Few expatriate Indians in the UAE are expected to remit more money to their country despite the dirham appreciating against the rupee, according to leading money exchanges in the country.
"It's not necessary that a good exchange rate will see more people remitting to India, or vice versa.
"Take the case of blue-collar Indian people in the UAE. They have to transfer a definite amount of money regardless of the dirham going up or down. Being the bread winners in their families, these people normally transfer anything between Dh800 to Dh1,500 each month. Also, this forms a huge revenue segment for UAE Exchange," Sudhir Shetty, COO and General Manager of UAE Exchange told Emirates Business.
Karuna Karan, Assistant General Manager, Business Division, at Al Rostamani International Exchange, expressed similar views. "There are several factors that determine the amount of money going from here to India and a good conversion rate is not the only factor that will determine the rush," he said.
"For example, if the rupee is fluctuating by a large margin, people may prefer to wait and watch but they will not hold on once it stabilises.
"Also, a large part of the Indian population here comes under the low-income segment. They have to send a fixed amount home irrespective of the currency rate," Karan added. However, the middle-class Indians, who have more disposable cash, may not send extra money home as they have commitments in the UAE. An increasing number of middle-income Indians have bought property here and so their money remains in the UAE, said an expert. On the whole, a better exchange rate does not necessarily translate into increased volumes of business for money exchanges operating in the country.
"Our business volume is increasing because the number of expatriates in the country is increasing – not because of the exchange rates," Karan said. Shetty of UAE Exchange said: "We cannot say by what percentage the business will increase, but overall, drastic changes are not expected in volume. A lot of people are investing in India and so they may transfer more money if the value of the dirham goes up against the rupee. Summer vacations have started in the UAE and it holds prospects as the foreign exchange business increases with more and more people proceeding on vacation."
The Indian rupee has come under increasing pressure in the past few months because of the demand from importers and record high oil prices. Prior to that, the rupee had appreciated considerably against the dollar, which translated into a weaker dirham against the rupee, eating the income of Indians working in the Gulf region. The dollar-INR spot finally breached 43.00 on month-end demand from importers and record high oil prices. Moreover, it appeared that the Reserve Bank of India (RBI) was forced to let it go. According to a report issued yesterday by Standard Chartered Bank, technically, the next resistance level comes in at 43.20, the high from June 10.
On the data front, India's FY08 balance of payment surplus (BoP) came in at $92.2 bn (Dh337bn) from $36.6 bn. Although it was higher than expected, it underlined a sharp rise in the trade deficit (to 7.7 per cent of GDP in 2007-08 from 6.9 per cent in 2006-07) on higher imports. However, a significant increase in invisible surplus, led by remittances from overseas Indians and software services, capped that country's current account deficit at 1.5 per cent of GDP.
Substantial increase in capital inflows, primarily led by huge FII inflows, external commercial borrowings flows and FDI, led to a booming BoP surplus. However, as exuberance evaporates in the current fiscal year, it is expected the BoP surplus will shrink to $23.3bn, putting depreciating pressure on the rupee.