Do Remittances from Urban Informal Sector Migrants Reduce Rural Poverty More Effectively than Direct Government Transfers? Evidence from India

Abstract

This paper attempts to analyse whether remittances from the migrant workers in the urban informal sector in India have a greater poverty alleviation effect than direct government transfers to the rural poor. Multiple sources of income are common among rural households in India, such as remittance income from migrants and public welfare programmes, but their availability, predictability and efficacy at improving household welfare vary. Drawing upon empirical evidence from India, the study assesses the poverty alleviation impact of remittance income against the direct government transfer and focuses on household consumption, income security and economic shocks. The paper suggests that remittances can offer a relatively flexible and responsive type of financial support, especially if there is a strong economic relationship between migrants and the households they support in the villages. But their impact could differ depending on migration patterns, the nature of the households, work arrangements, and stable of migrants' income. Direct transfers from the government may be more effective in offering a wide and more institutionalised safety net, particularly to households without migrant members, despite potential targeting, adequacy and implementation limitations. This study draws attention to the complementary nature between migration and social protection to reduce rural poverty by comparing both income supports. The results add to the ongoing discussion regarding the role migrant financial links play in India's overall policy framework and the extent to which this should be enhanced or expanded, or whether policies should focus on direct transfers or on both direct and migrant financial transfers to stimulate more inclusive and sustainable rural poverty reduction in India.