According to the World Bank's Migration and Remittances Factbook 2011, India continued to be the largest recipient of remittances in 2010.

KASPAR RAJU BHIMISETTY

Remittances play an increasingly significant role in many economies by influencing their economic activities. Migrants send money back home either for a household's maintenance expenditure or for investing on profitable ventures. Remittances sent by emigrant workers to support their household members are an especially important source of financial support for many families in the developing world. They directly exert significant influence on the standard of living of such households. The amounts are spent on education, health and household consumption or in various forms of human capital formation. In contrast, while households invest the remittances on real estate or physical capital, they do so with profit motive, and conform to the self-interest theory of remittances.
Apart from improving the standard of living, remittances generate employment opportunities and thereby influence private consumption. Influence on consumption could also lead to economic growth as consumption creates investment demand through its multiplier effect. It is seen that while a very large proportion of remittances is spent on consumption, a very small proportion is also saved or used for productive investments. The migrant earns income and decides how to allocate his savings between host country and home country assets, interest rate incentives offered on home, country deposits, the return on real estate in the home country, inflation rates, political risk uncertainty and other factors.
Remittances help in addressing the most basic needs of the migrants' families and their communities. They represent a significant flow of income to poor families. If remittances could be channeled into more efficient ways, it would considerably contribute to alleviation of poverty and speed up economic development. According to the World Bank's Migration and Remittances Fact book 2011, India continued to be the largest recipient of remittances in 2010. Remittances rose from $49.6 billion in 2009 to $55 billion in 2010. In 2010, worldwide remittance flows are estimated to have exceeded $440 billion. From that amount, developing countries received $325 billion, which represents an increase of six percent from the 2009 level. With a rising population of more than 215 million international migrants in the world, remittances received by developing countries alone are estimated to be to the tune of $325 billion in 2010, states a World Bank study.
In 2010, the top recipient countries of recorded remittances were India, China, Mexico, the Philippines, and France. High-income countries are the main source of remittances. The United States is by far the largest, with $48 billion in recorded outward flows in 2009; Saudi Arabia ranks as the second largest, followed by Switzerland and Russia. Total expatriate workers' remittances from the GCC rose to $63.75 billion in 2010 from $60.03 billion in the previous year, up 6.1 percent compared to an upturn of 2.44 percent in worldwide remittances, according to the World Bank.
Money remitted by foreign workers in the UAE rose to $10.54 billion in 2010 from $9.51 billion in 2009, “a clear indication that after a protracted downturn and a slump in job market during 2008 and 2009, the country's economy had returned to a recovery mode, Sudhir Kumar Shetty, Chief Operating Officer of the UAE Exchange Center, said. India, the largest recipient country, in terms of both global and GCC remittances, accounts for roughly 50 percent of money transferred from the Gulf, estimated to be between $25 and $30 billion in 2010, Shetty added.
National interest
Remittances influence macro activities. The overall economic impact of remittances depends in part on the propensity of the recipient households to consume and invest. Remittances that are invested in productive activities directly contribute to output growth. Even remittances that are consumed may also have positive multiplier effects on the economy. On the one hand, they reduce poverty and increase foreign currency reserves, and on the other hand, improve the investment climate in the recipient country. There is a substantial positive effect on the receiving households in terms of improved standard of living, with a knock-on effect for the local economy.
Transfers tend to flow from relatively rich to relatively poor households, mostly from children to parents India has reported a spectacular rise in remittance inflows from $49.66 billion in 2009 to more than $55 billion in 2011. Several factors account for the remarkable increase, including: thousands of low-skilled Indian workers who have migrated to Gulf countries; migration to Australia, Canada, and the United States has increased significantly, particularly of information technology (IT) workers; the rise in number of migrants' has coincided with better incentives to send and invest money in India's growing economy and an easing of regulations and controls; flexible exchange rates and gradual opening up of the capital account in the balance of payments; and strong growth in oil-exporting countries leading to a surge in international crude oil prices. Non-resident Indians have also responded to several attractive deposit schemes and bonds offered by the Indian Government from time to time. These schemes offer attractive interest rates and an appreciating rupee.
The large flow of remittances is partly responsible for the appreciating rupee against the US dollar in some periods. The economy is showing signs of robust growth of GDP resulting from expanding service sector and good performance of the industrial sector.
Impact on the private sector
In contrast to the view that remittances would have a positive correlation with output growth if they are like capital flows, many of the studies confirm that remittances are counter-cyclical and compensatory transfers. The compensatory nature of remittances presents a moral hazard or dependency syndrome that could impede economic growth as recipients reduce their participation in productive endeavors.
A large body of relevant literature argues that remittances have mostly been used for excessive consumption, housing, and land, and are not used for increasing productive capacity or investment that contributes to long-run growth (Giuliano and Ruiz-Arranz, 2005). Recent strands of literature, however, indicate that remittances could lead to economic growth, simply by increasing emigrants' household incomes.
Along with positive effects, remittances could have adverse impacts as well. Large inflows have some undesirable side effects. Higher remittances may be expected to have direct repercussions on foreign exchange rates, domestic interest rates, and balance of payments and also indirect repercussions on macro variables. Large and sustained remittance inflows causing appreciation in the real exchange rate can reduce export competitiveness.
Remittances give rise to net addition to the stock of foreign currency and hence contributing to the rise the domestic money supply and generating demand pressures. If resources could be utilized for productive investments that would rise the real output. Therefore, the government should take suitable measures for diverting from the unproductive users of remittances to its productive users.