An increase in international migration has boosted the flow of remittances worldwide in the last couple of decades. The importance of remittances for the Indian economy can be gauged by the fact that India has been among the world’s top 10 remittance recipient countries since the 1970s. There are different ways and levels at which remittances can impact an economy. The following are the most significant ones.
At the micro-level, remittances boost a family’s income, which leads to improved nutritional outcomes, higher spending on education, increased purchasing power, more disposable incomes, and a better standard of living.
Remittances also enable recipients to boost their investments, savings, and financial literacy, as a stable stream of overseas income can ease the credit constraints of unbanked households.
From a macro perspective, remittances increase consumption in the economy as the disposable income of families grows. This helps in pushing up the GDP growth.
Remittances also keep the foreign reserves of India stable, thereby helping the Indian rupee hold up against the US dollar and other major currencies.
It can act as insurance when the country faces macroeconomic shocks, natural disasters (floods, earthquakes), financial crises, and political upheaval, for instance. As it has been observed countless times, NRIs have relieved remittance to lend financial support to their motherland while she deals with many crises.
Remittances essentially lead to increased cash flow in India, resulting in increased purchasing power among the population. Moreover, foreign remittances from NRIs during crises also positively impact the economy while reducing poverty in developing economic growth. Remittances in the world represent one of the primary international financial resources, which sometimes exceed the flows of Foreign Direct Investment (FDI).