Not too long ago, they were called ‘not required Indians'. But if the mood at the recent Pravasi Bharatiya Diwas event in Jaipur was any indication, the Government is going the whole hog to woo them. Thus, we had the Prime Minister, Dr Manmohan Singh, pointing to the steps being taken for registration of Non-Resident Indians (NRI) to enable them to vote in elections here. Last month, the Reserve Bank of India (RBI) deregulated interest rates on Non-Resident External (NRE) deposits, with banks promptly responding by almost trebling them to 9 per cent-plus. The reasons here seem straightforward: A yawning current account deficit (CAD) that can no longer be financed by the usual sources of external capital inflows. In 2010-11, India recorded a CAD of over $ 44 billion, which was more than covered by net capital flows of nearly $ 60 billion, including $ 31.5 billion from just foreign portfolio investors. With these inflows now drying up, there is a renewed keenness to dip in to the resources of a section with plausibly more stakes in the country than fickle foreigners.
The evidence for this optimism is mixed. NRI monies were certainly useful during the difficult sanctions period following the 1998 Pokhran nuclear tests: The Resurgent India Bonds floated then helped raise some $ 4.2 billion. But equally, it was the untimely withdrawals by the same NRIs that triggered the 1990-91 balance of payments crisis. NRI money comes through two broad routes. The first is private transfers that amounted to $ 53.4 billion in 2010-11, which is basically for family maintenance back home. The second is inflows into NRI deposit accounts, with net inflows of $3.25 billion. Hitherto, these inflows did not pose serious balance of payments or exchange rate risks, as they were mostly temporary warehouses for eventual release into the domestic economy. Interest rates on them, too, were not all that attractive for NRIs to resort to active portfolio operations involving these funds. But that could change. The RBI's decision to deregulate deposit rates is primarily aimed at attracting funds of NRIs, who might see in it the prospect of an aggressive portfolio management strategy. Given the arbitrage opportunities from borrowing at 2-3 per cent abroad and putting it in an NRE account, it could well bring in the much-needed dollars immediately. But to assume that this money – from those with no real compulsions to send it, unlike the first-route lot – would stay here may not be correct.
Related to this is the larger issue of the class of NRIs the Government is currently hankering after. A recent study by the Centre for the Advanced Study of India, University of Pennsylvania has shown migrants to West Asia to remit funds that largely go towards investment purposes (both in housing and business). This is as against OECD migrants, who have little intention of returning to live and work in India, and whose money is channelised more towards consumption than creation of productive assets. Yet, the former set is not as visible in fancy NRI summits. They probably deserve greater policy attention.