Time to remit: the effect of remittances on household consumption and dietary diversity in India

Every year, millions of Indian men and women migrate to access better economic opportunities for themselves and their households. The money sent home by working migrants represents a significant source of income for those struggling with their everyday life. However, the Covid-19 pandemic prompted a massive reverse migration in India. The Indian Government's announcement of the country lockdown on the 25 March 2020 also caught millions of migrant workers - and a large part of the government bureaucracy - off-guard. Workers found themselves with no work and no income as industries shut down and construction projects were interrupted. While millions of migrants remained stranded far from home, many others started their journey home, only to be quarantined in temporary camps (Pandey, 2020). When finally able to reunite with their family, they found out that their households were facing food shortages due to the lack of remittances. In other words, it was not only the migrants themselves who became food-poor (and jobless) because of Covid-19; but also, their families in India - who had relied on regular remittances, and consequently faced severe liquidity constraints (Save The Children, 2020). The two months of 2020 lockdown in India resulted in an unprecedented humanitarian crisis. The significant decline in living conditions for millions of households drew the attention of economists, social scientists, and development practitioners. It highlighted the heavy reliance of the Indian economic system on remittances from both internal and international migrants.

This (unexpected) scenario reversed with the overall positive trends in macroeconomic aggregates which India had experienced before the Covid-19 pandemic hit. In the last two decades, India has witnessed a fast-paced economic growth. Nevertheless, the direct improvement resulting - in terms of food and nutritional security - has been minimal. The country's GDP has more than tripled in the last 15 years, but this increase in wealth has not directly benefitted a large majority of the Indian population. The number of poor in India is still remarkably high- 9 percent in urban areas and 23 percent in rural areas are classed as poor (Choithani, 2016) and the country has a quarter of the global undernourished population (Food and Agriculture Organisation, 2015). The available literature has referred to this negative correlation with the concept of ‘food security enigma’ (Gillespie & Kadiyala, 2012, and Pritchard et al., 2014), aggravated by the mix of social tension -i.e. castes, gender and religion discrimination. India's economic growth in fact offers several paradoxes: the average standard of living in India has increased over time and the country is home to a large number of millionaires and billion-aires, but chronic undernourishment of Indian dwellers still remains.

The Food and Agriculture Organisation (2015) estimated that India has 194.6 million undernourished individuals. Additionally, malnutrition rates among children are alarmingly high in India. According to the Global Hunger Index (2020), which factors in undernourishment, mortality, stunting, and wasting among children, India ranks 94th out of 107 countries (Agoramoorthy and Hsu, 2021). Those statistics are echoed by the results coming from the fourth round of The National Family Health Survey (NFHS), conducted in 2015–2016, which found that the rates of underweight, stunted and wasted children under five was at 36, 38 and 21 percent respectively. The follow-up NFHS survey highlighted that out of the 22 states surveyed only nine showed any improvement in the rate of stunted, wasted and underweight children (Paul et al., 2019).

To better understand the magnitude of the reliance on remittances within the Indian economy, it is worth mentioning a few facts about the Indian migration phenomena. The predominant stream of migration within India has traditionally involved rural-to-rural migration of labour (Census of India, 2001). However, the low income earned in agricultural jobs, and the urban-centric nature of recent economic growth have both led to significant increases in rural to urban migration. During the years 2007 and 2008, total migration to urban areas grew at the rate of 3.5% while for the same period the rural-to-rural migration increased by 2.6% (National Sample Survey, 2010). Another feature of migration in India is its seasonal nature, which represents a significant bulk of migratory movements. Keshri and Bhagat (2012) computed -using National Sample Survey data- that temporary migration is a phenomenon that involves approximately 13 million people each year, although informal estimates suggest that temporary migration may be between 3 and 7 times more (Breman, 2010).

Migration -whether seasonal, long-term, domestic or international- invariably translates into remittances

The available literature on migration and remittances is rather rich; ‘Migration and remittances Factbook 2016’ by Ratha et al. (2016) is a useful starting point on this issue.

This paper looks at the nexus between remittances from migrant workers and the food consumption patterns of households in India. The household level data used here come from two rounds of the ‘India Human Development Survey’ (IHDS), collected in 2005 and 2011–12. The nutritional related indicators used are the (logarithm of the) food expenditure, household dietary diversity score (HDDS) and two indicators of food concentration, namely the Shannon Index and the Simpson Index. The HDDS -which indicates the sum of a number of food groups consumed over a given reference period- has been widely used in studies looking at household access to food (Swindale and Bilinsky, 2006). The other two indicators are originally used in ecological economics to give a standardised measure of abundance (Shannon index) and evenness (Simpson index) of the species present and could be used in nutrition related studies to indicate how rich and diversified a diet is (see for example Nguyen and Winters, 2011).

