Rupee depreciation leads to higher NRI remittances in the country

24 September, 2012

Depreciation of rupee may be a cause of concern for the government and the importers, however, for the people in places like Kerala and other states the depreciation has proved a blessing in disguise with increase in the remittances, which they receive from their dear ones living in places like UAE, Dubai and in other foreign countries.

ACCORDING TO a study report, a sharp decline in the rupee value in the last one year resulted in a surge in the NRI remittances in the 2011-12 fiscal and going forward, these inflows will only improve in the current financial year.

The rupee depreciation, to the extent of about 25 per cent in the last one year, has had a positive impact on the remittances by the non-resident Indians (NRIs), making up more than the negative impact that could have been seen on these inflows because of severe slowdown in the western economies, the study by industry body Assocham said.

India received US dollar 66 billion in the FY 2011-12 on account of remittances by Indians abroad, showing a surge of 19 per cent over the inflows in 2010-11. Going forward, even though the rupee may not see as much depreciation as it did in the last 12 months, the remittances would remain robust and may well cross US dollar 75 billion in 2012-13.

There are two reasons why the NRIs would continue to send funds back home. One, expensive dollar results in better yields for them when the foreign currency gets translated into the Indian currency and second, the liquidity in the western markets is likely to improve. This, in turn, would find way into India as well, also through the remittances route along with the foreign institutional investors, report says.

Commenting on the issue, Assocham's President Rajkumar N Dhoot said: “A robust repatriation of money by the Indians abroad proves a great support for India’s current account deficit, which otherwise remains a matter of concern in view of continuous and worrisome deceleration in exports of merchandise goods”.

The current account deficit in the fiscal 2012-13 is projected to be 3.6-3.7 per cent of the Gross Domestic Product. India received NRI remittances of US dollar 56 billion in 2010-11 and US dollar 54 billion in the fiscal 2009-10.

According to RBI data, North America, the Gulf countries and Europe are the major sources of the repatriation of money from Indians abroad. Though there is a big chunk of emigrants in the Gulf countries, the funds from North America, including Canada, are greater because of different profiles and income level of Indians employed and engaged in these regions.

Assocham’s optimism in terms of better NRI receipts also stems from the fact when the going gets tough in the developed economies, the Indians there tend to save more and would like to park their surpluses in their home country.

However, the remittances from Europe are very likely to come under pressure as the wage levels and the rate of unemployment increases in the troubled area, especially in the Eurozone, except Germany.

The situation in North America would not change much, except that Indians would tend to save more while in the Gulf the demand for Indian labour force would remain stable.