The calculated balancing act vis-à-vis growth and social welfare in India’s federal budget for 2015-2016 has come in for wide-ranging praise from economists and investors. But the first full-year budget, since Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) stormed to power last May with the strongest election mandate in 30 years, has ended up a huge disappointment for the millions of Indian expats, especially those working in the Gulf.
NRI remittances have steadily been rising over the decades in sharp contrast to volatile FDI (foreign direct investment) inflows. From just $2.1bn in the 1990-91 fiscal year, accounting for just 0.7% of India’s gross domestic product, inflows swelled to $66.1bn in 2011–12 to account for 4% of the GDP. Remittances topped $70bn in 2013-14, according to World Bank data. For an estimated 30mn Indian expats, whose remittances currently account for around 5% of the $2tn Indian economy, the unspoken status quo in the budget has been a big damper.
The NRIs, who pumped around $71bn in 2013-14, made India the largest receiving nation in the world. “Your sustained remittances over the years have contributed to our foreign exchange reserves and are a valuable livelihood source for millions of dependents in India,” External Affairs Minister Sushma Swaraj said in Muscat during a recent visit.
Finance Minister Arun Jaitley did not reveal any specific NRI-related proposals in his budget speech, according to Doha Brokerage & Financial Services (DBFS) managing director and CEO Prince George. There were expectations that the NRIs would be treated as “far-away residents” and that there would be some positive proposals vis-à-vis their remittances and investments. “That announcement was not forthcoming. That was the one major disappointment because this has been promised by Jaitley in his various speeches overseas, particularly in New York and Australia,” Kochi-based George said.
Over the years, various federal governments in India have tried to widen the revenue base by trying to tax NRIs. In 2002, the Vijay Kelkar Committee report had recommended that the income accruing to NRIs from their investments in India should be brought within the tax net. The Congress-led government backtracked in 2012 on a proposal in the Direct Tax Code Bill requiring NRIs to pay taxes on their global income if they stayed in their home country for more than 60 days in a financial year. In October last year, the BJP-led government quietly decided to impose a service tax on foreign remittance fees to India at the rate of 12.36%.
Though lacking in such big-bang reforms as freeing up the labour market, the budget seeks to go big on infrastructure upgrade and increasing the state revenue; even if it means slowing down a bit on fiscal rectitude. It now aims to bring the budget deficit down from 4.1% to 3.9% of output this year, not the 3.6% originally planned.
In a wider sense, the growth-oriented, domestically-driven BJP might not have a compelling reason to factor in the millions of low-paid Indian expat workers in the “bigger picture”. But the NRIs, who have been pumping in steadily rising remittances (easy money to support the Indian economy) over the decades - no matter how topsy-turvy the global economic currents be - deserve a better deal.
