RIYADH, 12 January 2007 — In a bid to ensure more inflow of capital into the country, India Finance Minister P. Chidambaram promised new financial instruments to non-resident Indians (NRIs) at an NRI seminar that took place on Tuesday in New Delhi.
This initiative comes with the realization that the country not only needs the remittances of Indians working abroad but also their knowledge and expertise to maintain India’s robust economic growth that is estimated to be around 9 percent this year.
Most NRIs that use remittances to invest in securities choose to do so with a lock-in period of three years, which many say is an insufficient amount of time to allow this inflow to contribute to India’s long-term economic development. Furthermore, in recent months there has been an increase in one-year commitments, indicating that NRIs might be increasingly less likely to invest in capital gains for the long term. The interest earned on one-year and three-year commitments is almost the same, and more NRIs might consider it beneficial to choose longer lock-in periods on investments.
The Indian government is particularly worried about the growing disparity in the pace of the growth between agricultural and manufacturing developments. This, says Chidambaram, is widening the gap between the rich, who are more likely to be involved in manufacturing and entrepreneurship, and the poor, who are more likely to be involved in the agriculture sector and who haven’t benefited as much from the country’s impressive economic track record in recent years.
The minister said he would like to see NRIs investing in capital gains for periods of at least 10 years. The government is encouraging NRIs though financial incentives to invest more in housing development, real estate and transportation infrastructure (roads and bridges), especially in more rural and poorer regions. However, it remains to be seen what these new financial instruments offer in turn.
