Rescuing rupee: How NRIs can play a positive role

Here are some thoughts on what the Indian government can do to induce NRIs further to remit and invest more in their home country

So we have one more day when the Indian rupee was against the wall and had to succumb to the level of 64 against the US dollar. The bears apparently took a breather and did not pursue the kill. Maybe, they are planning for one on Friday for an outright onslaught.


The estimate of non-resident Indians (NRIs) - all categories - has widely varied from 30 to 40 million now. For the purpose of this article, let us take it at the lower rate of 30 million residing abroad in various categories.  The largest concentration is in the Middle East, estimated at 20 million plus.  The second lot, said to be in the Far East (mostly in Malaysia, Singapore, Indonesia) are about seven and 10 million; US has three million, UK at two million and rest of the world five million.  On second thoughts, it should really be more than 30 million because we left out the whole of Africa, Latin America, China, Europe, Eastern block and Australia, New Zealand, as these should account for a few million more.


Anyway, the point at stake is that except for the Middle East where permanent residency has too many conditions to comply, other areas offer wide scope and opportunities for permanent stay leading to citizenship also.


By categorizing all these people as NRIs, we clear the slate and take it for granted that all these people have reasons to remit part of their earnings back to India on a regular basis.


And how do they remit?  A large percentage of them, say about 70%, remit the funds back to India through normal banking channels, thanks to the setting up of branches of Indian banks in most of the countries where there is a growing Indian population.  The balance may be said to be using non-banking channels, such as the ‘hawala’ route. This is debateable as only guestimates can be made in the dark and no reliable information is available, unless we have some information from the government agencies.


The purpose of remittance covers, generally, the following activities:


a) To meet the cost of maintenance expense of the family left behind by the NRI who has left (say) on a job overseas.  Initial remittances cover his/ her travel costs, visa charges, agent fees and other money borrowed for the purpose of travel. In addition, this expense may cover several months of earnings by the individual concerned.


b) Subsequent remittances may be to truly meet family expenses, on a regular basis, to cover cost of education of children, purchase of essential household items and medical expenses. It must be remembered that getting the family members to join has too many hurdles in the Middle East and similar immigration formalities in other countries too.


c) Once settled (2/3 years from departure date) the NRI may return to meet the family and then plan repairs to the family home (if any) and or plan a purchase of land, flat so as to ‘acquire’ a personal property.


d) It is by this time, NRI gains the knowledge to ‘save’ and ‘invest’ in a little more systematic way as the previous year’s earnings were mostly directed to settle loans and other obligations created as a prelude to getting the job abroad.


e) The educated class of NRIs and some others become enlightened to open non-resident external (NRE) rupee accounts have foreign currency deposits (FCNRs) and also take the much needed insurance cover for the family.


f) Those NRIs who manage to get into western countries, such as USA, UK, Europe and eastern group like Singapore, Malaysia and Australia consider themselves as lucky because the immigration policies open up the prospects for permanent settlement, more often than not leading to citizenship.


g) With the government of India relaxing the rules and making dual citizenship procedure reasonably easy, it makes life a lot more easier for NRIs to target the countries of their choice locations.


The remittance from NRIs is substantial and is said to exceed $20 billion every year. Most of them, particularly those settled in the US and UK are very well to do, and have huge business interests abroad running into billions of dollars. These people of Indian origin, holding the nationality of the adopted countries have also returned to India to invest and the government offers them a wide range of benefits and special consideration to welcome their investments into the country.


Now, what can the government do to induce them further to remit more and invest more in the country?  Here are some thoughts for the government to seriously consider…


a) Offer Indian Sovereign NRI Bonds, valid for 5 years, at a flat rate of say 9%, payable in rupees, freely transferable at maturity; this may be extendable, by the beneficiary, for two more terms at an additional bonus of 1% for the entire duration


b) At the time of maturity, if the account holder (NRI) decides to accept the Rupee in non-convertible account, give an additional 1% to 3% interest, permitting the use of the total amount in specified areas of investment, such as setting up production, infrastructure facilities, educational institutions and other areas that the government may nominate at that time


c) The interest earned on these bonds can be reinvested in treasury bonds for a minimum of three year period, after which, the whole amount can be repatriated and not subject to any tax


d) The face value of these Bonds will be in multiples of $1,000 or £1,000 and freely transferable to members of the same family - resident or non-resident - but need to be pre-identified at the time of initial purchase


e) The government may also relax the rules pertaining to investment by NRIs holding dual citizenship in areas of agriculture i.e. purchasing, owning farmland and actually involved in farm production, against the current policy that prevents purchase


Instead of procrastinating the issue of Sovereign Bonds, the Indian government must go ahead and bring this out immediately, preferably well in time before Diwali so that NRIs can take the opportunity to subscribe.  In fact, this can be a regular annual feature to ensure that additional funds come into the country. 


