How India's UPI can help developing countries save billions every year

India’s proposal to lower the cost of cross-border remittances did not make it to the declaration of the recently-held World Trade Organisation’s 13th ministerial conference (MC13) in Abu Dhabi. While New Delhi got the support of dozens of nations from Asia, Latin America and Africa, the move was reportedly blocked by the United States.

Expressing disappointment over the development, Union Commerce and industry minister Piyush Goyal told Economic Times (ET), “A large number of countries, especially LDCs (Least developed countries) and developing countries, are required to use channels for remittances, which are extremely expensive. It can cost between 4 per cent and 8-9 per cent of transaction value. India has developed UPI (Unified Payments Interface), which can help it bring it down significantly. What we were offering to the world was an opportunity to save $30-40 billion for LDCs and developing countries. However, what the interests of not permitting that to be discussed at WTO is a mystery for me because saving money for almost everybody is truly a very good offer”.

Let’s take a closer look.

What was India’s proposal at WTO?

As per a Livemint report, India stressed the need to cut costs linked to remittances. The country pointed out that 78 per cent of total remittance flows last year went to Low and Middle-Income Countries (LMICs), thus highlighting the socioeconomic impact of remittances, particularly for developing nations.

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“We reaffirm our commitment to the UN SDG Goal to reduce to less than 3 per cent the transaction costs of remittances and eliminate remittance corridors with costs higher than 5 per cent by 2030 with a view to achieving the primary goal target, that is, ‘reduce inequality within and among countries’ which is aligned to the WTO’s development agenda," the draft proposed.

When someone working abroad sends a part of their earnings to their homeland, these transfers are known as remittances. These people have to pay a percentage of the amount they send to their loved ones. As per the International Monetary Fund (IMF) data, when remittances are under $200, the fees can average about 10 per cent. The remittance cost can go as high as 15-20 per cent in some cases.

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India’s proposed draft also stated that global average remittance costs were 6.18 per cent, over twice the United Nations SDG target of 3 per cent.

An Indian officer who negotiated in WTO told ET that the proposal would not have just benefitted Indians living abroad and their families back home but other countries as well.
“India’s proposal to the WTO was not meant to help Indians alone. If the cost of sending remittances comes down, several countries in Latin America, Southeast Asia and our own neighbours like Nepal and Bangladesh will be major beneficiaries. People from poor and middle-class families go abroad and work very hard to save some money. But when they send their earnings back home, they end up paying a lot as commission,” the officer explained.

India’s interests

According to a World Bank report, India received the highest amount of remittances in 2023, touching an estimated $125 billion.

Other top recipients were Mexico ($67 billion), China ($50 billion), the Philippines ($40 billion) and Egypt ($24 billion).

The report, citing 2022 data, said that the country-wise share of inward remittances to India was — US (17.79 per cent), United Arab Emirates (15.67 per cent), Saudi Arabia (10.60 per cent), Kuwait (4.87 per cent), and Singapore (4.18 per cent).

As per the UN’s population division data, India sent the most number of migrants abroad – 17.9 million in 2020, much more than Mexico (11.2 million), Russia (10.8 million) and China (10.5 million).

Remittances make up 3.4 per cent of India’s gross domestic product (GDP), says the World Bank.

Agneshwar Sen, EY India Tax and Economic Policy (International Trade) Associate Partner, told Livemint that once the remittance cost is cut, the money flowing into India will increase. “When it is cheaper and quicker to transfer money, hawala transactions will decline”.

As per economists, reducing remittance costs would give a boost to UPI transactions and increase its global footprint. India has been pushing the interoperability of UPI with payments systems in other countries.

At the WTO, India said that there was a need to endorse “interoperability and interlinkages of digital payment infrastructure”, given that the global average cost for digital remittances is 4.84 per cent, much less than the cost of non-digital transactions, reported ET. 

“When UPI is adopted at a large scale costs may go down to 2 per cent level. With Global remittances at $860 billion in 2023, widespread adoption of UPI may result in savings of $35 billion annually. India’s push for UPI at the MC13 also showcases its leadership in digital payment technologies,” Global Trade Research Initiative (GTRI) founder Ajay Srivastava was quoted as saying by PTI.

“Shifting from cash-based remittances to digital transfers can significantly lower costs. Digital platforms offer faster, cheaper, and more transparent transactions; linking national digital payment systems across borders can eliminate the need for foreign exchange conversions, reducing costs and transaction times. India’s UPI system serves as a successful example,” he added.

How cutting remittance costs will benefit migrants

Reduced remittance costs will benefit migrants and their families back home as it would lead to the saved income being spent on personal consumption rather than paying intermediaries, noted Livemint.

Barada Talukdar, a mud specialist at Kuwait Oil Company, told ET, “When I send money, whether it is the Kuwaiti dinar (KWD) equivalent of Rs 3 lakh or Rs 3,000, the commission charged by the exchange remains the same—1 KWD or Rs 268- 269 per transaction. The more you remit in small tranches, the more you end up paying as fees”.

Speaking to Livemint, Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said that if the remittance costs are slashed to 3 per cent, it would “reduce cost” for the Indian diaspora and “provide further impetus to the remittance-related inflows”.

With inputs from agencies