India is the largest recipient of personal money transfers in the world. The World Bank estimates this flow for calendar 2005 to be about $22 billion (Rs 97,771 crore). The non-resident Indian (NRI) community, which is over 22 million strong, is largely the source. The Reserve Bank of India’s provisional estimate suggests that over $24 billion flowed into India during 2005-6.
NRIs make significant contributions to their adopted countries and to India. For example, the average income of the NRI community in the US is twice the national average. Over 30% of doctors in the US and UK are of Indian origin and NRIs dominate industries such as hotels and software.
The Indian economy has been growing rapidly and NRIs are keen to participate by seeking investment opportunities in the stock market, real estate and other sectors. India has a good track record as a safe haven for NRI investments, with a well-regulated financial system and a benign tax regime.
India has never defaulted on its external commitments and has freely allowed the repatriation of NRI deposits, even in face of significant foreign exchange shortages. India stands out in this regard. For example, Pakistan imposed exchange controls on non-resident deposits in the wake of nuclear tests. India continued allowing full repatriation while raising long-term dollars via the India Millennium Deposits route.
The RBI has relaxed rules with regards to transfer of money out of India. NRIs are allowed to repatriate up to $1 million per annum from NRO accounts. Recent amendments also allow NRIs to repatriate sale proceeds of property without a lock-in period.
India’s reputation and the opportunities offered by rapid expansion has attracted investments. Bank deposits, in rupees and in foreign currency, continue to be a very attractive proposition. Competition has resulted in almost all banks pegging their interest rates close to the RBI’s regulatory cap. For example, HSBC’s current rates for one-year rupee, dollars and pound sterling respectively are 6.24%, 5.24% and 5.43%. These competitive returns do not attract tax in India.
NRIs can also invest in mutual funds, shares, government securities, etc. Real estate is a popular asset class and a number of banks offer home loans to NRIs. In addition, NRIs also remit money for family reasons.
A number of banks and money transfer agencies operate in the NRI market. Charges and exchange rates vary from bank to bank. NRIs should research to obtain the best deal. Customers can transfer money using cheques, the Internet and through ATMs (facilities vary by country). Some banks have dedicated NRI centres outside India and provide toll-free access to NRI help desks.
(The author is a Head, NRI Services, HSBC India)