Wednesday, April 6, 2011

India Journal: How India Can Help NRIs Invest

India is officially top in cricket. It also has almost the fastest-growing major economy in the world and has been projected by some to exceed China’s growth in the years to come. And, recently, it came out number one in remittances,

according to World Bank..

Indians remitted $52 billion to India in 2010, closely followed by China at $51 billion and trailed significantly by Mexico, which received $22 billion from its overseas population.

The report estimates that worldwide remittance flows total $440 billion so overseas Indians account for about 12 %. With Indians across social strata actively seeking opportunities abroad coupled with their willingness to travel anywhere from Poland to Paraguay, remittances home will surely increase.

Also enabling these flows is the widespread presence of institutions like banks and remittance providers that allow the money earned by Indians abroad to be sent to Indians in rural areas who may not even have a bank account.

However, it is important to consider certain areas that need attention to ensure that the flows remain strong and that the Non-Resident Indian population gets the assurances it needs to keep sending money back home.

From my own experience, besides sending money for parents and dependents, one of the biggest reasons NRIs seek to send money to India is to build or keep a home. For emotional reasons and family ties, there will always be NRIs willing to invest in their home towns in India. But what are they up against?

First, housing finance companies and mortgage-issuing banks do everything from housing exhibitions at overseas locations to instant loan approvals but largely confine their activities to property purchase opportunities in big metros. Given the considerable population that is from semi-urban and rural areas, there are very few ways an NRI can invest in a property in, say, Meerut or Mangalore while sitting in a foreign country.

Second, the construction sector is totally disorganized so finding the “right” builder is an insurmountable challenge. Even if one finds a reputable builder, local documentation requirements are a nightmare to manage remotely and require a host of in-person visits. The property registration formalities even in a thriving wannabe global metro like Mumbai are mind boggling to say the least.

Third, think about what NRIs are up against if they want to rent the property. The smaller inconveniences like managing utility and tax payments on a property are another burden.

Without the support system of an extended Indian family within India, very little of this can be managed by NRIs.

What are we up against in terms of competing for NRI dollars?

Property developers from across the world regularly advertise property in prime global hubs like Hong Kong, offering not only upscale properties but a host of value-added benefits that include completing all the purchase formalities and offering mortgages as well as providing additional services like managing all utility and tax payments and arranging rentals. Some even arrange for rental payments to be remitted overseas.

In India, it would seem a major opportunity for enterprising developers to provide turnkey property services that take care of documentation, registration, utility payments and tax payments. This can also be extended further into providing rental clients and managing rent collection and rent remittances.

Another critical gap in our NRI proposition is linked to investments and insurance. After NRIs were targeted through the successful India Millennium Bonds in 2000, there have been very few investment vehicles that have evolved specifically for NRIs.

The opportunity can play out in many forms from unique financial instruments that only NRIs can invest in to sector specific funds created for NRIs. Just as an example, funds and bonds which allow NRIs to invest in India’s infrastructure or education development could be a huge opportunity.

The start that banks and mortgage companies have made is only the beginning. A few simple measures can go a long way toward making India the preferred destination for parking NRI savings.

At present, the story is one of little progress. Take the case of NRI voting rights. That has finally come through after years of noise from the NRI community. But it is another case of the right step being taken without due consideration of how it might work. As it stands, it requires NRIs to be there in person IN  INDIA to vote; it does not allow them to exercise their voting rights through embassies or absentee ballots as other countries do.

Source: The Wall Street Journal

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