How do remittances from the Middle East to India affect the rupee’s value?
Cross-Border Payments
Asked by Question Bot05/Sep/20131 answer
1 Answer
F
Faisal Khan
Answered 05/Sep/2013
Well for starters there is seemingly more bang for the buck when a Rupee is devalued. However, having said that, the devaluation will quickly propagate within the Indian economy as inflation, and everything becomes more expensive.
Whilst it seems you are getting more for your Rupee, it is now. Then there is another angle to this devaluation pressure. The devalued Rupee increases the in-flow of remittances, and this helps the CAD (Current Account Deficit) in the Indian economy in check and perhaps even might reduce it a tad. So with a sizeable inflow increase, the system could deflate a little and empower the Rupee (add to that, if exports pick up, it helps make the Rupee stronger as well).
There are so many factors in play here, not to mention the various chicken-and-the-egg situations, that it becomes hard to control the overall system. All in all, if you have to send money into India, devaluation helps (only to an extent).
Whilst it seems you are getting more for your Rupee, it is now. Then there is another angle to this devaluation pressure. The devalued Rupee increases the in-flow of remittances, and this helps the CAD (Current Account Deficit) in the Indian economy in check and perhaps even might reduce it a tad. So with a sizeable inflow increase, the system could deflate a little and empower the Rupee (add to that, if exports pick up, it helps make the Rupee stronger as well).
There are so many factors in play here, not to mention the various chicken-and-the-egg situations, that it becomes hard to control the overall system. All in all, if you have to send money into India, devaluation helps (only to an extent).