Consumption beats asset creation in remittance spending: RBI survey

World Bank report says India set to receive a record $71 million in 2013 in remittances

Of late, India has been receiving the highest remittances, most of which go to meet household requirements. On the other hand, remittances are not used much to create assets; at least, that was not the case in 2008-09.

According to a World Bank report, the country is set to top the list of countries receiving remittances, at $71 billion, in 2013. Last year as well, Non-Resident Indians sent $70 billion back home to India, the highest compared to their counterparts from other countries. It would be interesting to see how Indians spent money received from their relatives.

A study by the Reserve Bank of India (RBI) released last year showed that most of these remittances are spent on household consumption. Though a bit dated for the period 2007-08 and 2008-09, it throws up useful information. In 2007, India received $37.2 billion, $49.9 billion in 2008 and $49.2 billion in 2009.

However, the share of household consumption to total spending marginally declined from 41.6 per cent in 2007-08 to 41 per cent in 2008-09. Also, people have heavily cut down their remittances spending on business-related activities, as the share has plunged by a high 6.4 percentage points from 7.9 per cent in 2007-08 to 1.5 per cent in 2008-09. That was mainly because in cities, these spendings declined drastically from 15.1 per cent to 1.5 per cent in this period. The question arises, on which front are they spending more money?

People increased their share of spending on health-related expenses; these moved up to 6.4 per cent in 2008-09 from 5.1 per cent a year before. Weddings account for a meagre proportion of the total remittances spending. However, there was a slight uptick in expenditure on this, front from 0.21 per cent to 0.32 per cent.

Savings in the form of bank deposits came second to household consumption expenditure, as 9.4 per cent of remittances are saved, which a year earlier constituted 8.6 per cent. However, this is not the case in villages, where this share has come down from 5.6 per cent to 5 per cent.

The survey, titled ‘Survey of Private Remittances to Indian Households with Non-Resident Accounts’, also stated that profession-wise, the maximum sum comes from entrepreneurs (29.6 per cent), followed by software professionals (26 per cent) and housewives (16.5 per cent) living abroad. The survey was conducted in select districts of Maharashtra, Gujarat, Kerala and Punjab, where inward foreign remittances were highly concentrated.

Most people who spend remittances are based in the United States, the United Kingdom and Dubai, the survey observed.

The World Bank, in its report released on Wednesday, said that in India, remittances were larger than the earnings from information technology exports. “With the weakening of the Indian rupee, a surge in remittances is expected as nonresident Indians take advantage of the cheaper goods, services and assets back home,” the bank said.

However, India is set to receive only $1 billion more in 2013 over the $70 billion in 2012.