Moneycontrol
Last Updated : Nov 05, 2012 12:17 PM IST | Source: Moneycontrol.com

Why the Finance Minister and RBI Governor love NRIs

The economic problem in India has turned out to be a boon for the NRIs. With foreign investors pulling money out of India due to rising fiscal deficit and slowdown in GDP growth, rupee has been under severe pressure. It has seen considerable depreciation in last one year or so.


By Sanjay Matai


The economic problem in India has turned out to be a boon for the NRIs. With foreign investors pulling money out of India due to rising fiscal deficit and slowdown in GDP growth, rupee has been under severe pressure. It has seen considerable depreciation in last one year or so.


In order to stop this continued weakening of the rupee RBI announced many measures targeting the NRIs so as to attract foreign currency into India.


Till recently, NRIs were getting nominal returns of around 3.5% p.a. on the deposits in their ‘repatriable’ and ‘tax-free’ NRE accounts. These interest rates have now been de-regulated. Consequently, banks are now offering around 8-10% interest on the NRE deposits. This is a big bonanza for the NRIs. Just imagine earning 8-10% ‘tax-free’, ‘safe’, ‘assured’ and ‘fully repatriable’ returns!


Similarly, the limits on the interest rates on FCNR(B) deposits too have been enhanced by RBI. Accordingly, banks can now offer rates of LIBOR+200 bps on 1-3 year deposits (up from LIBOR+125 bps) and LIBOR+300 bps on 3-5 year deposits (up from LIBOR+125 bps).


Given that interest rates on deposits in many countries are at near-zero levels, NRIs can borrow cheap money abroad and invest at much higher rates in India. This is a great arbitrage opportunity for the NRIs.


RBI has also permitted transfer of up to USD 1 million per financial year from the ‘non-repatriable’ NRO account to ‘repatriable’ NRE account (subject to payment of tax as applicable). This gives lot of leeway to NRIs to deploy funds in India. Moreover, those who had earlier built up substantial deposits in NRO A/c as it earned much higher interest vis-à-vis the NRE A/c, can now switch to NRE A/c where the rates now match the NRO A/c — but, more importantly, are tax-free.


Investment in property is, of course, no brainer. Given that India is a growing economy and there still exists huge demand-supply mismatch in property in many Indian cities, NRIs have property as another lucrative investment opportunity. The recent slump has ensured stable prices / marginal price correction since last 6-9 months. This, together with more rupees that each dollar fetches due to rupee depreciation, gives NRIs a golden window to invest in property in India before the prices rise again and/or the rupee starts appreciating.


Despite the recent slowdown, India is still one of the fastest growing economies in the world. It is expected to be one of the new growth drivers of the world over the next 2-3 decades, as was US, Japan and Europe in the past. With expectation of good economic fundamentals and consequently the corporate performance, Indian equity markets are expected to do well over the next 3-5 years. Besides, the long term gains from equity are tax-free. As such NRIs can avail of this another golden opportunity in wealth creation. Over the years, mutual funds — with in-depth research capabilities, professional fund management and day-to-day monitoring — have proved to be an excellent vehicle for passive investors to invest in the equity markets. So the NRIs need not be concerned about not being in regular touch with the Indian markets.


All-in-all great time for NRIs to make money on money!

Sanjay Matai is a personal finance advisor, author and online financial trainer. There’s a lot more free stuff to read on his website ( www.wealtharchitects.in ) or blog (thewealtharchitects.blogspot.in).

First Published on Nov 5, 2012 11:57 am
Loading...
Sections
Follow us on
Available On