The results of the analysis presented here indicate that remittances do increase expenditure on food and dietary diversity among the recipients. While these results are statistically significant and robust across different model specifications, the marginal effects are not large enough to suggest that remittances can solve the chronic undernutrition and dietary deficiencies that are largely experienced by Indian residents. The results also suggest that household receiving remittances are spending more on protein rich food such as meats, eggs and pulses, and less on cereals (inferior good).

The rest of the paper is organised as it follows. Next section will give the readers a background on the remittances-nutrition nexus. The description of the data used, the estimation strategy and a statistical summary of the data will be presented in section 3. The main body of the results is in section 4; the concluding remarks and the policy implications of this paper are in the final section.

Migration is a common trait of several developing countries; the International Organisation for Migration has estimated that 272 million people migrated in 2019 (United Nations, 2019). The majority of those migrating are originally from countries and areas where prospects for works are low; remittances-associated to both domestic and international migration- do represent a non-negligible source of income for those members staying behind (Williams et al, 2020). Migration and -hence- remittances have become a key component in the livelihood strategies of an increasing number of households living in developing areas, with large numbers of people seeking better earning opportunities in richer countries or in more developed areas within their own country (Zezza et al., 2011). Global remittances have grown steadily over the past several years, to a point where the total remittances in 2003 were the second biggest capital flow into developing countries after the foreign direct investment (Ratha et al., 2010). Such an increase in the size of remittances has been driven by a dramatic rise of international and rural-to-urban migration, and they are seen as an important feature in reducing poverty and increasing the standard of living of those left behind.

Remittances have an impact on the economic growth of the recipient country and on poverty reduction. At a micro-level, remittances offer an extra income which help with routine household-related expenses (education, health, consumables for the household) as well as financial means for business activities (for a review of the impacts of remittances on development indicators see Ebadi et al (2020)). Recognising the importance remittances play, the Bill and Melinda Gates Foundation recommended that the G20 countries improve the ease of remitting funds back home to improve the health and nutrition of those who stayed in the country of origin (Gates, 2011).

Based on the neo-classical microeconomic theory, it is likely that remittances affect nutrition through their effect on total household available income (Thow et al., 2016). Remittances increase access to food purchased hence helping the consumption smoothing effect via reducing the vulnerability of households to crises. Thow et al. (2016) reviewed 20 studies to find support on the positive link between remittances and nutrition. However, remittances are not intended to be a long-term source of income, which explains the lack of effect that remittances have on stunting - indicator of longer-term chronic undernourishment. It has been observed that it is not always the poorest strata of the population who migrate, and -as a result- remittances may not generate substantial long-term gains in reducing undernutrition at the nationwide level. Lastly, income coming from remittances may be directed by the remitter for specific uses and as it is not a consistent source of income- it may be used differently to other sources of income (Tolstokorova, 2012).

Discussions on the nutritional impacts of remittances focussed on the international more than on internal/domestic remittances (Choithani, 2016). The flow of international remittance to developing countries have increased three-fold from 1995 to 2014 (from 159 to 436 billion USD), and in 2015 the current levels of remittances received by developing countries was nearly three times as much as their receipts of official development assistance (World Bank 2015).

Citing all the studies on the link between international remittances and nutrition would be a long exercise; the evidence coming from studies published in the last thirty years agree on the existence of a positive nexus. The remittances-food indicator nexus has been relatively understudied in India, despite the high number of people migrating and the low-level of food security. Choitani (2017), using primary survey data from 392 rural Indian households in Western Bihar in India, finds that internal remittances contributed to 30% of the overall household expenditure and that migrants’ remittances had a positive impact on food security. This evidence is corroborated by the study by Rahman (2020) who investigates the effect of non-farm income -including remittances- in ‘ensuring access to food in India during the time during which cultivation has not been remunerative enough’, and finds that remittances do have a positive impact on several food security indicators.

Moving away from India, the evidence in favour of a positive link is (almost) overwhelming. Adams (1991) found that in rural Egypt, the number of poor households declines by 10% when household income includes international remittances, and that remittances account for 15% of total income of less wealthy households. Jongwanich (2007) examined the impact of workers’ remittances on growth and poverty reduction in developing Asia-Pacific countries using panel data over the period 1993–2003. The result showed that, while remittances do have a significant impact on poverty reduction through increasing income, smoothing consumption, and easing capital constraints of the poor, they have only a marginal impact on growth operating through domestic investment and human capital development. The evidence continues with the study presented by Lachaud (1999), who looked at remittances to Burkina Faso in 1994–1995 and found that they went mostly to rural households headed by farmers or inactive people. Remittances were measured to have rural poverty reduced by 7.2% and urban poverty by 3.2%. A similar finding was found in Lesotho, where Leliveld (1997) concluded that remittances play a very important role in giving households the means to achieve the least minimum food requirements. de Brauw (2011) found that in El Salvador during the food price shocks of 2007–08, young children in households with access to international remittances witnessed an improvement of their nutritional status compared to those of children in households not receiving remittances. A positive relationship between international remittances and nutritional -related indicators was found in Ghana (Quartey and Blankson, 2004), rural Mali (Generoso, 2015), Bangladesh (Regmi & Paudel, 2016, 2017) and Guatemala (Carletto et al., 2011).

