INDIA TALKIES

Diaspora Dividends

Sarika Malhotra
Posted: Sunday, Jan 04, 2009 at 2335 hrs IST
Updated: Sunday, Jan 04, 2009 at 2335 hrs IST

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: plummeting oil prices will slow Gulf economies’ investment plans. The gloomy economic outlook could dry up jobs in sectors that rely on migrant labour, such as construction, manufacturing, tourism and hospitality, IT, etc.”

A fact corroborated by Dr Thomas Abraham, Chairman, Global Organisation of People of Indian Origin (GOPIO), “Those NRIs who have been buying real estate in India are likely to go slow. Those who have signed up for a home with an initial deposit may back out of the deal, making a decision to forfeit the deposit rather than losing more money. However, diaspora from West Asia would still invest and send money back home since it is a safe haven. There would also be continuation of investments in industrial and IT sector as opportunities still abound in India. Since there has been a net outflow of foreign exchange, it would be prudent of Government of India (GOI) to provide higher interest rate to attract more funds from the diaspora.”

Experts remain divided on investment trends as both long term and short term scenarios will be instrumental here. As Ahuja elaborates, that there are factors that suggest both increased NRI investment and factors that suggest some constraint on this increase. The lower valuations of Indian stocks make for more attractive entry points and hence should attract investment. Also, the sharp depreciation of the Indian Rupee makes India more attractive as an investment destination. Buying into Indian stocks may then lead to currency appreciation gains. Against these factors is the fact that American and European equities are also trading at relatively low levels and thus one might expect that for many NRIs, their home markets may be attractive investment venues. On the real estate front, the depreciated rupee again makes investment attractive, but it is not clear that real estate prices in India have declined significantly over the last year to suggest attractive valuations. Given confidence in the Indian growth story as the global markets stabilise and risk aversion falls, investors will move into Indian stocks.

Need of the hour

However capital inflow, either in the form of remittances of investment would require increasing transparency, clear and limited regulations, and broader opening up of the economy as the major prerequisites. India has been found wanting in this regard, as Professor Chintamani Mahapatra, School of International Studies, Jawaharlal Nehru University points out, “NRIs have harboured complaints against the motherland, and most of those...

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