Net bank deposits by non-resident Indians have fallen by nearly 90% so far this financial year as more and more foreign workers dipped into their bank accounts in the face of a crisis in the Gulf region, industry association ASSOCHAM said.
Net bank deposits — the difference between total deposits and not withdrawals — came in at $434 mln (Rs 2,800 cr) in April to August this year, compared to a net deposit of $3.8 bln in the same period last year.
“While there are various factors responsible for the NRI flows, including the interest rates, but the most plausible at this point of time seems to be economic problems in the Gulf countries, the largest source of NRI remittances, particularly for the low income expatriates,” it said.
“Remittances have been affected for states like Kerala, Uttar Pradesh and Bihar, in particularly which have a large number of its people making living in the Gulf nations.”
ASSOCHAM Secretary General Mr D S Rawat said, “while easing of oil prices by more than half has helped the Indian macro economic by slashing of the import bill, our work force overseas has suffered the collateral damage”.
The NRI deposits, have traditionally been a very stabilising factor on India’s overall balance of payment.
However, this time, it is the inflow of funds into the Indian stock markets and debt from overseas financial players that is helping the country keep up its foreign exchange reserves.
“However, the money from the overseas financial players is hot and the movement can be quite volatile,” the chamber noted, emphasising the Indian human resource for the global markets would undergo a churning in the years to come.
The NRIs can put their money into various categories of bank accounts, such as Foreign Currency Non-Resident or FCNR, Non-Resident External Rupee Account or NRE account.
The biggest category of these is the NRE or Non-Resident External account category.
This was the only category that saw a net inflow, while others saw net outflows of money as NRIs or their relatives in India withdrew money from these accounts.
Even in the NRE category, there was a 50% decline in inflows to USD 1.53 billion from USD 3.3 billion last year.
Because of the redemptions and withdrawals, the total money in NRI accounts has dropped to $118.46 bln from $130.16 bln last year at the end of August.
India imports about $350 bln worth of commodities every year, including electronics and gold, while it manages to export only about $200 bln worth.
As a result, there is a shortfall (trade deficit).
This shortfall is made good by the remittances of Indians working abroad, or by the salaries paid by foreigners to Indians working in India in the fields of IT, BPO, tourism and so on.
Foreign investment into Indian companies and stock markets also brings dollars and other foreign currencies into India, which adds to the country’s foreign exchange reserves.
India has about 400 bln dollars of foreign currencies with the RBI, compared to about $3 trillion with China. Forex reserves are crucial to ensure that the country can continue to pay for foreign-made items, such as oil, gold, weapons and electronics.