Climbing rupee takes the shine off NRI remittances

Rupee appreciation has pummelled down NRI sendhomes to two-thirds within four and a half years, according to analysis by Centre for Socio-economic and Environmental Studies (CSES), Kochi. The bleak picture is unveiled, hardly days after RBI claimed that "NRI remittances account for as much as 3% of GDP now".

Since the currencies of Sri Lanka and Pakistan took a depreciation, its the Indian worker's competitive edge in labour markets abroad that the strong rupee may blunt next, warns the researchers.

Taking a hard look at Kerala, whom World Bank (2006) places among the top 20 remittance receiving regions, KK George and Remya S estimate that rupee appreciation cost Kerala's remittance kitty by a whopping Rs 8,660 crore in just four and a half years. According to the paper "Impact of rupee appreciation on non-resident Malayalis", the yearly foreign remittances to the state ranged between $3,315 million ( Rs 16,044 crore) in 2002-2003 to $5,359 million (Rs 24,269 crore) in 2006-2007.

The biggest casualty in this period was probably in the April-September 2007, with the damages as high as Rs 2,766 crore.

Kerala banks account for 20% of country's NRI deposits. Thanks to the strong rupee, in 2004-05, the NRI deposits in Kerala banks actually looked down. Deposits plunged during the first two quarters of 2007 also.

George and Remya argue that while Union Finance Minister P Chidambaram cushioned the exporters with an interest subsidy of Rs 8,351 crore, not even a token subsidy was offered to NRI depositors in banks. Following higher annual rate of rupee appreciation, the real interest rates on NRI deposits turned negative, the paper illustrates in detail.

The CSES paper points out that the thinning margin between wages abroad and Indian wages may rub off the sheen of economic migration.

The recent strikes of NRI workers in Bahrain and UAE hints at the problems precipitated inter-alia by the rupee appreciation. The striking workers in Bahrain are reported to have been engaged for work at 57 Bahraini Dinar(Rs 5,700 per month).

The insight on currency-emigration correlation confirms the trend observed by the Zacharia and Irudaya Rajan study on migration (2007). This study had found that migration in Kerala had fallen from 26.7 per 100 households in 2003 to 24.5 per 100 households in 2006.