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Redemption of the special three-year FCNR (foreign currency non-resident) deposits mopped up in the September-November 2013 period has resulted in Non-Resident Indian (NRI) deposits plummeting $15.16 billion in the first nine months of the current financial year.
In sharp contrast, there was a robust accumulation of $11.664 billion in these deposits in the same period a year ago.
US factors
Bankers and economists see deposit inflows from overseas Indians getting further affected due to the imminent hike in interest rates in the US and the Trump administration’s ‘hire American’ policy, which is expected to slam the brakes on movement of temporary Indian IT workers.
Also, lower oil prices and Saudi Arabia’s labour localisation programme, which seeks to increase the number of Saudi nationals employed in the private sector, are expected to dampen remittances from the Middle-East.
As at December-end 2016, outstanding NRI deposits, comprising FCNR deposits, Non-Resident (External) Rupee Account (NRE Account), and Non-Resident Ordinary Rupee Account (NRO Account), with the banking system were lower, at $109.735 billion, as against $122.636 billion at the end of December 2015.
“The fall in overall NRI deposits is mainly because of the FCNR redemption (of about $25 billion), which took place in the September-November period,” said Madan Sabnavis, Chief Economist, CARE Ratings.
“Ideally, one could say that there won’t be more than $10-15 billion (of NRI deposits) coming in. And this could also slow down. ... Today when you are talking in terms of jobs being scarce, there may not be commensurate earnings for people to actually put money in the deposits.”
Underscoring that foreign portfolio investors (FPIs) are generally moving out of the emerging markets on expectations of US interest rates moving up, Sabnavis felt that NRIs could also follow suit.
Better returns overseas
“For NRIs, I think, the problem now will be that if interest rates go up outside, there could be less incentive for them to park money in India. They may prefer to save in the US after considering all the pros and cons,” he said.
The World Bank has estimated that in 2016 India would have received remittances amounting to about $65.5 billion, a drop of 5 per cent over the previous year.
It said the global growth of remittances to developing countries is projected to remain modest at about 3.5 per cent over the next two years.
India mainly receives remittances from the UAE, US, UK, Saudi Arabia, Kuwait and Qatar.
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