RBI’s fillip boost remittances by NRIs.
By R. Chandrasekaran
The Reserve Bank of India’s efforts to lure the non-resident Indians seems to have paid off going by the remittances in 2012. A recent World Bank report indicated that remittances to India reached $69 billion and tops the global list. This is certainly not surprising considering that India remained a top beneficiary in 15 of the 23 past years. For the last five years, it remains the biggest recipient globally.
The remittances to India represented approximately 19 percent over the previous year’s estimated $58 billion remittances. In the year 2011, the growth was about 5.3 percent on approximately $55.06 billion remittances.
The remittances in 2012 to developed countries totaled $401 billion, which was 5.4 percent more than the previous year. Of this, India accounted for $69 billion, thus representing a lion’s share of about 17.2 percent. The next country to get biggest remittances is the largest populated nation China. The country got $60 billion, thus indicating approximately 15 percent of the total remittances.
The increased remittances will undoubtedly help India’s thrust to invite more dollars to help it solve to limit the deteriorating current account deficit, which is one of the factors for threatening to put India on a downgrade by the rating agencies such as S&P and Moody’s.
In 1991, just at the beginning of the economic liberalization after a balance of payment crisis hit the nation badly, the remittances to India was just $2.1 billion and worked out at 0.7 percent of the gross domestic product or GDP. The result of the liberalization policy was very much there in 1995-96 when its remittances reached $8.5 billion and represented 3.22 percent of the GDP. Since then, there has been no stopping except in 2004-05 when the remittances dipped from the previous year. Otherwise, it was a smooth flow and contributed a little over 3 percent of the GDP since 2001-02.
One of the primary reasons for growth in the remittances last year was the de-regulation of interest rates on NRO and NRE accounts in 2010, while banks were looking for deposits from these accounts. This helped NRIs to get better interest rates than the deposits tied up with the London Interbank Offered rate or LIBOR rates.
Kerala is the significant gainer in the remittances since mostly Keralites are sending money to their dependents back home and also invest in real estate, which, in turn, help economic development in the state. Banks from Kerala such as Federal Bank, State Bank of Travancore, and South Indian Bank were the significant gainers as they seemed to have recorded approximately over 30 percent upside in remittances.
The strong US dollar and the weak Rupee has also lured non-resident Indians to send money as they stand to get more money for every single U.S. dollar they remit. Despite global slow-down, Indians living in countries such as the U.S. and the Gulf are continued to remit their hard earned and saved U.S. dollar to India.
Though there was no denying the fact that migrant workers were severely affected by the global economic slow-down, remittances’ volumes were higher as it was an important lifeline for not only the poor families but also a steady and consistent source of foreign currency for many developed countries.
The remittances made by the NRIs are most unlikely to be taken back to their living destination unlike the foreign institutional investors, who invests in capital markets and take money when there is problem back at home. As long as the Rupee is weak, the remittances are likely to see double digit growth in remittances. Even if the Rupee is stronger, India is likely to occupy the slot for top country for remittances though the growth may be in single digit.