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.


Introduction
In the past decade, foreign capital has emerged to be one of the largest sources of finance, particularly among the developing economies. One important component of foreign capital that has positively impacted the economic development of the Indian economy is foreign capital investment. This variable has increased the amount of investment and has also led to a rise in the number of employment opportunities (Sahoo & Sethi, 2017). Apart from foreign direct investment which entails a transfer of assets and liabilities among resident and non-resident enterprises, another substantial flow of financial capital inflow is the migrant remittances. As per the recent definition of remittances stated under the sixth edition of the IMF report of 2008, the personal remittances include the personal transfers and the compensation of employees but exclude the taxes, social contribution, and expenditure on transport and travel by the crossborder workers (IMF, 2009). The personal transfers included in the definition are independent of the source of income and the origin of the sending household. The personal transfers included the worker's remittances which comprise of current transfers send by the migrant population who are employed in the new economies and are considered the residents of that economy. Additionally, it includes compensation to the employees which includes the wages, salaries and other benefits which are earned by the individuals who are residents (IMF, 2007).
The concept of remittances having a significant impact on the economic growth of the developing economies was recognized in the early 1980s (Straubhaar & Vãdean, 2006). Since then, the remittance inflows to the developing countries have risen tremendously. In 1995, the inflows of remittances to the developing nations has been $56 billion. Over 15 years, this inflow has increased to reach $ 334 billion in 2010 (UNDP, 2018). Additionally, as per the calculations conducted using the data from the World Bank, Migration and Remittances Fact Book of 2011, The United Nations Department of Economic and Social Affairs in their report "Maximizing the Development Impact of Remittances" highlighted that the stock of migrants increased from 195 million in 2005 to 215 million in 2010 (UNCTAD, 2018b). The rise in the level of remittances has particularly affected the growth and development of the developing economies. Due to this, the remittance amount in many developing economies has exceeded other forms of foreign aid. In 2008, the majority of the economies witnessed a sharp decline in foreign flows due to the global economic recession. However, the record of remittances in the developing economies reached 283$ billion in 2008 from 265$ billion in (UN Migration Agency, 2018. The trend of the flow of remittances occurred from the rich and developed economies to the low-middle income and developing economies (Nwaogu & Ryan, 2015). To understand the pattern and growth of remittance inflows in detail, it is important to understand the migration patterns and the characteristics of migrants for developing appropriate policies that improve the functioning of the remittance market in India. The following section explains the review of the literature of the existing studies focusing on the growth, sources, cost, and distribution of remittances in the Indian economy.

Importance of Remittances
Worker's remittances are one of the most important economic factors contributing to growth, particularly in developing countries. As remittances are largely stable and provide direct benefits to the households, some authors conclude that remittances have a positive effect on the economic growth of the developing countries. On the other hand, some authors highlighted that remittances have an insignificant impact on economic growth. The study "Remittances, financial development, and Growth" conducted by (Giuliano & Ruiz-Arranz, 2009) examined the relationship between remittances and growth and analyzed the importance of remittances in the local financial sector development of the country. The OLS and SGMM regression results were examined using two sets of models wherein the first model included investment and the second one excluded it. The results indicated that remittances have a positive effect on economic growth if the investment variable is dropped from the model. On the other hand, the study of (UNEC, 2011) concluded that considering the long term period of 1970 to 2017, the remittances have no overall impact on the economic growth of the developing countries.
However, by dividing the period, it was analyzed that remittance had a negative influence on economic growth after the 2000s. This could be the result of an overall economic slowdown that had occurred in 2008 which resulted in a low level of remittance inflows to the developing countries.
Remittances have become one of the important sources of foreign capital flows particularly in the developing nations. Further, with innovation and technological improvements, the transaction costs have improved due to faster mechanisms for international payments. To this, the study of (Kapur, 2004) stated that in comparison to the other financial flows, remittance is more stable and hence is better than other forms of capital. In a similar context, the study highlighted that the remittance flows to the developing countries fell by 5.27 percent due to the negative influence of the global financial crises. However, the fluctuation was very less in comparison to the fall in the foreign direct investments which lowered by about 31.94 percent during the crises.
In a similar context, the study conducted by (Stojanov et al., 2019) examined the impact of remittance on the six remittance-receiving countries in the six high remittance-receiving countries. These countries have the largest source of foreign exchange earnings. The productive capacity can help the economy in achieving the desired level of economic growth by investing the money in consumption as well as investments. The remittance flows are more stable than inflows of developing economies which are positively related to sustainable development. Apart from this, the remittance inflows finance investment in human capital and have increased household expenditures. The remittance amount further alleviates the credit constraints which promotes economic growth.
Though the other foreign inflows like FDI and development aid could be affected by the recession, lack of knowledge, and financial services, remittances have a major impact on the balance of payments and foreign exchange rates. Remittances serve as the major component of the foreign inflows and in turn helps the economy in stabilizing the exchange rate which in turn as the one of the major developmental tool, particularly in the economies which face the high level of volatility in terms of the exchange rate. This stability improves the overall global competitiveness of the economy. The stability in the exchange rate helps the countries in improving the creditworthiness of the economies. The improvement in creditworthiness can be