The nexus between domestic migration and the effects that remittances may have on the nutrition related indicators of those staying at home has been less researched (Choithani, 2016). The link between domestic migrants and their family is even stronger, with migrants making periodic visits to places of origin, maintaining close relations with family, and sending home remittances that are crucial for the food security of members at places of origin (de Haan, 2002). Available evidence on the significance of domestic remittances suggests the same. For instance, a study by Castaldo et al. (2012) found that in India and Ghana internal migrants and domestic remittances outnumbered international migrants and their total receipts, with potentially significant human development impacts. For India alone, in 2007–08 internal remittances amounted to US$10 billion, and 30 per cent of all household expenditure was financed by these transfers among remittance-receiving households (estimated at 10 per cent of all rural households in India) (Tumbe, 2011). Systematic research on the direct role of remittances in influencing rural households’ food consumption patterns is scarce, however.

This paper aims at providing more insights on the sign and size of the link between domestic remittances-nutritional status; as the next section explains, it does so by investigating how remittances contributed to the nutritional status of rural Indians in 2005 and 2011–12.

The data used in the paper comes from two rounds of the India Human Development Survey (IHDS), a nationally representative panel survey consisting of 42,152 households in 2011–12 and 41,554 households in 2005 collected from 1,503 villages and 971 urban neighbourhoods across India. The household survey covers a range of questions relating to economic activity, income, remittances, food consumption, migration, education, and health.

Four measures related to the household food consumption patterns will be used for the analysis -the amount of household expenditure for food (in logarithm), the HDDS, the Simpson index and Shannon index.

Food expenditure is the sum of the household expenditure for food in the recall period which for the two rounds of surveys amount to a month. The HDDS measures the number of food groups consumed by the household in the recall period. Different food groups provide various macro/micronutrients, hence a more diverse diet ensures proper nutrients intake (Kennedy et al., 2011). The HDDS indicator here takes value from 0 to 10 according to whether the household has consumed any food in the following ten groups: cereals, meat, vegetables, fruits, eggs, pulses, milk and milk products, oils and fats, sugar and miscellaneous.

The Simpson Index can be measured as it follows: (1) Simpson Index=1−∑iwi2 Simpson\;Index = 1 - \sum\nolimits_i {{{\left( {{w_i}} \right)}^2}} where w_i indicates the expenditure share for food group i. The Simpson index ranges between 0 -indicating a diet with no diversification (all the budget spent on the same food group)- and 1 - more diversified diet (budget equally spent on several food groups).

The Shannon index, measures the concentration of food groups and it is measured in the following way: (2) Shannon Index=∑iwilogwi Shannon\;Index = \sum\nolimits_i {{w_i}{\rm{\;log\;}}\left( {{w_i}} \right)} where w_i still indicates the expenditure share for food group i; the index takes values from 0 to the value of the log of the highest number of food groups. In the sample considered here, the Shannon index could vary between 0 and a maximum of 2.15 (2.25) in 2005 (2011–12).

Based on the information available on remittances we have classified two types of households; household who received remittances and household who did not. An estimated 4.95% of household in 2005 and 13.93% of household in 2011–12 received remittances. Table 1 reports summary statistics on the variables used in this paper; the statistics are disaggregated by the year of the survey and by households receiving (non-receiving) remittances.

The average food expenditure, yearly income (before remittances) and other consumption expenditure is lower for the household who receive remittances. Households with remittances live in a smaller size household, have lower level of education for male, are less likely to live in urban areas, have more rooms in their house, and are more likely to own land. The average remittance amounts to Rs 33,561 in 2005 and Rs 48,323 in 2011–12 (equivalent to 1,390 USD and 1,214 USD in April 2022). There are (almost) no difference in terms of the HDDS, Shannon and the Simpson index between those households (non) receiving remittances; while the Simpson index does not show an increase over time, the Shannon index does marginally increase across the two waves.

The IV and fixed effect model results for the impact of remittances on food expenditure are shown in Table 2 and 7 (Column 1) in the Appendix. Both models show that remittances have positive impact on total food expenditure. In addition, the analysis was extended to examine the impact of remittances on the expenditure on various food groups.

