Impact of Remittances on Households’ Consumption in India

This paper attempts to study the impact of remittance on household consumption in India. The household consumption demand function is derived by maximizing a joint utility function of households and their migrant members; which is further empirically estimated using the 2007–08 National Sample Survey (NSS) data by splitting the consumption expenditure into two major categories viz., food consumption and non-food consumption. The major findings suggest that receipt of remittances have positive impact on household consumption in rural and urban India. But, receipt of remittance has statistically significant negative impact on the budget share allocated to food consumption and positive impact on the budget share allocated to the non-food consumption in the rural India. And since major categories of non-food expenditure includes: educating household members, saving or investment, improving housing condition housing and repayment of debts etc.; remittance has developmental impacts in the rural sector. Hence, it is suggested that the government should facilitate both the transfer of remittances and their channeling to productive uses, by creating the conditions for a stable investment environment in the rural India.