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NRI investment and FDI contributing to Rupee appreciation
Thursday, September 11, 2008

Indian economy is among the fastest growing economies of the world. The appreciation of rupee against dollar has been a huge addition to its economic prosperity and growth story. The rupee appreciated by 9.8% against the US dollar during the previous financial year between April 3, 2007 to January 16 2008. The major reason for this has been a flood of foreign-exchange inflows, especially US dollars. The surge of capital inflows into India ranges from foreign direct investment (FDI) to remittances by Indian expatriates.

India's starring economic growth has created a large domestic market that offers promising opportunities for foreign companies therefore increasing the FDI inflow. Moreover many companies rising competitiveness in many sectors has made it an attractive export base. India's booming stock market embodies the confidence of the investors in the country's corporate sector. Foreign portfolio inflows have played a key role in fuming this boom. Looking at the period of 2003-04 and 2006-07, the net annual inflow of funds by foreign institutional investors averaged US $ 8.1bn. Trends during first five months of 2007 indicate that this flood is continuing with net FII inflows amounting to US $4.6 bn. FII equity flow has increased from $9.8 billion in 2004, $ 11 billion in 2005 to over 16 billion in 2007.

Non-resident Indians (NRI's) investing large amounts in special bank accounts. While NRI's emotional connection to the country of origin is part of explanation to this, the attractive interest rate offered on such deposits also provide a powerful incentive. In 2006-07 NRI deposits amounted to US$ 3.8 bn. another large source of foreign exchange inflows has been remittances from huge number of Indians working overseas temporarily. Such remittances amounted to a colossal of US $ 19.6 bn in April-December 2006, a 15% year on year increase thus contributing to economic growth.

 

 

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