Contribution of Remittances for India's Development
The high frequency of economic and financial crises developed the requirement for the social safety nets.
Due to this, the low and middle-income countries have become the largest recipient of remittances which has, in turn, contributed to their GDP. India has also witnessed a massive rise in the number of foreign inflows in the form of foreign direct investment and remittance inflows since the 1990s (Jha et al., 2010).
Over the period, the remittance flow has increased due to which India has become one of the top recipients with 79$ billion remittance inflows followed by China with $ 67 billion and the Philippines with over 32 $ billion in 2018. Additionally, the pattern of remittance inflows has also transformed over this period (World Bank, 2018b Apart from this, attractive deposit schemes initiated by commercial banks also acted as an incentive to non-resident Indians to remit in India. Due to these factors, India witnessed a rapid increase in remittance in the post-reform period (Gjini, 2013 Within India, there is a regional distinction in terms of the distribution of remittance income. Due to distinction in terms of regional income, there is a rise in the level of inequality. In 2015, though remittance comprised 4% of the share of the Indian economy, in some of the states including Kerala, Punjab, and Goa. The share of remittances in the State GDP is relatively much higher due to which these States are heavily dependent on the international remittance flows. Due to this, Kerala has witnessed a relatively high level of Human Development Index despite lagging in terms of manufacturing (Banga & Sahu, 2013;Haas, 2007a). The study conducted by (Pande, 2018) revealed that over the last few years more than 2.5 million Keralites have been shifted to other countries. In addition to this, inward remittances have raised the level of economic activities which in turn helped the State of its economic growth.

Impact of Remittances at Macro level
The The effect of remittances on economic growth depends on how these are spent. If the remittances are spent on consumption, and then the relative intensities depend on the traded and non-traded goods. If the remittances inflows are spent on imports, then this doesn't lead to a high level of productive capacity in the economy. Due to this, remittance could not have a growth financing impact on reducing the level of poverty in the economy. In this context, the study of (Afram, 2011) stated that the remittance income could act as a source to bring the households out of the state of poverty. Remittances have a consumption smoothening effect which helps the households to utilize their money in high risk and profitable activities due to which the economic benefits from increased investments. Particularly in the Philippines, higher receipt of remittances is associated with a greater amount of accumulation of farm assets which in turn also generates a higher level of self-employment. Apart from this, migrant remittances also increase the level of savings also improves the overall growth prospects of the country (Adela & Ardita, 2014).
In a similar context, 2018's RBI's report "Globalizing people: India's Inward Remittances" highlighted that more than half of the remittances which are received by India are utilized for consumption purposes. About 20% of these remittances are kept as bank deposits and only 8.3% of the investments are kept in the form of land property. The negative effects of the remittances can be gathered and analyzed using three major analytical topics. The primary effect of an increase in remittance depends on the sensibility of the monetary policy in the country. A rise in the remittances leads to an appreciation in the economy which in turn improves the export competitiveness of the country. The study highlighted that the per capita income and the expected economic growth have a positive impact on the remittances of the economy (Adela & Ardita, 2014).
In this context, the study of (Das, 2015) highlighted concerns regarding brain drain. This fact was argued as skilled migrants tend to earn more than the unskilled ones as education is one of the important determinants of the level of remittances. However, large scale migration of skilled workers leads to a loss of human capital. This human capital could have acted as a valuable asset for the growth and development of the economy. This reduces the supply of skilled labor force in the domestic economy. To this, the book "Remittances and Development" by (Fajnzylber & López, 2008) focused upon the long term debate about brain drain. The author highlighted that the concept of brain drain has two perspectives. When the workers migrate from their origin country then the origin country tends to lose due to loss of positive externalities which are generated by highlighted by skilled workers such as doctors, engineers, and entrepreneurs, and so on. Additionally, the government loses the tax revenue through could be generated through the income of these individuals. On the other hand, potential gains are generated through the higher level of income which they remit to the households in the country of origin.
Another negative impact of the remittance arises in the distribution of the local income distribution within regions of India. The study of (Stojanov et al., 2019) highlighted that inequalities arise among the families with or without the emigrants. The families with migrants witness an increase in income in contrast to the families without the remittances. On the other hand, the optimistic and pessimistic theory in the study of (Samuel & Stephen, 2018) focuses on the fact that a higher level of international remittance inflows tends to reduce the inequality in the recipient economy. The reduction in inequality is attributed to the removal of the budget constraint of the households which in turn stimulate the demand for goods and services in the economy. Additionally, the income effect of an increase in remittances could also decrease the labor supply in the remittance recipient economy can afford to remit a lesser amount. This is also consistent with the neoclassical economic growth theory wherein the real salary differences that arise within the economies lead to bidirectional flows within the economies due to which the earnings within the economies tend to converge.
Further, the study of (Samuel & Stephen, 2018) investigated another negative impact of remittances which is the Dutch disease. Dutch disease is one of the biggest threats to the remittance inflows in the developing economies which are particularly dependent on remittances in the form of a large share of their GDP. This effect occurs mainly due to too much dependence on remittance inflows leads to an appreciation of the exchange rate.
However, this may lead to depreciation due to the amount of remittance inflow falls. In the Indian context, the study "Workers' remittances and Dutch disease in South Asian countries" (Roy & Dixon, 2016) examined the argument of Dutch disease for India, Bangladesh, Pakistan, and Sri Lanka. The findings of the study indicated that there is a statistically significant effect of the appreciation of remittances on the real exchange rate of these economies. Further, the depreciation of the currency also affects the remittance flows as it takes the remittance flows less attractive.

