There is a need to utilize more of these NRI investments

India has the largest overseas diaspora in the world with 32 million non-resident Indians (NRIs) and overseas citizens of India (OCIs), according to a report by the ministry of external affairs. NRI investments in India mostly consist of fixed deposits. Direct equity and mutual funds get only 9% of NRI investments, contrary to popular belief. Among countries, the US, Singapore, UAE and the UK are the top four countries, accounting for about 54% of India’s remittance inflow.

India has the largest overseas diaspora in the world with 32 million non-resident Indians (NRIs) and overseas citizens of India (OCIs), according to a report by the ministry of external affairs. NRI investments in India mostly consist of fixed deposits. Direct equity and mutual funds get only 9% of NRI investments, contrary to popular belief. Among countries, the US, Singapore, UAE and the UK are the top four countries, accounting for about 54% of India’s remittance inflow.

Remittances benefited from the gradual structural change in the key destinations of Indian migrants from predominantly low-skilled employment in the informal sector in the Gulf Cooperation Council (GCC) countries to a dominant share of high-skilled jobs in high-income countries such as the US, UK and East Asia (Singapore, Japan), Australia and New Zealand.

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Remittances benefited from the gradual structural change in the key destinations of Indian migrants from predominantly low-skilled employment in the informal sector in the Gulf Cooperation Council (GCC) countries to a dominant share of high-skilled jobs in high-income countries such as the US, UK and East Asia (Singapore, Japan), Australia and New Zealand.

NRIs can invest in stocks or bonds of an Indian company through the stock exchanges, apart from mutual funds, ETFs, government securities, treasury bills, bonds. They can do this through an NRE (non-resident external) account or an NRO (non-resident ordinary) account. Their investments can be either on repatriation basis or on non-repatriation basis, with investments made through the NRE account being repatriable while those through the NRO account have a repatriation limit of $1 million each financial year.

Above the $1 million limit, the following transactions are permitted by the RBI: Interest income earned on bank savings and deposits, dividend income and all current business income earned in India

NRIs can manage these accounts by appointing a holder to look after their NRE or NRO accounts in India, or execute a power of attorney to handle their investments, or do it themselves through an online stockbroker.

NRIs can invest in futures and options segments of the stock exchange from rupee funds held in India without repatriation. However, they are not permitted intraday transactions in the cash segment and must take delivery of shares purchased and provide delivery of shares sold. Short selling and trading in currency derivatives are not permitted.

As a financial intermediary serving the Indian diaspora by opening domestic market opportunities to them, we have noticed some concerns related to their onboarding process. If these are approached constructively, we are confident that inflows from NRIs can increase healthily.

The absence of an online KYC (know your customer) process for NRI customers makes it difficult for them to enter. If the video KYC facility available to domestic customers is extended to NRIs, it will greatly facilitate their onboarding process. In addition, the list of KYC documents and the process of their submission can be simplified, which is currently very tedious and expensive. Over 60% of applicants who have expressed interest in the account opening process do not complete the attestation formalities and then abandon the account opening journey because the attestation process in offshore jurisdictions is cumbersome. Simplifying the tax treatment of employee stock options (granted and exercised) by India-based employers of NRIs would go a long way in simplifying their tax compliance.

NRIs are keen to contribute to India in many ways. As India consolidates its position as a preferred global investment destination, inflows from the NRI community may also rise significantly from current levels. This inflow is more stable and predictable and resistant to some of the institutional inflows, which are by definition opportunistic in nature.

If the government addresses some of the operational and process issues faced by NRIs related to their onboarding and taxation, we foresee significant additional inflows into other asset classes such as equities and mutual funds.

Vijay Chandok is the Director and Chief Executive Officer of ICICI Securities

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