India’s economy has grown multifold in the last few years due to rapid industrialization and development. In recent times, the country has emerged as the fastest-growing major economy in the world and is expected to be one of the top three economies globally over the next 10-15 years amidst structural policy reforms taken by the government. Leading global investment banking company, Goldman Sachs said that India’s potential growth over the next decade could be around 6%.
However, the country can increase it to 6.7% and further 8.2% through increased labour participation and investment rate. At present, India ranks at 6th position by Gross Domestic Product (GDP) in 2022, which stands at $3.1 trillion.
This presents a massive investment opportunity for Non-Resident Indians (NRIs) to invest in the Indian market for higher returns. There are nearly 13.5 million NRIs and around 32 million overseas Indians making Indians the largest diaspora of the world, as per data from Ministry of External Affairs.
Today, most of the money remitted by the NRIs is to support their family back home in India, although they can use a large part of their savings to invest in India to grow their wealth immensely.
Here are some of the reasons why India can be an attractive investment destination for NRIs:
Rapid economic growth
India is projected to become the fastest growing economy in 2022-23 as per Morgan Stanley. The American financial services company has projected India’s GDP to average 7% during this period which could be the highest amongst larger economies.
Growth of the mutual fund industry
The mutual funds industry has observed tremendous growth in the last one decade. Indian Mutual Fund Industry’s average Assets Under Management (AUM) stood at ₹37.77 Lakhs Crore as on July 31, 2022 from 7.30 Lakhs Crore as on July 31, 2012 i.e. more than 5 fold increase in a span of 10 years.
Mutual funds are the most regulated and transparent of investment products and have gained a lot of popularity these days. They are a better option when it comes to investing. NRIs with limited expertise in Indian markets can opt for mutual funds for better returns as the portfolio is managed by a professional fund manager backed by a strong analyst team who have the required expertise on it.
Diverse corporate landscape
Indian equity markets offer opportunity to invest across a diverse spectrum as compared to other emerging markets globally. In the mid and large cap segment (more than 7000 listed entities in stock exchange) there are a lot of businesses with strong business models and stable revenue streams and superior growth prospects that can offer good returns when investing for the long term.
Higher interest rates
In India, the interest rates on savings instruments are higher as compared to countries like the US and UK. Small Savings Schemes and Bank deposits in India offer interest rates ranging between 6% - 8% while rates on similar products in the USA / UK are in the range of 3-4%.
A democratic system encourages free market, ensures Rule of Law and increased competition which further improves the performance of stock market. Efficiency of the stock exchange depends on an efficient institutional environment. India is a mature democracy with Institutions and Judiciary ensuring that Rule of Law is upheld.
Income earned from fixed deposits in NRE accounts is tax-free in India. Interest from investment on FCNR accounts is also tax-free. Tax will be deducted only on income taxable in India. NRIs are taxed at 20% on income earned when they invest in certain Indian assets. If that is the only income that the NRI has during the financial year and TDS has been deducted, then such an NRI is not required to file income tax return.
Varied investment options
India is open to NRI money to invest in their home country as compared to nations like the US and UK which have some restrictions. There is a plethora of investment options available in India for NRIs such as mutual funds, real estate, National Pension Scheme, equity investments through which they can diversify their portfolio.
New Investment avenues are opening every year in India as various financial sector reform measures are being taken by the respective authorities. NRIs have a wide range of options to invest in their home country as compared to limited options available previously.
However, it is suggested to understand the risk associated with the investment before putting in money so as to take a prudent decision for your future. This way they can not only earn good returns while investing but also, they can participate in the growth of their home country.
Rajiv Bajaj is the Chairman & MD at Bajaj Capital Ltd.