Informal Sources of remittances
Though many authors widely examine the impact of remittances recorded in the official statistics under the Balance of Payments yearbook which are published by IMF, it is important to notice that the actual value of the remittance amount is much higher. The official remittance channel represents only a portion of the total remittance flow. There exist many informal channels such as self -carry or hand-carried money by the relatives or the modes of hundi system through which are the unofficial ways of remitting money. The World Bank and the IMF report of 2010 revealed that the rise in remittance amount in the past few years would be 50 % more if the remittance through the informal channels is also officially recorded (Puri & Ritzema, 1999).
In this context, the study conducted by (Glytsos, 2005) highlighted that the hawala or the hundi system is one of the commonly used systems for transferring the informal remittances. A hawala transaction comprises of the remitter and some intermediaries through which money is transferred. In this process, the migrant remitter pays the amount to the intermediary hawaldar in the country in which they are remitting. This hawaldar then contacts the partner service provider in the recipient country. In the context of the hawala system, the study of (Munzele, 2005) focused upon the versatility of the hawala system. The study highlighted that the hawala transactions are adaptable to wars, civil unrest, economic crisis, and blockades. During the 1990s, particularly regarding security concerns, the hawala system was considered to be a reliable and cost-effective mechanism for fund transfers. It enabled the people to transfer the funds into Europe or the United States with a time span of a few hours. In addition to this, this unofficial channel offered an advantage in context to accessibility for the migrants as these channels had the reach even to the remote areas.
In the context of the hawala system, the study of (Munzele, 2005) focused upon the versatility of the hawala system. The study highlighted that the hawala transactions are adaptable to wars, civil unrest, economic crisis, and blockades. During the 1990s, particularly regarding security concerns, the hawala system was considered to be a reliable and cost-effective mechanism for fund transfers. It enabled the people to transfer the funds into Europe or the United States with a period of a few hours. In addition to this, this unofficial channel offered an advantage in context to accessibility for the migrants as these channels had the reach even to the remote areas. On the other hand, the banking facilities and the other official channels were concentrated only in some of the major cities. Further, the documentation of the hawala dealers is inaccessible to the third parties and thus there are no standard requirements for the documents, nor there is any requirement of customer identification nor there is any requirement for conducting business. Particularly in context to India, the Hundi system also focused source of remitting money before the modern-day banking system. This system was also commonly used by the migrants of Bangladesh and Pakistan. The study of (Haas, 2007b) highlighted that in the Indian context, the remittances are influenced by the growth of migrant earnings and the economic environment in the source country. These remittances are often motivated by the tax exemptions. In India, the government announced the tax exemptions in the 1980s to improve the foreign exchange reserves position.
Due to this, the non-resident Indians were motivated to open the accounts in any of the foreign currencies. The Indian citizens are motivated based on the institutional quality of the country in which they are migrating. In addition to this, the remittances depend on democracy, human rights, and the institutional tax system that India offers to its citizens. of bank accounts and purchase of the property. The applicability and effectiveness of the scheme can be examined from the extent that it is applicable even for the minors with the consent of the natural guardian. This, in turn, allows the citizens to operate their business or purchase property abroad (Munzele, 2005).
The money under this scheme can be used to pay expenses including the expenses relating to the traveling, donations, gifts, and maintenance. Apart from this, the remittance amount related to the emigration and availing of the medical facilities can be availed beyond the limit which is prescribed under the LRS. Additionally, this amount can be used in shares, debt instruments and to purchase the immovable properties even in the international market. The scheme is applicable for this permitted limit for any of the current or capital account. Further, the citizens can also maintain and hold foreign currency accounts within the Indian banks for carrying the transactions permitted under the scheme. In a similar context, the report released by RBI highlighted that the outward remittances under the LRS scheme were 8.17 US$ billion (RBI, 2018b).

