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Significant Rise In NRI Remittances
Posted by Pradeep Sadanapalli | October 30, 2007 | 1,090 views
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Loading ...As rupee continues to gain strength against dollar, financial institutions and banks involved in transfer of money from the US to India have observed a significant increase in remittances to India.
Even though top officials of US banking institutions refuse to divulge further details of this trend, said remittances to India in the past three-four months have increased by as high as 20 per cent.
“This is mainly because of the weakening of the dollar against rupee and a relatively high rate of interest by Indian banks,” an official in State Bank of India, New York branch told NDTV.Com.
SBI has been one of the major banking institutions that is being used by NRIs in the US to remit money back home. Among other banking and financial institutions popular among the NRI community include Western Union, ICICI and Money Gram.
“This trend has been growing for the past few months. From investment perspective, some people do view that it is more attractive to convert into rupees,” said an ICICI Bank official.
Comparatively rupees have been gaining against dollar and the real interest rates in India are higher than dollar interest rates.
That India is the world’s leading receiver of remittances from its diaspora abroad is not a surprise anymore; the fact that private transfers from NRIs have outstripped inward remittances by far could be somewhat of an eye-opener for the Indian government.
According to latest data released by the World Bank, Indians working in foreign countries sent back over $25.7bn in 2006, followed by Mexico ($24.7bn), China ($22.5bn), the Philippines ($14.9bn) and Russia ($13.7bn).
A report released recently by the UN International Fund for Agricultural Development, said that in all migrants working in industrialised countries sent home more than $300bn to their families in the year 2006. This is three-times the financial aid from developed countries to the third world countries.
The Reserve Bank of India in its report on remittances early this year had said that North America has replaced Gulf countries as the most important source of remittances. It estimated that 44 per cent of remittances originate in North America, 24 percent in the Gulf region, and 13 per cent in Europe.
According to an RBI survey, about 13 per cent of the funds remitted by Non-Resident Indians (NRIs) in 2006 were invested in equity and real estate. While 20 per cent of the funds are parked in bank deposits, 54 per cent of remittances are used to meet family expenses.
The remittance flows to India rose 25 per cent to $25bn in 2005-06 from $20bn a year earlier. Of this, $13.5bn was used by the migrant’s family to meet requirements of food, education and health, $5bn was deposited in local bank accounts and $3.25bn was used for purchase of shares and property.
Muzaffar Chishti of the Migration Policy Institute, author of “The Phenomenal Rise in Remittances to India: A Closer Look,” has traced how the pattern has been dramatically shifting.
Between 2000-01 and 2005-06 private transfers (when an NRI deposits foreign exchange into a rupee account and then spends it inside India) grew by 88 per cent, more than double the rate of inward remittances (when an NRI wires or sends money to an individual in India, usually a relative). The former exceeded the latter by $ 2.3bn last year.
Chisti sees this as the most striking evidence of the fact that NRIs are seeing the Indian economy as an opportunity. It has two aspects to it. One, is that Indians working in North America have started sending more money home, and the other is that those in the Gulf have are giving more importance to private transfers.
Effective yield
“So it is advantageous for some people to convert dollar and make investment in rupees,” SBI official said, adding that there is no great risk of currency depreciation so the effective yield becomes more attractive.
“Remittances have grown up,” said an official of the Western Union, which caters mostly to the needs of the smaller and individual remittances. With a wide network of its outlets both in India and the US, Western Union captures a major share of this market.
The trend observed by these financial institutions is in tune of the recent reports published by the United Nations and the World Bank. The two reported that India is now the country to receive highest amount of remittances, edging out countries like Mexico and China.
SOURCES:
NDTVProfit.COM
The Peninsula
Topics: Latest Trends, The Facts |
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