The global economic slowdown has not deterred Indians living abroad from remitting funds back home. In fact, official figures indicate that NRIs are sending even higher amounts to their families. Remittances by NRIs — as reflected in the private transfers portion of the balance of payments — touched a record high during the July-September quarter at $14.2 billion, up 57% over the same period a year ago. Inflows through this route have grown at over 25% in five years. In 2007-08, annual remittances amounted to $41 billion.
With the US economy slipping into a recession, it was widely feared that remittances too would take a hit. Remittances, unlike NRI deposits, are a permanent component of forex inflows. They are not repatriable and are used by the NRI for local use and for maintenance of his family. Remittances from overseas are directly linked to job migration. The seventies saw a surge in remittances from the Gulf region following large-scale skilled labour migration on account of the booming construction and oil industry. In the late nineties, migration shifted to North America with many IT professionals moving there following the software boom. India today is the largest recipient of remittances, according to latest data from multilateral agencies.
Bankers point that the unofficial option such as the hawala route that was thriving until the early nineties too has been shrinking in terms of value over the last few years due to the banking channels becoming more cost-effective as well as convenient. This would help add to the legal remittance numbers that the banks and exchange companies would report. Of late, liberal outward remittance rules have also attracted more private transfers. Not only is there a surge in pure remittances from the NRIs, locals converting repatriable deposits, treated as private transfer, is also picking up.
According to the latest RBI figures, 41% of the private transfer now comprises local conversion of NRI deposits while 52% of the private transfers is pure remittances. The balance is gold brought through baggage, gift and donations to Indians. A portion of the money is also invested through relatives in real estate and stocks, and the returns can, in turn, be gifted back to the NRI through the overseas remittances route. As Indian markets have relatively been more attractive in certain financial assets such as fixed deposits, banks have been seeing a strong surge in remittance even through the crisis period after September.
Going forward, according to TimesofMoney president Avijit Nanda, remittance as an industry would continue to grow as, from the investment point of view, interest rates in the country are significantly higher than those overseas. Also, a lot of blue-chip Indian stocks are available at excellent valuations. Lastly, for the NRI, sending money to the family will always be a need irrespective of the economic scenario. However, remittances, unlike NRI deposits or the portfolio investment route, are not driven only by return considerations.