Wednesday, April 20, 2005
Remittances, back again
Way back in October 2003, I had made a series of posts (I, II, III) on the migration of workers from developing countries and the costs it imposed on these countries. These posts were made in the wake of an influential essay in Foreign Affairs by Jagdish Bhagwati. In one particular post made in response to Bhagwati's idea on external taxation, I wrote thusly:
In this context, I was truly amazed at the statistics revealed in the newly released Global Development Finance 2005 report. According to this World Bank report, remittances by overseas Indians exceeded $23 billion in 2004. Yes, $23 billion!! And these numbers do not even take hawala channels into account. By comparison, the entire IT industry in India (Software, ITeS and Hardware) brought in revenues of $21.5 billion in the same year. Similarly, the revenues generated for the government by income taxes in 2004 was about $ 9 billion.
I am using these comparison to drive home two points.
1. I hope the occasional flirtation with the idea of external taxation will cease once these remittances numbers become public knowledge.
2. Instead of treating them like outsiders and pariahs, the Indian government must find a way to tap into the considerable financial and intellectual resources of the non-resident community. The Indian American Council founded by the CII (headed by Sam Pitroda), whose opening I attended the day before yesterday in New York, is an excellent first step in that direction.
Much has been made about the cost to developing countries of emigration. In fact, a UNDP report suggested that India loses about $2 billion every year because of the emigration of computer professionals alone. Let me ballpark that number a bit and suggest that India perhaps loses $5-$6 billion every year due to emigration of all hues. Sounds huge, except none of the naysayers takes into account the role of remittances. The remittances from Indians abroad amounts to somewhere in the region of $9-$11 billion per year, depending on where you look. That's a net gain to India and makes the idea of taxation on emigrants rather superfluous, besides complex and problematic to enforce.
In this context, I was truly amazed at the statistics revealed in the newly released Global Development Finance 2005 report. According to this World Bank report, remittances by overseas Indians exceeded $23 billion in 2004. Yes, $23 billion!! And these numbers do not even take hawala channels into account. By comparison, the entire IT industry in India (Software, ITeS and Hardware) brought in revenues of $21.5 billion in the same year. Similarly, the revenues generated for the government by income taxes in 2004 was about $ 9 billion.
I am using these comparison to drive home two points.
1. I hope the occasional flirtation with the idea of external taxation will cease once these remittances numbers become public knowledge.
2. Instead of treating them like outsiders and pariahs, the Indian government must find a way to tap into the considerable financial and intellectual resources of the non-resident community. The Indian American Council founded by the CII (headed by Sam Pitroda), whose opening I attended the day before yesterday in New York, is an excellent first step in that direction.
