Deposits under various special NRI schemes were at $3.213 billion in April, eight times more than the corresponding period last year, but the country needs to draw fresh foreign investment urgently to lift the sagging currency. NRI inflows barely cover a quarter of the country’s trade deficit.
April’s was the largest net deposit addition by NRIs in a single month, while foreign institutional investors withdrew nearly $1 billion from risky local assets in a flight to safety amid fears of a Eurozone breakup. But the record flows failed to stem the rupee’s slide, which fell 9.7% since March 31 to 55.81 against the dollar on Tuesday, as investors avoided risky assets and the dollar strengthened against major currencies.
“NRI money can take care of just a portion of the current account deficit,” says KN Dey, director at Basix Forex. “The country needs a long-term solution like FDI. Policy paralysis has choked the FDI flow, which is a must in the present Indian economic context.”
The country’s current account deficit may improve in 2012-13, albeit marginally, to $65.3 billion, or 3.5% of the GDP, against the initial projection of $74.3 billion, or 4% of GDP, Citigroup India economist Rohini Malkani forecast recently.
For Indians residing abroad, NRE (non-resident external rupee accounts) has become the most attractive deposit scheme after the RBI deregulated interest rates attached to it late last year. Banks have increased NRE rates to bring them on a par with domestic deposit rates now. Overseas Indians can earn as much as 9.25% on their deposits here, compared with just about 2% or even less in most developed countries.
Senior bankers said depositors withdrew money from foreign currency non-resident (banks) or FCNR-Baccounts to park it in NRE accounts to maximise returns. FCNR-B accounts witnessed an outflow of $662 million in April, while NRE accounts saw inflows of a whopping $3.751 billion, 13.5 times the banks received in April last year.
Under FCNR-B, the currency risk is borne by the bank, while investors bear the risk under the NRE scheme, which offers as much as 9.25% interest.The non-resident ordinary rupee ( NRO) account, which is non-repatriable and only for NRI’s local use, has seen an inflow of $124 million.(curtsey: economic times)
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