IMPACT OF REMITTANCES ON THE INDIAN

ECONOMY
A

Thesis
Submitted to
JADAVPUR UNIVERSITY, KOLKTA

In Fulfillment of the Requirements for the

Award

Of

The Degree of

DOCTOR OF PHILOSOPHY

In

ARTS

Supervisor Candidate

(Dr. Asim Kumar Karmakar) (Subhajit Majumder)

Former Assistant Professor
Department of economics
Jadavpur University, Kolkata

Department of Economics
Jadavpur University, Kolkata
2020
 Synopsis of Ph.D. Dissertation on

Impact of Remittances on the Indian Economy

Subhajit Majumder

Research Scholar
Department of Economics
Jadavpur University, Kolkata

Chapter 1: INTRODUCTION

1.1. Background

Before going into the discussion of remittances, we have to know about the interplay of
migration in international context. There are two dominant patterns of migration during the
long 19th century: first, from Europe to the Americas; and second, the movement of people
within the periphery, particularly Indians and Chinese to South-East Asia, Africa, the
Pacific and the Caribbean. There was some movement from the periphery to the Americas,
such as Chinese settlements in the US, Hawaii, Canada, Peru and Cuba. Many of these
movements were restricted through anti-immigration legislations. There was little migration
from the periphery to Europe. The major reversal in mass migration, with periphery to core
becoming its dominant direction, took place in the post-war period. In part, the reversal
immigration flows arose because of the need for peripheral labour in core states.

International migration is motivated by differences that are likely to increase in the twenty-
first century. Persisting demographic and economic inequalities between countries give
people reasons to migrate, while revolutions in communications and transportation allow
people in poorer countries to learn about opportunities in richer countries and move to take
advantage of them (Martin and Zuercher 2008). There is also a more mechanical reason for
more international migration— more borders to cross.

The effects of migration on development are often gauged and grouped by 3-R channels of
recruitment, remittances, and returns. Recruitment refers to who goes abroad; international

1
 Abstract

Remittances are a tangible reflection of migration. These are financial transfers sent by
migrant workers to their country of origin— to their families and dependents back home.
They are private flows in which individuals voluntarily send funds to their personal choice
of beneficiaries. They should not be classed as aid or directed into official coffers. Reducing
the cost of making remittance transfers, which typically absorbs 10 per cent of the value, has
highly positive developments impacts, as it increases the value of funds by the beneficiaries
and typically is spent on improving their welfare. A share of remittances is invested in
education, housing, and other long term investments like setting up industrial units.
According to the World Bank (2013) remittances act positively in reduction of the level and
extremity of poverty, thus leading to positive effects on higher human capital accumulation,
improve health and educational spending, improve access to information and
communication technologies, enhancing small business investment, better preparedness for
adverse shocks such as natural disasters and also contributing to a reduction in child labour.
It is interesting to note that India remained a top remittance recipient country in 2018 to the
tune of nearly $78 billion followed by China ($67 billion), Mexico ($36 billion), the
Philippines ($34 billion), and Egypt ($29 billion) with remittance inflows peaking at all-
time high at US$78.6 billion in 2014, as according to the latest official sources of the World
Bank.

In the above backdrop, the paper endeavours to estimate (i) the impact of international
remittances inflows on economic growth in India; (ii) to analyze the causal relationship
between remittances inflow and inflation in case of India; and, last of all, to assess the
significant impact of remittances inflow on real effective exchange rate of India. From the
empirical findings our conclusion is that remittances are beneficial, blessings and ‘stepping
stones’ for India’s onward march towards development and government should formulate
such policies as to channel the remittances for productive investments rather than for
consumption by diverse means.