Cost of Remittances
The study conducted by RBI in an article published by RBI "Remittances from Overseas

Agenda under sustainable Development goals
Under the Agenda of sustainable development goals, remittances are not considered important for achieving a high rate of sustainable economic development. Instead, one of the major aims under sustainable development goals is to reduce the number of remittances. This is -because the migrant remittances do not fulfill the need for resources required for increasing the productive capacity. As the major part of total remittances does not contribute to the productive investments, the benefits of remittances can't be realized until there is a certain policy framework to make use of remittances for productive investments. Additionally, these policy initiatives must be supported by certain private initiatives (Stojanov et al., 2019).
In contrast to this, the study conducted by International Fund for Agriculture Development (IFAD) highlighted that if the migrant remittances are spent by developing a policy framework that is targeted for achieving support social and environmental aspects, it can deliver effective results. For instance, the migrant's income is used in agricultural activities then it can create a wide set of employment opportunities. In this context, the IFAD recommended that the government must take the necessary actions to invest in agricultural production. This will, in turn, improve the productivity of the food leading to greater food security. For this purpose, it is necessary to promote services under agricultural production (Imai & Bresciani, 2017).
The report of (UNCTAD, 2018a) focused upon the sustainable development goals of 2030 indicate that under the sustainable goal target, the government aims to reduce the transaction cost by less than 3% of the migrant remittances. Additionally, it aims in reducing the migrant corridors with the costs of more than 5 percent. In addition to this, the least developing economies aim at enhancing the role of remittances through the formal transfers which could be utilized-to finance productive investments. The use of formal channels for the transfer of funds and lower level of costs can be achieved through a proper regulatory framework through which a greater number of financial institutions is allowed for the migrant transfers. A rise in the number of financial institutions allowing the transfer of funds promotes healthy competition among the institutions which in turn reduces the costs of transfer of funds to the end-user.
Further, it leads to greater access to funds even in remote or rural areas.
Apart from the policy framework, it was also argued that the inflow of remittances has no proper legal framework. To, this the report of IFAD focused upon the fact that remittance markets must be governed under effective regulations that must be supported through greater transparency. In addition to this, rules must be developed for investing in the remittance amount in education and health facilities. This can be done by ensuring that the remittance families have the required access to the basic facilities. Further, there should be certain incentives or policies through which the migrant workers can directly pay for the health premiums for their families and could invest in other health insurance products (Niimi et al., 2008). One of the major rationales under the policies used for enhancing the development of migrant remittances is to focus upon the role of migrants in eliminating poverty in some of the families and communities which can be used for present consumption by the families.
Another sustainable development goal is to take urgent action for climate change. As migration is one of the major causes of climate change due to negative effects through weather-related shocks, it is necessary to encourage the migrant groups to invest in the services or products which are designed to manage the climate-related risks and the natural disasters. Further, the migrant investors must be encouraged to invest huge funds in sustainable agricultural irrigation and infrastructure which can be used for managing water resources effectively. Lastly, sustainable consumption can be promoted by developing awareness programs in the remittance-receiving communities that focus on environment-friendly consumption wherein productive investments are given priority over the expenditure in the luxury goods (Pande, 2018).
To utilize the number of remittances for productive investments, the study of (UNCTAD, 2018a) revealed that remittances can be utilized for productive investments through the creation of specific financial instruments. This can be done through the formation of housing and education accounts for the families of the migrants in their origin country. This offers a wide number of opportunities for the migrants to invest in their home country.

in total remittances in 2016-17 (Percentage) (Data Source -RBI,2018)
The above graph depicts the share in the total remittances for the period of 2016-17. The graph indicates that about 59% of total remittances are utilized for family maintenance. In addition to this, 20% of the deposits. Further, about 8.3% of the total remittances were utilized for investments. Thus, it can be said that most of the inward remittances are utilized for consumption purposes or Family maintenance.

