Non-resident Indian (NRI) investors will be coaxed to send more money home as foreign portfolio investors exit due to the rupee slide against dollar.
Inward payments are expected to grow in the next few months in India, especially from the Middle East, the US and Southeast Asian countries amid a falling rupee following the recent shifts in the foreign exchange market and India’s external debt crossing the half-trillion mark.
The Indian rupee (INR) hit a record intraday low of INR 69.09 against the dollar recently, leading to an extended loss of over 7 pc this year as Asia’s worst performing currency. Though, it pared some losses to close at INR 68.47, it is expected to drop further to INR 70-71.
“Expatriates are set to begin their vacation in July-August, 2018 coming back to India,” said Krishnan Ramachandran, CEO, Barjeel Geojit, which advises wealthy Indians living overseas. “At this point of time, they would love to have more rupee proceeds per dollar. We are already spotting a trend of increased remittances from the Indian diaspora,” he added.
According to the Reserve Bank of India (RBI) data, net remittances between January and March were at USD 16.4 billion compared with USD 16.2 billion in the corresponding last year.
According to experts, India received record remittances of about USD 70 billion amid a falling rupee trend in 2013. This year, it is expected to cross the earlier mark if the rupee extends its weakening trend.
“If the rupee continues to fall, setting a trend, NRIs will start remitting money back to India,” said KM Chandrasekhar, former cabinet secretary and ex-part time chairman of Federal Bank. “Indians living abroad are now on a watch on how to capture gains from the rupee’s weakening.”
This year, by the end of March, India’s external debt had crossed half a trillion dollars (USD 529 billion), while the gross domestic product (GDP) was 20.5 pc. The foreign currency debt grew by 12.4 pc as compared to the figure at the end of March, 2017.
RBI says this rise can be attributed to increase in borrowings by Indians from overseas markets, deposits of non-resident Indians and rise in commercial borrowings.
The risk factor for the NRIs is the possibility of Indian rupee sliding further at the time of redemption as well as at the time of payment of interest. A weak rupee on maturity could annul the interest rate advantage Indian bonds have over the US. But then the optimistic view is the Indian Rupee has plumbed the lowest, claimed experts.