Complex Made Simple

Indian expats in the UAE reap benefits of the falling rupee

Over the last month, the Indian rupee has been falling as the U.S. dollar is growing stronger.

The rupee has lost nearly 3% of its value since the start of 2018, and it is the second-biggest loser in the BRICS, according to Quartz India, an Indian digital news outlet.

BRICS group includes Brazil, Russia, India, China, and South Africa.

Courtesy of Quartz India

The Indian community in the UAE is remitting funds back home as rupee continues to fall against the dirhams.

With Indian banks allowing higher interest rates on deposits by overseas Indians, a wave of cash is flowing back to the home country via banks and money-transfer agencies.

READ: UAE’s promising coastline is now inviting top bids for oil & gas exploration

UAE Indian expats taking advantage 

Money exchange houses and banks within the UAE are seeing a strong outflow of money to the country, Forbes Middle East reported.

“Exchange houses across the country are reporting a general 10% jump in remittances since April 2018, when the rupee started to sink in value,” said Forbes.

This surge could be largely attributed to the Emirates’ sizable proportion of white-collar Indian workers.

READ: Long-term visas to boost investment in UAE or not?

White Collar vs. Blue Collar

“While the rupee weakening may not have a huge impact on the blue-collar segment, the white-collar segment largely benefits during such currency fluctuations,” Sudhesh Giriyan, COO, Xpress Money, said in an email statement to Forbes Middle East.

“The blue-collar segment unfailingly remits money back home every month for the upkeep of their families irrespective of the exchange rate, as they need to provide for their day-to-day necessities.”

“The white-collar segment, on the other hand, has the luxury of time, as they do not necessarily remit monthly; instead, they remit larger amounts every 2-3 months.”

“Typically, during times like this, the white-collar segment takes advantage of the situation by sending larger volumes of money back home as they get more value for every dirham or dollar they send.”

Giriyan says that his firm has also seen a “double-digit increase in the volume of transactions.”

With payday nearing, the executive is also expecting an uptick in remittances.

READ: Dubai, Abu Dhabi on opposite sides of spending: Did that impact growth?

As Rupee falls remittance flows

Improving oil prices have also prompted a recovery in overall remittance flows from the GCC to India that had taken a hit in 2016.

Last year, expats in the UAE remitted around $44.7 billion, up 2.2% from 2016, according to the UAE Central Bank.

India was the top recipient of remittances from the UAE in the last quarter of 2017, receiving 34.2% of the overall amount remitted from the country, or $15.3bn.

Remittance flows to India could continue to improve over the medium term if the rupee continues to fall in value, industry experts say.

Video: UAE sends a strong message with 10-year visas to halt exodus

Why is the Rupee falling? 

“As per the current market scenario, we expect the rupee to depreciate further against the dollar,” Forbes reported Promoth Manghat, CEO, UAE Exchange Group, as saying.

– Oil prices 

Giriyan was reported by Forbes as saying: “The probability of the Indian rupee weakening further is high due to the rising oil prices.”

“Last week the oil prices hit $80 a barrel, for the first time in four years. Analysts believe this cost will increase further, hitting $100 a barrel over the next few months”

“This will have a further impact on the Indian Rupee,” he explained.

Courtesy of Quartz India

However, the rupee’s fall could be limited if the Reserve Bank of India decides to intervene.

“The rupee might stop depreciating if the Reserve Bank of India starts lifting the interest rates to combat rising inflation,” Manghat allows.

– Trade deficit 

India’s import value exceeds its net exports, by up to $156.8 billion for the financial year 2018, compared to $105.72 billion in the previous year, Quartz India reported.

This trade deficit will continue to widen, which means India will spend substantially more dollars buying stuff from other countries than it earns from selling goods and services across borders, leading to a weaker rupee, Quartz explains.

– Capital outflows

The vicious cycle of the dollar deficit and weakening rupee can be offset if other sections of the economy earn additional dollars, Quartz said.

However, foreign investment in Indian equities and bonds has slowed down.

Courtesy of Quartz India