India’s proposal to lower the costs of cross-border remittances, presented at the World Trade Organization’s (WTO) 13th Ministerial Conference 2024 held earlier in Abu Dhabi, has gained backing from countries like Morocco and Vietnam.
- However, it has also faced resistance from some WTO members, highlighting the ongoing challenges in achieving global consensus on this critical issue.
Costs of Cross-border Remittances
- Remittance costs are the fees charged when someone sends money internationally. Fees can vary based on the amount sent and the method used.
- The current global average remittance cost is 6.25% of the amount sent, according to the International Monetary Fund (IMF).
- For smaller remittances under USD 200, remittance fees typically average 10% and can be as high as 15-20% of the principal in smaller migration corridors.
Note
- In 2016, the G20 integrated the UN’s 2030 Agenda by adopting the target of reducing remittance costs to below 3% (as outlined in SDG 10.c.) and eliminating remittance corridors with costs above 5% by 2030.
- In 2021, reaffirming this commitment, the G20 emphasised its dedication to SDG 10.c through the G20 Roadmap for Enhancing Cross-Border Payments, aiming to lower the average cost of remittances to less than 3%.
What is India's Proposal About Costs of Cross-border Remittances?
- Proposal: The draft proposal submitted by India in March 2024 at the WTO’s 13th Ministerial Conference, the proposal aims to reduce the global average cost for sending remittances which is currently more than double the Sustainable Development Goal (SDG) target of 3%.
- India suggests that digital remittances, with an average cost of 4.84%, are significantly cheaper and should be promoted.
- India has also proposed initiating a work programme to make concrete recommendations on reducing remittance costs.
- India’s Need for Remittance Cost Cut: India received the highest remittance inflows globally in 2023, amounting to USD 125 billion.
- Reducing remittance costs could further increase the inflow of funds. In 2023, India spent around USD 7-8 billion on remittance fees.
- As remittance costs decrease, making transfers cheaper and faster, the dependence on hawala will likely diminish as well.
- The hawala refers to an informal channel for transferring funds from one location to another through service providers (known as hawaladars) regardless of the nature of the transaction and the countries involved.
- Support and Challenges: Nations like Morocco and Vietnam have expressed strong support for India's proposal, recognizing the importance of reducing remittance costs.
- Countries such as the US and Switzerland have opposed the proposal, citing concerns about their own financial institutions’ revenue from remittance fees.
