flow: Out of total remittances of USD 860 billion in 2023, USD 669 billion (about 78%) went to low and middle-income countries.
- Cross-border remittances have a significant contribution towards socio-economic development especially in developing countries, including poor nations.
- Remittance Costs: The remittance costs are about 6.18% globally which is well above the United Nations' SDG target of 3 %.
- India's Recommendations: To cut this cost, India is suggesting encouraging digital transfers, fostering interoperable systems, promoting competition, streamlining regulations, and enhancing pricing transparency.
- Vetoed by US & Switzerland: The US and Switzerland have been opposing this idea as they tend to be the home to banks which facilitate these high-cost transactions.
Significance of cost reduction in cross-border remittance
- Increased Flow of Remittances: Cost reduction can increase the inflow of remittances to developing countries and enhance the personal consumption of receiving households.
- India received the highest remittances about $125 billion in 2023, however, the cost for the remittance was around $7 billion -$8 billion (World Bank report)
- Economic Growth: Remittance cost reduction can translate into increased trade and business efficiency, fostering overall economic growth by minimizing cross-border payment expenses.
- Enable UPI to become Global: Remittance cost cut will lead to a big boost for UPI transactions, which has been a game changer in India, and it will have a much greater footprint overseas. E.g., Bhutan, Singapore and UAE among others.
- It will also help the Indian banking sector, which has been at the forefront of technology, to obtain a larger footprint in the global economy.
Conclusion
While proposals at the WTO may take time to arrive at a consensus and then move towards implementation, India should meanwhile make it easier for individuals and businesses to make or receive cross-border payments.