Role of diaspora bonds
Remittances have played a significant role in availing finance to deal with economic recessions.
The finance was used in the form of diaspora bonds, a type of debt instrument used for issuing finances through the overseas diaspora. These bonds were used to support the balance of payment crisis. In 1991, an amount of $1.6 billion was issued in the form of Indian Development Bonds (Suhas L Ketkar, 2010). During this period, India was successful in controlling huge trade deficits, deflation, and devaluation of the currency. Following this, the diaspora bonds were issued in 1998 of an amount equivalents to $4.2 billion. Subsequently, the India Millennium deposits of an amount of $5.5 billion were issued in the form of India Millennium deposits in 2000 (Ketkar & Ratha, 2007). The diaspora bonds have offered the non-residential Indians with a higher return on the investments. The funds could be utilized wither for long-term investments or to generate high social value.

Research gap
In the present decade, India is witnessing a massive increase in the number of remittance inflows. This has led to a rise in the level of income, in turn, contributing to growth in the level of consumption and investment. Due to the incentive of earning a higher level of income, the rate of migration of both skilled and unskilled workers has been significantly high but the income generated through the migration of skilled workers is relatively much higher. However, some of the authors argue that unskilled workers remit a greater amount than skilled workers.
In this regard, the present study examines the difference between the amount remitted by the skilled and unskilled workers. The higher level of income can contribute to a high level of economic growth. However, it also has a negative effect in terms of brain drain. In addition to this, remittances may only contribute to a higher level of consumption patterns by fulfilling the basic needs of the households. In this context, the present study examines how consumption and investment pattern changes with the level of remittances. Additionally, it examines how the level of remittances affects the level of economic growth in the country.
Though in recent years, the number of remittance inflows in India has increased rapidly due to which remittances emerged as one of the major subjects of research but the data on remittances are less reliable than the data on the other items in the balance of payments accounts. There

Research Questions
To fulfill the research gap, the following research questions were being addressed: -Q1.) What is the impact of an increase in remittances on consumption, investment and economic growth of the country?
Q2.) Which countries remit more inflows to India?
Q3.) Do the unskilled workers remit more money than the skilled ones?
Q4.) Do remittance inflows outperform the foreign direct investment in India?

Research Design
In the present study, a descriptive research design was used by the researcher to examine the extent to which the macro-economic variables including investment, consumption, trade and foreign trade investment impacts the gross domestic product of the economy. Further, it helps in describing the trend of remittances across North American, European and the MENA countries. Also, explanatory research is used for examining the positive and negative effects of growth in remittances.

Data Collection
To examine the personal remittances on the economic growth of the Indian economy, secondary data for all the variables considered in the previous section was collected from 1975 to 2017. As India had witnessed an increase in the amount of remittance inflow during the 1980s, a time-series data for 43 years is chosen. This will help in examining the long-term trend in the growth of remittance inflows and its impact on macroeconomic variables including gross domestic product, consumption, and investment. Additionally, to examine the trend of the region-wise transfers, data for bilateral country-wise transfers has been captured from 2010 to 2017. Due to limited availability, data for bilateral transfers has been captured only for seven years. The bilateral transfers were classified according to three different regions including North American countries, European countries, and the MENA countries. The source of data collection for all the variables have been the World Development Indicators of the World Bank.

Data Analysis Procedure
Quantitative analysis is used in the present study to derive insights through the data. The data collected by the researcher was entered into Excel for the trend analysis. The variables considered in the present study have variation in terms of the spread of the data and the units in which it is measured. The official exchange rate is measured in local currency units and trade is measured in terms of percentage of GDP. On the other hand, other variables like government final consumption expenditure, gross domestic product, net inflows of foreign direct investment and household final consumption expenditure are measured in US dollars. This leads to inconsistency within the data. To maintain consistency within the data, the data is standardized using the following formula:µ is the mean of data and the σ i-s the standard deviation of the data. After standardizing the data in Excel, it is imported to STATA for further analysis.

