Over the last month, the Indian rupee has been weakening as the U.S. dollar gained strength. Although it might be bad news for India’s fiscal state, money exchange houses and banks within the U.A.E. are seeing a strong outflow of money to the country.
Exchange houses across the country are reporting a general 10% jump in remittances since April 2018, when the rupee started to sink in value. This surge could be largely attributed to the Emirates’ sizable proportion of white collar Indian workers.
“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.
The rupee’s current fall in value could be attributed to two main factors: oil prices and yields on the U.S. Treasury. 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 U.A.E. remitted around $44.7 billion, up 2.2% from 2016, according to the U.A.E. Central Bank. India was the top recipient of remittances from the U.A.E. in the last quarter of 2017, receiving 34.2% of the overall amount remitted from the country.
Remittance flows to India could continue to improve over the medium term if the rupee continues to fall in value, industry experts say.
“As per the current market scenario, we expect the rupee to depreciate further against the dollar,” says Promoth Manghat, CEO, UAE Exchange Group.
Giriyan agrees, 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.”
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.