Sending money to India still a costly affair

MUMBAI: India continues to be the top remittance recipient country with $69 billion of remittances recorded in 2017. Every time you send money from another country to India, you have to pay a fee on it. The cost of sending money to India has declined but not significantly so, according to a Reserve Bank of India (RBI) survey.

“The average cost of sending $200 to India declined from 9.1% in 2013 to 5.6% in Q1 of 2018, and from 4.9% to 3.3% for sending $500 in the same period. However, if country weights (ie. value of inward remittances to India through each corridor) are taken into account, the weighted average cost works out to be smaller,” findings show in the survey. The cost to send money to India is lower than the global average cost of sending $200 at 7.1% in the first quarter of 2018. However, for India, the simple average cost of remittances across different corridors continues to be higher than the targeted level of 5% by World Bank.

BANKS CHARGE MORE

Despite technological advancement, the overall cost of remittances continues to remain stubbornly high. The survey results suggest that around 75% of total remittances to India are routed through private sector banks.

“Public sector banks generally operate with a relatively static cost structure across countries, reducing cost effectiveness relative to foreign and private sector banks. The cost pattern of private sector banks varies across countries and modes of transfers. Foreign banks operate with the least cost structure, but have a limited role in remitting money to India. Apart from the fixed cost of taxes, foreign currency conversion charges and commission structures of these banks drive cost differentials among banks,” the survey notes.

The cheapest corridor to send money to India is from Middle East. Remittance cost from Thailand and Japan is the most expensive and can cost more than 10% of the principal amount. Although the cost of sending money to India through banks and money transfer operators has declined, bank charges are almost double the cost charged by money transfer operators.

SOUTH TOPS THE LIST

Of the total remittance, 58.7% was received by Kerala, Maharashtra, Karnataka and Tamil Nadu. The southern states dominated, with a combined share of 46% in total remittances.

“There is a shift in cross-border migration flow from prosperous states such as Kerala and Karnataka to states such as Uttar Pradesh and Bihar, largely comprising of low or semi-skilled contractual workers with low levels of income. These two states accounted for 4.4% of total remittances in 2016-17,” the survey pointed. Based on responses gathered from banks, it is estimated that more than half of remittances received by Indian residents were used for family maintenance, followed by deposits in banks and investments in land property and shares.

TECH SAVES THE DAY

In the last 2-3 years, companies and banks have been trying to use online platforms and blockchain technology to send and receive money in a bid to reduce cost and time. However, currently remittance through a banking channel continues to remain expensive and time consum- ing. Unless a breakthrough happens via technology, the cost is unlikely to come down further.