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Euro crisis may raise remittances to India

June 03, 2010 14:26 IST

EuroThe ongoing economic crisis in the euro zone may have at least one positive aspect -- higher remittances to India.

While, according to banks, there was at least a 10 per cent reduction in remittances in the last quarter, it is still expected that another crisis in the euro zone may lead to a rise in remittance inflows in the coming months.

The reason: India is largely seen as a safe haven during any global economic turmoil.

In fact, the converse is true, too. For example, as the financial crisis of 2008-09 seemed to abate, the flow of inward remittances, especially from West Asian countries, slackened.

Then, again, in the second half of the last financial year, there was a 50 per cent rise in remittances compared with the first half.

That was because, again, India was seen as a safe haven by Indians working overseas as the rupee depreciated. However, since January, as rupee started appreciating in value and the global financial crisis seemed to ebb, the flow of remittances reduced.

This was again in contrast to India's inward remittances till December 2009, when it continued to rise.

Private transfer of receipts, mainly comprising of remittances from Indians working overseas, increased to $40.8 billion in April-December 2009 from $37.1 billion in the corresponding period of the previous year.

However, in the January-March 2010 quarter, there was at least a 10 per cent drop in in remittances, including (foreign currency accounts, or FCNR) and non-resident external (NRE) term deposits, said a senior executive of Thrissur-based South Indian Bank.

"There was at least a 15 per cent drop in remittances from West Asia, and about three-five per cent from Europe and the US. In April, the remittance through banks increased marginally," said the executive.

The rupee depreciated to 50 against the dollar by April 2009, and appreciated thereafter, hovering between 44 and 46 between January-March 2010.

Cycle expected to continue. . .

However, in the coming months another round of surge in inflows could not be ruled out, with the possibility of rupee depreciating and the euro zone crisis continuing.

On Tuesday, the rupee dropped 1.7 per cent to 47.16/17, its biggest one-day fall since a 2.6 per cent drop on November 12, 2008, according to Thomson Reuters data.

"Remittances flow has been steady so far. There might be an increase in remittances in the next few months, as June-July is generally the vacation season.

However, excess flow of money from outside is often difficult to manage," said M R Nayak, executive director of Allahabad Bank.

Another executive at State Bank of Travancore said there could be some impact from the euro zone crisis, but in the long term. Private transfer receipts constituted 16.9 per cent of current receipts in April-December 2009 (13.4 per cent in the corresponding period of the previous year).

Under private transfers, inward remittances for family maintenance accounted for about 52.7 per cent of the total private transfer receipts, while local withdrawals accounted for 43.7 per cent in April-December 2009.

Net inflows through various NRI deposits increased from $179 million in 2007-08 to $3.99 billion in 2008-09, according to the RBI data.

At present, south-based banks corner a large chunk of NRI deposits, mostly through remittances from West Asian countries.

Namrata Acharya in Kolkata
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