The economic crisis and terrorist attacks in Mumbai have severely affected India’s mid-term growth plans. But, fortunately, India has an asset that only a few nations possess — a dynamic and huge diaspora the GDP of which nearly equals 30 per cent of that of the nation.
Indians living abroad can be segmented as Indian workers, professionals and entrepreneurs with high incomes and those whose ancestors settled in various regions as indentured labour. These Non-Resident Indians (NRIs) have managed to retain links with their homeland, which can be strengthened in more ways than one. First is through fund transfers. Indian oversees workers remit more money to their motherland than any other country in the world, evident from $25 billion it aggregated in 2005-06 and $42.6 billion in 2007-08. This contributed significantly to India’s overall fund inflow and foreign exchange reserves. The government too raised the interest rate on NRI deposits. This strengthened net fund inflow from overseas Indian sources in the last few months and helped in reducing the limit in foreign exchange reserves.
NRI remittances have helped India and, in turn, India has been a relatively safe haven for the overseas Indians’ funds in tough times. Thus, NRIs are feeling safe parking their funds in India even as major international financial institutions have fallen prey to toxic assets.
Direct investment is another option for Indians overseas. The Indian economy is bolstered by domestic demand rather than dwindling export markets. Based on its drive for prosperity, growing middle class and goals of infrastructure creation, India’s mid-term economic prospects seem bright. This can attract higher FDI from overseas Indians in various sectors. Returns from such investments, too, would be higher than global averages.
The third route is through travel and tourism. Overseas Indians were among the first ones to make bookings in the Taj and the Trident when they reopened in December, and many still plan to visit India. Their confidence can help allay fears in other travellers.
But while overseas Indians can help cushion the impact of the meltdown, it is the Indian workers abroad that are likely to be hit hard. Emigrant workers are among the first to bear the brunt of job cuts and salary reductions. India needs to be prepared to face a contraction in NRI remittances and come up with a system to rehabilitate returning workers. The crisis will also impact millions of young Indian graduates in foreign universities who have to rely on good jobs to repay their education loans.
The Pravasi Bharatiya Divas, to be held in Chennai on January 7-9, will address issues related to the security and economic crisis that the Indian diaspora faces. The support and engagement of the diaspora will be of immense value to India in the tough times to come.
Chandrajit Banerjee is Director-General, Confederation of Indian Industry