The global economic crisis of 2008 shook the world and affected every sector, including the foreign exchange market. The Indian government took several measures to protect its economy, including seeking help from Non-Resident Indians (NRIs). In this article, we will discuss how the NRI helped the forex issue in 2008.
Firstly, it is important to understand who NRIs are and their role in the Indian economy. NRIs are Indian citizens who live abroad and hold a foreign passport. They are a significant source of foreign exchange for India as they remit billions of dollars every year to their families and invest in Indian companies.
During the 2008 financial crisis, the Indian rupee was severely impacted due to the global economic slowdown. The rupee depreciated rapidly against the US dollar, causing panic among investors and affecting India’s balance of payments. The government had to take urgent measures to stabilize the foreign exchange market and prevent a further decline in the value of the rupee.
One of the measures taken by the government was to encourage NRIs to invest in India. NRIs were offered attractive schemes and incentives to invest in the country, such as the Foreign Currency Non-Resident (FCNR) scheme. Under this scheme, NRIs could deposit their foreign currency earnings in designated Indian banks for a fixed period and earn a higher rate of interest than in their country of residence.
The FCNR scheme helped to increase the inflow of foreign exchange into the country and stabilize the rupee. NRIs also took advantage of the depreciating rupee to invest in the Indian stock market and real estate, further boosting the economy.
Apart from investing in India, NRIs also played a crucial role in remitting foreign exchange to their families back home. During the crisis, many Indians working abroad faced job losses and salary cuts. However, they continued to remit money to their families, which helped to support the Indian economy.
The Indian government also introduced measures to make it easier for NRIs to remit money to India. For instance, the Liberalized Remittance Scheme (LRS) was introduced in 2004, allowing NRIs to remit up to $250,000 per financial year without any prior approval from the Reserve Bank of India. This scheme helped to increase the inflow of foreign exchange into the country and supported the balance of payments.
In conclusion, NRIs played a significant role in helping to stabilize the foreign exchange market during the 2008 financial crisis. Their investments and remittances helped to boost the Indian economy and support the balance of payments. The government’s measures to encourage NRI investments and remittances also helped to ease the pressure on the forex market and prevent a further decline in the value of the rupee. Today, NRIs continue to be an important source of foreign exchange and play a critical role in supporting the Indian economy.