Macroeconomic Outcomes of Remittances on the Indian Economy

Economic globalization has increased interdependence, particularly among the developing economies. This has increased the potential of migration across the national borders. In a similar context, the Indian economy has witnessed a rapid growth in the number of migrants after the phase of globalization. The rise in the migrant stock has led to a massive increase in the income generated through international borders in the form of remittances. India has become one of the top recipients of remittances with 79$ billion inflows in 2018. The major factor driving the growth of migrant remittances has been the monetary incentives that raise the standard of living of the recipient’s households. The rise in the income level of these households also affects other economic parameters including consumption and investment. Apart from this, the pattern of migration has also changed since the past few years with skilled workers migrating to the developed economies and unskilled ones migrating to the Gulf economies. In this context, the present study examines the trend and pattern of remittance inflows in India for the period of 1975-2017. Additionally, the study explores how remittance inflows affect the level of household consumption and investments. This relationship was examined using a two-stage least squares method by framing a set of simultaneous equations. The findings of the two-stage least square estimates indicate that though personal remittances do not impact the gross domestic product of the economy directly. But, an increase in the inflow of personal remittances leads to a rise in consumption and investment which in turn plays an important role in determining the Gross Domestic Product of the economy.