Do the Farm Households Spend Their Remittances for Agricultural Investment? Empirical Evidence from India

Decline in farm income due to agro-climatic shocks often induces farm households to send migrants expecting remittances from the migrated household members. While non-agricultural avenues for spending remittances are well documented in the literature, very little is known about the impact of remittances on agricultural expenditure. In this context, our present study uses two rounds of household data from the India Human Development Survey to estimate the impact of remittances on farm households’ agricultural spending while considering other avenues of spending as well. Employing Heckman-selection combined with Seemingly Unrelated Regression (SUR) model, we find that remittances significantly increase farm households’ agricultural spending. However, our heterogeneity analysis shows this effect is primarily driven by those households who do not have access to the Kisan Credit Card (KCC). Moreover, households with prior experience of droughts are less likely to spend remittances for agricultural purposes compared to those without such experience. Also, significant impact of remittances on agricultural activities is observed mostly among small landholders. Nevertheless, remittances are treated as a transitory income resulting in an increase in productive non-agricultural investments as well.