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Why do NRIs Invest in India?


Because they get hefty returns on their fixed deposits. And good returns on their stocks and shares if they hold on to them for some years. These are the short simple answers to this question about why a good number of NRIs invest in India.

More than all these answers, it is the lure of their Motherland now on the rise that prompts them to invest in India. You could call it Emotional Investing.

But then, why do they invest in property in India? Despite the hassles of legal paperwork, the unending quarrels with their tenants or relatives, why do they want to own a house in India? First, because property prices keep shooting up all the time, especially in the last 20 years. Second, because they want ‘a nest’ in their home country and thus send a message to their relatives and former neighbours that they have made it abroad. And finally, after the recent financial meltdown in the West that shows no signs of recovery, they may well return to India as some have already done.

Back to fixed deposits. The rate for one year fixed deposits in Indian Rupees ranges from nine to 9.5 per cent from leading banks in India. You can get over ten per cent as a senior citizen. Yes, but you cannot transfer your funds abroad once you convert them into Rupees. Yes and no. If Indian residents are allowed to remit $250,000 a year, then surely NRIs can also do the same. With some extra paperwork, you can send your money abroad. In the US, the interest rate for one year fixed deposit is 3.0 or 3.5 per cent. Even after you pay tax on the interest you have earned, it is worth it.

But do not ignore the exchange rate and the inflation rate in India. While the exchange rate can get you more Rupees for your dollars, the inflation in India can reduce its purchasing power if you spend it in India.

Stocks and shares are a different game. The Indian stock market has weathered the 2008 financial crisis and recovered quickly. After foreign investment fled India in late 2008 and 2009, it has returned to boost the market. Basically, the Indian stock market rests on the huge domestic demand for the goods and services of the quoted companies. This demand is not going to taper off if the basic economic structure is kept going by the government. So if you can ride the short term dips and hold on to your stocks, you cannot lose in the medium term.

Finally, why do NRIs invest in business and industry in India? The same answer – strong and steady domestic demand, lower manufacturing costs compared to the West plus export potential. Despite the jungle of red tape and extra costs for power backups and weak infrastructure, it is viable to set up a factory in India. Of course, services are even more so as proven by the multi-billion dollar IT industry here.

More than all these answers, it is the lure of their Motherland now on the rise that prompts them to invest in India. You could call it Emotional Investing.

+ Kul Bhushan worked as a Business Editor abroad and as a Media Consultant to a UN agency before settling in India in 2000.  

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