A ritual. That?s arguably the most common perception for the much vaunted Pravasi Bharatiya Divas (PBD), now in its seventh edition.
While many believe that the MEA (Ministry of External Affairs) jamboree remains nothing more than a networking exercise, its importance in providing a platform for this successful group that is emotionally tied to India, is undeniable. As Professor Gautam Ahuja, Ross School of Business, University of Michigan, reasons, ?Even if the PBD were to be only a networking forum, it would still be valuable in help improve the exchange of skills, connections and eventually capital.?
A sentiment echoed by Professor Brij V Lal, expert on Asian diaspora, Australian National University, for whom the PBD remains a symbolic event and benefitting largely those who have direct investment interest in India, especially the NRI?s. But for Person of Indian Origin (PIOs), from the old Indian indentured diaspora, the event is perceived differently. As Lal explains, ?They have little to invest in India, because they can?t afford to. Their interest is principally cultural. What does India do for them? They are opening a couple of universities in India for Non Resident Indians, but they ask for full fees or even more. India will gain if it takes a broader, more holistic view of its relationship with its diaspora, and not a narrowly utilitarian one.? Nevertheless wooing the diaspora is a growing trend around the world and India desires to tap the potential of its diaspora like never before and the PBD stems as a stepping stone in the direction.
The big question
There are more than 2,00,000 millionaires of Indian origin in the US and Indian community is the highest average family income group, ahead of the Jews and the Chinese. This potential is huge enough to tap it as a source of investment. Also remittances from migrant workers are fast outpacing official aid flows and even foreign direct investment (FDI) as a source of external finance. Remittances to India have risen dramatically over the past decade ? from an estimated $12.3 billion in 1996-97 to about $27 billion in 2007. North America accounts for over 40% of remittance flows, followed by the Gulf countries and Europe. But we might witness a turnaround in this trend in the backdrop of the global economic meltdown, as Manoj Vohra, India Director, Research, Economist Intelligence Unit confirms, ?While the developed world is certain to go into recession, 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 are against Indian embassy officials in their countries of residence. If MEA is showing greater interest in reaching out to the NRIs and PIOs for certain purpose, it better keep the interests of these people in their country of origin intact.?
However, the fact remains that the NRIs/PIOs are not looking for any special treatment in India. They need to have equal opportunities, similar to other investors and businessmen. As Abraham shares, ?Although GOI has been announcing new investment drives, implementation has been slow. There are bureaucratic hurdles. Many NRI investors have shared bad experiences. The problems come when one has to deal with different ministries, ie Finance, Commerce, Industry, Home at the central level and again one has to deal at the state level.?
Since NRIs are a useful bridge to globalisation for India, it is important to undertake fundamental reform of the framework of capital controls concerning the NRIs. As financial analyst Ajay Shah affirms, ?The framework of capital controls vis-?-vis NRIs is quite unfair. An NRI holds an Indian passport, but our treatment of capital controls gives them less access to investment in India than we have done for non-Indians (ie the FII framework). There is a maze of bank accounts to navigate. Many times they are able to bring money into India but it?s non-repatriable. That?s unfair. FIIs have more flexibility in the Indian equity market than NRIs.?
For inward remittances too, there remain fundamental gaps that require attention as basic infrastructure to enable recipients to leverage remittances are also lacking. As Vohra puts it, ?Most migrants come from rural areas that lack basic infrastructure and access to financial services, either because mainstream banks do not reach out to this segment of the population or because microfinance institutions are not present. Recipients who might be encouraged to start a cottage industry are thus constrained by a lack of a safe place to save the remittances, the ability to leverage them through a loan or the infrastructure to participate in a market. Also, many migrant associations would like to invest back home, but they lack organisational capabilities. In cases where collective remittances have successfully financed a small infrastructure project or business, there has usually been a supportive organisation, such as a local government, a non-governmental organisation or a business group, providing the organisational impetus. Even then the work is challenging, because the informal nature of the migrant groups makes interacting with them difficult and expensive.?
The larger picture
While GOI experienced a demonstration affect from China?s grand success in drawing huge investment from the overseas Chinese, a lesson or two can also be learnt from Philippines, where the government has led from the front, playing a supportive and regulatory role in labour migrations. It made temporary labour migration a foreign policy priority in both bilateral and regional trade negotiations. The process begins with securing access to foreign labour markets, to pre-migration training on social and work conditions abroad, life insurance and pension plans, medical insurance and tuition assistance for the migrant and his family, eligibility for pre-departure and emergency loans and channelising the remittances. Training for returning migrants to invest their savings or starting new businesses is also a feature.
Though questions remain on how the government can better engage the resources in hand and take new initiatives to utilise the capabilities and strength of the diaspora so that India can leapfrog into the next generation, much remains to be achieved.
Abraham suggests there is a substantial gain in waiting on the technological front, ?GOI should appoint a ?Technology Tzar? from the diaspora who would scout the world for new technologies and identify NRIs/PIOs who are top technologists and create interest and motivate them to come to India and establish technology outfits. GOI should also facilitate new technology/business incubators to facilitate such new ventures.? A view also shared by Ahuja, who cautions that India has probably been more successful in attracting portfolio investments than stickier project investments. India should now increase efforts to attract project investments especially in the critical infrastructure sectors.
Will GOI send out the right signals at Chennai? For the sake of desperately needed investments, and better equations, we certainly hope so.