Dollar abandons India: Rupee slumps to 20-month low… UAE expats remit now?

The Indian rupee weakened for the fifth consecutive session this morning and, at 12 noon UAE time, fell to Rs17.49 against the UAE dirham (Rs64.25 vs $1), its weakest showing since September 10, 2013.

The rupee has seen a sharp decline in value since the beginning of this year, losing almost 5 per cent of its value in four months. In fact, the rupee has traditionally seen its value eroding, and has lost more than 10 per cent of its value over the past one year.

While this is bad news for the Indian residents and even expats who own assets in Indian currency (like property, bank deposits, etc.), millions of non-resident Indians living in the UAE and elsewhere are looking at this decline as an opportunity to remit more funds back home.

“UAE to India is the second largest remittance corridor in the world, at $16 billion a year,” Sudhesh Giriyan, COO, Xpress Money, told Emirates 24|7.

According to a latest World Bank brief, India remains the world’s largest recipient of remittances, receiving $70.38 billion from its global workforce in 2014, up marginally from $69.97bn in 2013.

“From the UAE, the 2.6 million Indians living in the country send as much as 26 per cent of India’s total remittances,” says Giriyan. “Collectively, Indians from across the GCC send anywhere between 45 to 50 per cent of India’s overall remittances,” he notes.

That indeed sums up the importance of the UAE and GCC markets for India’s attempts to grow its foreign exchange reserves.

Giriyan, however, maintains that remittances from the UAE to India are now growing only marginally (less than 1 per cent) and slumps like the ones seen recently do not have a massive impact on the flow.

“We don’t see remittances growing substantially from this level [$70bn] in the near future,” says Giriyan, “unless the rupee starts collapsing again.”

Giriyan maintains that “remittances remained resilient even during the global economic slowdown of 2008-09,” but adds that now, the growth is marginal as it has reached a critical mass.

Why is rupee falling now?

More recently, the decline in the rupee has been exacerbated as foreign investors continue to liquidate their investment in the country, both in equities and debt.

This has been a direct result of some ill-timed announcements by the Indian authorities regarding retrospectively taxing foreign firms for the capital gains they made in previous years.

The country hopes to raise about $6.5 billion (Dh24bn) by taxing foreign firms even as the sell-off by foreign portfolio investors triggered as a result of that announcement has resulted in much greater declines in share prices over the past few weeks.

India’s benchmark stock market index in Mumbai lost 700 points yesterday, ending the day at 26,717 points, down 10 per cent from the peak of 29,681 points it made on January 29 this year.

India’s Income Tax department has slapped tax notices on FIIs and foreign portfolio investor (FPIs) of Rs40,000 crore towards minimum alternate tax (MAT) after they lost an appeal at the Authority for Advance Rulings against levy of 20 per cent MAT on capital gains they made in years through March 31, 2015.

Should you remit now or wait?

That is a million-dollar question, and the answer depends largely on your reason to remit. If it is your monthly remittance that you are looking at, it isn’t going to have a massive impact on the overall dirhams you’ll need to shell out as the rupee isn’t fluctuating wildly at the moment.

If, however, you’re looking to remit a lump sum, do remember that most December-end forecasts for the rupee are around Rs65 against $1, which works out to Rs17.70 vs Dh1. This would suggest that you might get a more favourable exchange rate if you wait a few months. Any decline in the rupee, however, may get offset with declining deposit rates (in case you’re planning to invest it in a fixed deposit/bank instrument).

Also, property prices in India have been mixed over the past year or so, and proposed additional taxation in the Real Estate Bill could end up pushing prices higher. So, if you’re looking at investing in property, it will again have to be seen if the expected decline in rupee is worth the expected fluctuation in real estate prices.

Disclaimer: The article is news-based and the advice is generic in nature and may not suit all readers/investors. You are advised to undertake your own due diligence and consult an advisor before making any investment decisions. Emirates 24|7 will not be liable for any losses – direct or indirect – that may arise from your reliance on such information.

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