Indian Budget: NRI's Out, FIIs In

http://www.thehindubusinessline.com/2010/03/02/stories/2010030250870400.htm

NRIs out, FIIs in
Gopal Sutar
India's 2010-2011 Budget described as the common man's budget by the Finance Minister, Mr Pranab Mukherjee, has little to offer to non-resident Indians (NRIs).
However, he seems to have done them a favour by not levying any taxes on the non-resident external rupee (NRE) and the foreign currency non- resident (FCNR) deposits.
These deposits continue to remain tax-free but they are no more attractive as they used to be.
Food inflation
The food inflation, a big cause for concern for the ruling dispensation, is bound to exacerbate with rise in motor fuels that came into effect immediately after the Budget was presented.
The NRE and FCNR terms deposits have now become extremely unattractive as the interest earned on them is less than three per cent as against the food inflation touching 17 per cent last month.
NRIs
The NRIs, especially the Gulf Indians, who regularly send money to their dependants, will find the going tough because of this mismatch.
ATF price rise impact
On the other hand, flying to and from India too will be costlier since a service tax of 10.36 per cent will now be levied on domestic flights and the economy class of foreign ones.
This is in addition to the proposed rise in aviation turbine fuel by Rs 1,500 a kilolitre.
The air travellers will feel the pinch when they take to flights within and outside India.
The Budget also proposes to tax interest, royalty and fees for technical services received by the NRIs even if such payments do not relate to a place of business/business connection in India or if the services are rendered outside India.
As far as Indian rupee (INR) is concerned, Mr Mukherjee intends to formalise a symbol that reflects and captures the Indian ethos and culture.
The idea is to ensure pride of place to the rupee alongside the select club of currencies such as the US dollar, British pound sterling, euro and the Japanese yen that have a clear and distinguishing identity. With the expectation of Indian growth going forward, the rupee is expected to be firm.
Some foreign fund managers have described the Budget as forward looking.
The foreign institutional investors (FIIs) are likely pump in more money into India to cash in on the strong growth prospects as Europe and America are yet to recover completely from the global financial crisis.
FIIS investment
Just on the day of the Budget and as it was being presented, the FIIs pumped in nearly Rs 900 crore, the highest single session intake recorded by National Stock Exchange (NSE).
If this FII trend continues in future, it would result in strengthening of the rupee which might not be to the liking of the NRIs.
The author is Deputy General Manager (Corporate Communications/PR), ITI Ltd, Doorvaningar, Bangalore.
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Tuesday, Mar 02, 2010