Sharp dip in Indian rupee sparks NRI remittance surge

A significant depreciation of the Indian rupee over the past decade has substantially increased the remittance power of non-resident Indians across the world, in particular the GCC and the US, leading to a remarkable jump in inward remittance to the third-largest Asian economy.

The value of the rupee against the US dollar has decreased from nearly Rs60 to around Rs83.31 over the last decade, leading to a corresponding decline in value against the dirham, which is pegged to the greenback.

The 10-year depreciation represents a decline of 27.8 per cent over a ten-year period, which is less than a 3.0 per cent fall on an annualised basis.

The rupee had fallen to its lifetime low of 83.42 against the dollar on November 10, 2023.

On April 5, the Indian currency edged three paise lower to hit its all-time low of 22.727 against the dirham (83.41 against the dollar) in early trade, tracking higher demand for the American currency from importers. Forex traders said investors are awaiting cues from the Reserve Bank of India's monetary policy outcome.

The sharp consistent dip in the rupee's value has sparked the highest amount of remittance inflows to India in 2023 at $125 billion. Other factors driving the surge include India's agreement with the UAE for promoting the use of dirhams and rupees for bilateral trade, according to the World Bank. In a report, the World Bank further said growth in remittances in India is expected to halve to 12.4 per cent in 2023 from a historic peak of 24.4 per cent in 2022. In 10 years, India’s foreign exchange reserves increased from $304 billion to $645 billion — an increase of 112.2 per cent and an annualised increase of 12 per cent. On April 5, the country's forex reserves jumped $2.98 billion to hit a fresh peak of $648.56 billion, Reserve Bank of India data shows.

The remittance outlook for India for 2024 is strong. With unemployment rates edging up marginally in the United States and the United Kingdom and declining in Singapore, remittance flows from India’s highly skilled migrants should be sustained in 2024, barring further fragmentation of commodity markets and geopolitical tensions spawning new global shocks, according to the World Bank. The use of dirhams and rupees in cross-border transactions would be instrumental in channelling more remittances through formal channels, it added.

Currency analysts said the rupee slide can benefit NRIs in a number of ways, depending on their income and budget. NRIs should pay close attention to the channels through which they execute their investments in order to maximise monetary benefits. The lower income groups of NRIs can invest in bank fixed deposits while higher income groups can invest in many schemes offered by banks and wealth management companies. Such facilities enable them to invest in stocks, mutual funds etc. Real estate is also a profitable option when the rupee is depreciating.

They said causes of the sharp rupee fall include the ongoing global geopolitical tensions, the rise in oil prices, a lack of food imports, and the subsequent rise in inflation.

For an NRI, there are opportunities to capitalise on in his home country while investing in assets or spending in Indian currency value in a foreign land may turn more expensive, experts said. “If you are an NRI investing in India, then with the depreciation in the value of the Indian currency, every dollar repatriated home by you is worth so much more. Historically, a reduction in the value of the rupee has resulted in an increase in NRI remittances from nations such as the United States, the UAE, the UK, and a few Asian countries. Because of the growing value of the dollar, investment in India has become significantly more lucrative.”

According to currency experts, when the rupee is falling in value, real estate is a good investment. Real estate has been the most favoured asset by NRIs, especially by those in the Gulf who plan to return to their home country post-retirement. With the depreciation of the rupee, NRIs with existing home loans in India can now pay off higher values on loans at the same value of EMIs as before.

However, income accrual taxation and inflation are the two main factors that erode an NRI’s savings. “While inflation cannot be controlled, the right portfolio allocation can assist in mitigating risks. Furthermore, the efficient management of investments can contribute to lower tax payments and higher savings,” they said.

The major drop in the rupee's value occurred in 2013, when it fell from 54.59 to 60.14 after the 'taper tantrums' as markets reacted sharply to the US Fed's decision to 'taper off' its liquidity support to markets introduced during the financial crisis. Usually, after such a sharp correction, the rupee remains stable for a long period, as the sudden drop in its value reduces imports and attracts more foreign capital

Forex dealers caution that merely comparing the rupee-dollar rate is not enough to determine the strength of the currency. This is because the dollar has appreciated against all major currencies.

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