Weakening rupee to stimulate remittances

A weak rupee is expected to sustain remittances to India from the region despite a sharp drop in flows to the country.

Globally, remittances to India dropped sharply in the quarter ending December to the lowest in five years, as oil prices remained below US$40 per barrel.

Indians employed overseas sent home $15.8 billion, according to the Reserve Bank of India last week. In the previous quarter, they remitted $16.99bn. During the October to December quarter in 2014, the figure was $17.4bn.

“The general expectation is that the rupee is likely to weaken during the year and this will only lead to stimulate remittance flows,” said Krishnan Ramachandran, the chief executive of Barjeel Geojit Securities.

“We are witnessing decent flows into the mutual funds and equities, [with] an improved interest to invest into the Indian real estate,”

The low oil prices would have an impact, according to the UAE Exchange, but it is yet to experience a slowdown.

“We haven’t seen any major headwinds in reduction of volumes even though the growth rates [in remittance volumes] are not that high this year compared to 2014 and 2015,” said Promoth Manghat, the chief executive at UAE Exchange. “There was a much sharper fall in remittances in 2008 and 2009.”

Work on large projects such as the Abu Dhabi airport, Dubai Parks & Resorts theme parks complex and Dubai Canal has not slowed down and that is also a positive, he said.

“There is also a sense of optimism as the oil prices stabilised last month, and volatility is not something the market can accept,” Mr Manghat said. “We are cautious because of the oil prices, and we have to see what will be the impact on the infrastructure activities and the jobs.”

About 70 per cent of UAE Exchange customers remitting funds come from lower income segments. The total remittance was up 8 per cent last year over 2014 for the exchange house.

The reasons for the fall in remittances to India during the October to December quarter include an expectation that rupee could weaken further.

“There were reports that the rupee could fall to 70 [against the dollar], this may have prompted people to hold back on their remittances,” Mr Ramachandran said. “There were also some news [last year] about a potential tax on remittance by the UAE government, which was promptly clarified by the authorities that there is no such move.”

India remained one of the cheapest destinations to send money to during the last quarter of 2015 along with Mexico, according to the World Bank. Last year, India received the largest amount of remittances at $72 billion, up from $70bn the previous year, followed by China at $64bn and the Philippines at $30bn.

Globally, the UAE was among the top 10 migrant destination countries along with the US and Saudi Arabia, while the top migrant source countries included India, Pakistan, the Philippines and the United Kingdom.

Remittances form about 4 per cent of India’s GDP, compared to 10 per cent for the Philippines and 30 per cent for Nepal, according to Bloomberg.