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Engaging India: Vital remittances

December 07, 2007 11:39 IST

Engaging India is an online column analysing the issues, trends and forces behind the business and politics shaping India and its impact on the world. Engaging India appears Thursday mornings exclusively on India, a dedicated online section on India, and is written by Jo Johnson, the Financial Times' South Asia bureau chief; Amy Yee, New Delhi correspondent; and Joe Leahy, Mumbai correspondent.

I was once told that in England a town can be defined as such if it has a church, a post office, a pub and a betting shop. The folk definition of a town in India might include a dairy, a temple, a public telephone and a money transfer outlet.

Remittance services are ubiquitous in big cities and dusty rural towns across India, and it is little wonder. Migrant workers in South Asia move in droves to big cities and other countries in search of work. They send earnings back home and companies like Western Union, whose trademark yellow signs dot the country, are reaping the benefits.

A World Bank report released last week projected that remittances to developing countries alone will reach $240bn this year compared to $221bn in 2006, with Asia receiving $114bn. That would dwarf the $104bn in aid from donor nations and the $167bn worth of foreign direct investment developing countries received last year.

India was the biggest remittances recipient last year with $24.5bn, followed by Mexico at $24.2bn and China with $21bn, according to an October report from the International Fund for Agricultural Development (IFAD) and the Inter-American Development Bank (IDB).

Remittances play a vital role in the development of poor countries. The World Bank estimates that every dollar transferred to a developing country contributes three dollars to its economy. Gleaming new homes in Kerala and Punjab – two Indian states that send a large number of workers abroad -- are evidence of the robust inflows.

Transfers of money to India increased 30 per cent in the first half of 2007, said the World Bank, while both Bangladesh and Pakistan reported growth of over 20 per cent in remittances in the first nine months of the year. The jump has been spurred by demand for migrant labour in the strong economies of oil-exporting Middle Eastern countries.

The flow of remittances could get even larger if developments such as mobile phone banking gain ground, resulting in greater convenience and cost-savings. Vodafone and Citigroup are trialing money transfer via mobile phones in Kenya.

Telecom companies are testing similar technology in India, and while progress has been held up by banking regulations, Western Union and Indian telecom operators are carrying on with a mobile phone pilot project. The strong stream of remittances flowing into the country will, they hope, become a mightier river.

Climate change

It is a languid, sunny afternoon in Bangladesh's Sirajgonj district, almost four hours north of the capital of Dhaka near the banks of the mighty Jamuna River. Boys play cricket by the roadside and a long wooden boat drifts in a wide lake.

But the serenity is deceptive. The 'lake' is the remnant of devastating floods this summer. The rain-swollen Jamuna River that courses across India into Bangladesh inundated villages that were home to thousands who farmed, fished and made hand-loom textiles. Today, 75,000 villagers in the district are homeless and many are jobless.

Bangladesh is not alone in suffering the effects of extreme weather. The country and neighbouring India share major rivers such as the Ganges and Jamuna. Both are dependent on monsoon rains for farming yet are vulnerable to extreme flooding . In India, 31m were affected and 1,500 killed by this summer's monsoon floods.

There is no proven link to climate change, but experts say that India and low-lying Bangladesh are highly vulnerable. Coastal cities such as Kolkata in eastern India and heavily populated "mega-deltas" in Bangladesh are at greatest risk from increased sea and river flooding, said the Intergovernmental Panel on Climate Change (IPCC), the world's top authority on climate change.

A three- to four-degree increase in global temperatures could cause floods that would displace 70m people in Bangladesh, according to a UN Development Programme (UNDP) report.

Yet the world's "least developed countries" generate just a fraction of global emissions linked to climate change. India, the world's fourth-largest emitter, generates 1.2 tonnes per capita, compared to 20.6 tonnes in the US and 9.8 tonnes in the UK, according to the UNDP.

How fast-growing India and China plan to curb emissions and tackle global warming is a topic of debate at the UN summit on climate change under way in Bali. Representatives from 185 countries are negotiating a successor to the Kyoto Protocol, which expires in 2012.

Under the Kyoto Protocol, developing countries – unlike rich ones – do not have emissions-reduction targets. But India, growing at 9 per cent annually and expected to double energy consumption between 2005 and 2030, is coming under pressure to take action.

Manmohan Singh, Indian prime minister, this summer convened an advisory board to come up with a plan to tackle climate change. But the council has yet to report its conclusions and India has not taken up any formal policy.

India's vulnerability to climate change and its growing contribution to emissions means decisive action needs to happen soon. While talks are taking place in air-conditioned luxury hotels, thousands in India and Bangladesh will bear the harsh toll of inaction.

Copyright The Financial Times Limited 2007

Amy Yee, New Delhi correspondent