Data Analysis
The present section represents the analysis of the data. The first sub-section highlights the remittance flows in 2017. This is followed by another sub-section which indicates the US $ million to 14,626 US $ million. Further, the remittance inflows from the European economies also increased from 1338.43 US $ million to about 1608.818 US $ million. This points out that a massive amount of remittance inflows occurs from MENA countries. This is due to the vast amount of unskilled and semi-skilled workers migrating to these countries.
This also points out that unskilled and semi-skilled workers migrating to the MENA countries remit a greater amount than the skilled workforce who are migrating to the North American and MENA countries. c. Remittances, FDI and Foreign aid

Figure 3: FDI, Remittances and Foreign aid (In US $ million) (Source: Estimates of the Paper, Data source: World Bank)
The above diagram highlights the trends for net inflows of FDI, personal remittance inflows and net official foreign aid during the period 1975 to 2017. The trends indicate that till 1995, FDI inflows, foreign aid, and the personal remittance inflows remained stabilized. After 1995, both personal remittance inflows and FDI increased but the level of foreign aid remained constant. However, the increase in personal remittance was much greater than the increase in foreign direct investment. Additionally, the graph indicates that in the post-crisis period, personal remittances increased at a much higher rate than the increase in foreign direct investment. The level of personal remittances increased from the US $ 12,883 million in 2000 to the US $ 68,967 million in 2017. As the remittances have increased at a much higher rate than the foreign direct investment, the gap between the two inflows widened over some time due to which the remittances have increased to reach about 79$ billion in 2018. Average transaction cost of sending remittances (%)

Two-Stage Least Squares Estimates
The research methodology section presented the simultaneous equations, dynamic model, in which ordinary least squares (OLS) estimators are biased and inconsistent. This inconsistency arises due to the correlations which exist between the endogenous variables and the stochastic disturbance terms. The endogeneity of the variables is also tested using the Durbin Wu    The above table indicates that with the rise in the gross domestic product and the personal remittances, the household final consumption expenditure of the economy also increases. As

Conclusion
The present study examines the macroeconomic outcomes of the economic growth of the Indian economy from 1975 to 2017. It examines the effect of a rise in remittances on several macroeconomic variables including gross domestic product, consumption, and investment.
Additionally, it explores the country-wise remittance inflows to India which also helps in evaluating the pattern of skilled and unskilled workers remitting money to India. Lastly, the study explores the extent to which the remittance inflows outperform the foreign direct investment in India. Primarily, the findings of the study indicate that the remittance inflows are highest from the MENA countries. Among these MENA countries, the United Arab Emirates remitted the maximum amount of remittance inflows in 2017. As a majority of the migrant stock in the United Arab Emirates are either unskilled or semiskilled workers, this indicates that pattern of remittance inflows have changed wherein unskilled and semiskilled workers remit more amount in comparison to the skilled workers. Additionally, in terms of the trends of personal remittances, foreign direct investment and foreign aid, the findings indicate that since the 1990s, the inflows of personal remittances grew at a much faster rate than the foreign direct investment and official development assistance. Further, the amount of remittance cost has also reduced over a while. Apart from this, in terms of the outward flow of remittances, Bangladesh, Nepal, and Sri-lanka receive the largest amount in terms of outflows of remittances.
Due to errors between the among the endogenous variables and stochastic disturbance terms, a two-stage least squares estimation mechanism was implemented. The findings indicated that the remittances positively impacted the gross fixed capital formation and the household final consumption expenditure. This indicates that when the amount of personal remittance inflows increases in an economy increases, it leads to a rise in the amount of investment and consumption expenditure in an economy. Personal remittances play a significant role in affecting the macroeconomic variables within the Indian economy. The positive demand-side effects are realized in the form of a rise in consumption and investment. Thus, remittance inflow indirectly contributes to the greater amount of injections into the circular flow of income in the economy. Further, being a stabilized source of foreign capital, personal remittances can be useful for maintaining the current account balance and can prevent liquidity overhang.
The present study presented a broad overview of the macroeconomic outcomes of a rise in the personal remittance inflows on the Indian economy. The study compares the pattern of migration and a rise in personal remittance inflows across different regions. Apart from this, it also explores the impact of rising remittance inflows on consumption, investment and gross domestic product of the economy. However, the study doesn't examine the region-wise effect of the growth in remittances on the macroeconomic parameters due to the limited availability of data. Thus, future studies should focus upon the region wise impact of migration stock and rise in the remittance inflow on the macroeconomic parameters in the Indian economy.