Sunday, 1 February 2009

Rise in NRI remittances to India

Despite economic recession, Indians working abroad had sent a record $40 billion as remittances to India in just 9 months of calendar year 2008. As the last quarter is a festival period, the total remittances for the year may even exceed $50 billion. This would be way ahead of World Bank’s prediction of $30 billion for India in 2008.

In 2007, with $27 billion as remittances, India was placed as the number one recipient of inward remittances globally by World Bank, with China in close second ($25.7 billion). And the story would be no different this year as well.

Inward remittances (unlike FII) are considered ‘sticky’ as this money is sent to India primarily for savings and family spending, and hence would remain in the economy. Thus it plays a major part in boosting the economy, in particular, during the ongoing recession. Hence, as a policy measure, government is also promoting NRI remittances through higher interest rates on NRI deposits. This could offset the FII outflow to some extent and thus could reduce the dependence of the economy on FII money.

Even though the recession is progressing, remittances had not/may not fall due to the following reasons.

1. The fear of job loss forces people to save more, especially in the safer Indian financial markets
2. Rise in rupee dollar exchange rate would fetch more rupee than ever when transferred to India
3. Rise in interest rates of FCNR and NRE deposits

More details here.

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- Online money transfer to India for NRIs

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