The fall and fall of the Indian stock indices must surely have given the jitters to non-resident Indians who are also looking at the dismal global scenario that has caused this. Not to worry. Among several other home truths, Indian planners seemed to have figured out the worth of domestic savings and NRI remittances when it comes to insulating the economy from global tremors.

Steps are being rapidly taken so that overseas borrowing could get easier and non-resident Indian remittances made more attractive under a plan by the government to pump more cash to fuel growth in the economy. The specially constituted group headed by Finance Secretary Arun Ramanathan met last week and discussed several liquidity infusion measures including a further cut in cash reserve ratio (CRR) and the repo rate - the rate at which banks borrow from the central bank to meet liquidity requirements. Quoting high level sources, the Hindustan Times reported that a rise the interest rate on NRI deposits is also being discussed.

"If required the government and the RBI could plan something similar to the India Millennium Deposits or the Resurgent India Bonds. These were special deposits for non-resident Indians with returns higher than that available elsewhere," the source was quoted as having said. This would probably be revealed on October 24, when Reserve Bank of India (RBI) governor D Subba Rao presents the mid-term review of the credit policy. A possible cut in the statutory liquidity ration (SLR) from the current 24 percent is also reportedly under consideration.

It should be clear to all that the present state of the Indian stock indices does not faithfully reflect the strength of the economy. While there certainly is a slow down, it is not to the extent that the bourses have fallen. The stocks crash is to a large extent a result of the pulling out of foreign institutional investment (FII) from the Indian financial markets. FIIs have sold about $10bn or about 13 percent of the total investments they have made in India. It will take time for the FIIs to invest once gain into the Indian markets. However, if one takes a look at the economy, even a down-graded 6.5 to seven percent growth project for the coming year, compares well with the 2-3 percent global growth estimate.

That is to say, India remains a good place to invest and this is probably a very good time to do it. There is credence to the point when Federal Bank CEO & MD, M Venugopal said on the recent Gulf tour: "I will ask NRIs to take advantage of the current situation of high exchange rates and interest rates." Indian banks are seen at a safer position during the current global financial crisis due to their "insignificant" exposure to the US markets. These banks also did not have a large presence of structured products, which were responsible for the crisis in the West. Venugopalan suggested that it was advisable to invest in non-resident ordinary (NRO) deposits or relatives' domestic deposits as rates are higher now. NRO deposits of less than one year yield an annual interest of 10.6 percent and those of less than three years fetch 10.5 percent while non-resident external (NRE) savings deposits earn only a little over four percent.

Sanjay Jindal, president of India's Associated Chamber of Commerce and Industry (Assocham) has suggested the removal of the cap on interest rate for NRI deposits. NRIs and PIOs in the US and other western nations are already sending more money home as a result of the severe crisis there. The depreciation of rupee and rising rate of interest for fixed deposits in foreign currency have made NRI deposits attractive. The Times of India reported that in recent weeks, many US-based NRIs have switched their funds from US based entities to Indian banks by way of NRI deposits. For instance, SBI in Gujarat, which had mopped up NRI deposits worth Rs290 crore in the last five months, has collected over Rs 50 crore in September alone.

In a recent interview on CNBC-TV18, Uday Kotak, Vice-Chairman and Managing Director of Kotak Mahindra Bank, said he expected the current global pain to remain for the next three-five years, particularly, in the United States (US), Europe and Japan. He strongly felt that India has to stop depending on global flows because global economies themselves are in a problem, and said the country should instead rely more on its domestic savings and domestic ability to build its economy.

Asked about whether removing limits on NRI deposits would help, he said: "At this point of time, every overseas Indian is scared about his money with any global financial institution. At a time like this, when Indian financial institutions and banks in particular are in such good shape in general, we can actually attract an enormous amount of overseas Indians' money into India. He is looking for safety." He said India should take this as "one huge opportunity to track significant NRI flows into our economy on the basis that we are a much sounder economy than probably any other economy in the world at this point." He suggested that the current rules on FCNR (foreign currency non-resident) deposits should be liberalised in terms of the kind of spread over Libor (London inter-bank offered rate), which banks can pay.

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