Using the IV approach in Table 2, it is found that one percent increase in the amount of remittances sent back home increases the expenditure on food by 0.67 percent. The estimated elasticity is consistent with recent literature in India

In a similar study, Rahman & Mishra (2020) found the income (from remittance) elasticity of food demand was 0.53.

The impact of remittances on food diversity is further explored using three indicators: HDDS, Simpson Index and Shannon Index. The results are shown in Table 3. In Column 1, the Poisson regression model using the 2SLS (see Rashid, Smith and Rahman, 2011 for the empirical specification for dietary diversity) is estimated to measure the impact of remittances on HDDS. It is found that a percent increase in remittances increases the HDDS by 0.473 unit, significant at 5 percent. To understand the magnitude of this effect, at the population mean of 7.26 food groups, a percent increase in the remittances would increase the dietary diversity score to 7.73 food groups (an increase of 6.3 percent). The results in Column 2 show that remittances are positively associated with Shannon index. A percent increase in remittances increase the Simpson index by 0.045 unit (which represents a 6 percent increase in the index at mean) and Shannon index by 0.312 units (which represents 15 percent increase in the index at mean).

The results of the fixed effect analysis - Table 7, Column 2–4 in the Appendix- shows similar pattern; however, the coefficient stemming from the IV estimates are larger than the fixed effect model suggesting that the fixed effect model would underestimate the true effect remittances have on food expenditure and diversity.

To check the robustness of our result, a Propensity Score Matching method is estimated to measure the average treatment effect of remittances on food expenditure and diversity in 2005 and 2011–12 (Rosenbaum and Rubin, 1984). The results associated to this model specification are in Table 4. Results shows that households which received remittances increased their expenditure on food by 8.4 percent in 2012 and 6.8 percent in 2005; HDDS score by 0.193 unit in 2012 and 0.234 unit in 2005. However, no effect was found on Shannon and Simpson index. The marginal effects associated to this specification are consistent with the main results previously discussed and the existing literature on the nexus between remittances and food consumption patterns. For instance, in their research on Indonesia, Adams and Cuecuecha (2013) found that households receiving remittances increase their expenditures on food by 8.5 percent (see Zezza et al., 2011, for a comprehensive summary of the studies on the remittances-food consumption nexus).

India has witnessed a remarkable transformation of its economy in the past two decades: economic growth, declining overall poverty, expanding seasonal and permanent migration and change in the food consumption patterns. It is within this scenario that we examine the nexus between remittances and food consumption patterns (food expenditure, HDDS, Shannon and Simpson index).

Using household level data from two rounds of the IHDS for 2005 and 2011–12 and using conflict among caste in the respondent's region and educational status of the father of the head of the household as our instrumental variable for remittance and income, we find that remittances positively affect expenditure on food and improve diversity of food, as results on the HDDS, Shannon, and Simpson index show.

In the context of India, these findings can be explained by looking at the following channels. First, an increase in the disposable income via remittances eases budget constraints and enhances the household to spend more on diversifying food and less on inferior food (e.g. cereals); second, along with remittances, migrants may also bring knowledge of health and nutrition which can improve food diversity; lastly, in the absence of the male head of the household (approximately 80% of the migrants are the male head of the household), female may spend more on food and less for entertainment (Quisumbing and McClafferty, 2006). Those results may not hold when external circumstances manifest which may affect the availability of food i.e. drought, flooding and other shocks of the kind.

This paper has several policy implications. Due to better economic opportunities in urban areas (in India, but not only there), there is an increase in the migration from rural to urban areas. This has made remittances an important source of income for the household's member who are left behind. Thus, there is a need for improving this channel by reducing the transaction cost of these remittances and providing resources for migration to the places of opportunities.

Food, nutrition and dietary diversification constitute complex issues and it is crucial that governments now start looking and thinking beyond the simple food production (quantity) to the quality and diversity of nutrition. The result from this paper suggests that there is a need for recognising the role that remittances play in affecting the food consumption patterns. We also acknowledge the fact that remittances are no silver bullet and any intervention for supporting remittances should also aim to fix the root cause of food insecurity in the first place.

As this paper and the relevant literature on the remittance-food pattern shows, remittances do influence the household food consumption patterns and have a positive impact on its dietary diversity; it is important to keep in mind that migration of (male) household member increases the livelihood burden on those members who are left behind -especially women. This could negatively impact the growth of those children in the household by reducing the available time and the quality of childcare. Policymakers and development practitioners need to further investigate on this possible link and strengthen the available safety nets (improving access to education, health care, credit market, labour markets, etc) in those regions with higher rates of migration.