(AK Ramdas has worked with the Engineering Export Promotion Council under the Ministry of Commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)



Shadi Katyal

4 years ago

The GOI has never liked NRI and comes out when in trouble? Shy should an NRI who is not even welcomed but treated shabbily on arrival to visit parents and family should;d help?
India could have learn long ago how China used her ex patriots who gave the seed money to start industry but we paid taxes in early days as the money sent to parents was treated as gift.
Why are there still restrictions on investments in any industry?
Why do NRI has to bribe babus?
India has a long way go go to learn how to welcome and show some respect to NRI and not play the game being played for past 6 decades.
There is no security that your investments will not be taxed retroactively like done in Vidofone case.

Vinay Joshi

4 years ago

Dear Mr.A.K Ramdas,

You have not answered me in your first post! Possibly no answers!

FYI, RBI has set a cap on FCNR[B] to LIBOR/SWAP+ 400bps. Update yourself.

NRI's are well versed than what is thought, i'm not talking of labourers.

It is evident you are not following the macroeconomic policies of the Govt.

Why are you talking on bourses aspects in this post of yours w/o answering my earlier. You can't answer! as simple.

In your own quest, i'm asking you what should S.Africa, Brazil, Indonesia, even S.Korea do to strengthen their respective currencies? Leaving Russia aside.

As per my last post to you, YOU have not, can't, answer volatility in world currencies.

Propping up the FX rate can't last for ever.

When investors pulling out from emerging markets, so much from other countries also due to their own concerns & Fed looming large, nothing can be stated.

There can be 'n' no. of theories which may surface, fact remains strong reserves & economy can only sustain the currency turmoil. WHY PRC not affected? In spite of slowdown!?

FYI, Jim O'Neil, the person who coined the word 'BRIC', has stated that India will teach the pessimists a lesson. [this i've said in this forum many times.]


nagesh kini

4 years ago

As one practicing FERA/FEMA for long advising NRIs, i tend to agree with Mr. Ramdas whose suggestions are more sensible for the MOF babus or Mint Road mandarins.
With another NRI Raghuram Rajan now set to occupy the hot seat of the RBI governor it is fondly hoped that conditions will improve and such suggestions will be considered.
I totally disagree with the comments made on the state of Indian economy and politicians.
Those in the USA have not long ago witnessed the failures of Banks big and small across the US continent following the sub-prime crisis and how the US govt. had to bail them out.
Fortunately today the Indian banking system is quite robust with an underlying sovereign guarantee.
The conditions in the Middle East and the Western world are no longer as lucrative - many Indians have come to realize that east or west, home is best.The term NRI bears a new nomenclature of NOW RETURNING Indians, from the once snooty NOT REQUIRED/RELIABLE Indian that they earlier flaunted!

sanjeev naik

4 years ago

No way, we dont want to play any role in this mess. until last 3 month i was regularly sending money to India but now seeing that the money in India is depreciated, i would rather keep it with me in dollor terms. or may sell equivalent dollars in futures to hedge the risk.. the Sins of these politicians will soon take rupee to 100 also which means further losses for me.. and in return what we get abroad is some arrogant IFS babus mistreatment in the Indian embassies and consulates and begging(and sometimes blackmailing)customs officers upon arrival.. why to believe the fake and a story which takes place only when there are accidents...



In Reply to sanjeev naik 4 years ago

Agreed - this whole ethnic appeal to fellow Indians is just crony capitalism taken to greater lengths. Hoping to milk or sucker Indians overseas into bailing out the corrupt kleptocracy is disgusting. And then these same crooks take out full-page ads in Indian newspapers: "Dear NRIs, stop meddling in our country" - it really makes me want to spit on the ruling class and their cronies.

Vinayak Bhimarao Mudholkar

4 years ago

Enjoy NRI at the cost of resident Indians !!!....Our entire export has been bailed out by depriciting rupee. Why can't we aim at quality oriented export instead of depending upon labour arbitrage?....Why can't we have Indian Google, Microsoft, Apple or likes of them in many fields?

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