With a strong U.S. economy and favorable exchange rates, many Indian Americans find it beneficial to send larger sums back home, contributing to the steady rise in NRI deposits in Indian banks
By Ada Jain
The inflow of funds from Indians working abroad into non-resident Indian (NRI) bank accounts rose sharply by 42.8% to $13.33 billion between April and December 2024, compared to $9.33 billion in the same period last year, according to the latest data from the Reserve Bank of India (RBI).
In early December 2024, the RBI raised the interest rate ceiling on Foreign Currency Non Resident Bank (FCNR (B)) deposits to enable banks to offer higher returns, aiming to attract more foreign currency inflows and support the rupee against the US dollar.
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Many Indian Americans regularly remit money to India, primarily through bank deposits, to support their families, invest in assets, or save for future expenses. These funds often help cover household expenses, medical bills, education costs, and real estate investments.
With a strong U.S. economy and favorable exchange rates, many Indian Americans find it beneficial to send larger sums back home, contributing to the steady rise in NRI deposits in Indian banks.
India’s share in global remittances was 14.3% this year, the highest share for any country in a single year. This was driven by an uptick in job creation by OECD economies according to India’s Press Information Bureau (PIB) release.
According to a post-Covid survey conducted by the RBI, the United States remains the primary source of remittances, accounting for 23.4% of the total reflecting a robust economy while remittances from the Gulf region (GCC) have witnessed a decline. Remittances account for approximately 3.3% of India’s GDP in 2024.
India’s foreign exchange reserves stood at $640.3 billion as of the end of December 2024, sufficient to cover approximately 90% of the country’s external debt of $711.8 billion as of September 2024 before moderating to $634.6 billion as on Jan. 3.
The reduced current account deficit is also due to reduced oil prices due to enhanced cooperation with GCC countries and China’s sluggish economy being a huge oil importer. India also stands as one of the largest importers of oil—about 85% of its consumption.
However, the Indian rupee continues to show signs of decline. The U.S. Federal Reserve recently cut interest rates by 25 basis points to lower borrowing costs, the second such move since Trump’s second administration.
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While Trump’s promised tax cuts and tariff barriers could stimulate the American economy initially, experts speculate inflationary pressures. This could also have implications for the monetary easing plans of developing countries like India. The difference between the U.S. and other countries’ interest rates could widen — making countries such as India more attractive for currency carry trade.
A “currency carry trade” is an investment strategy where a trader borrows money in a currency with a low interest rate and uses it to buy a currency with a higher interest rate to profiteer off the difference. Currently, India is still reeling with the United States’ stronger global position, reducing its attractiveness to foreign portfolio investors.