Investments and Lending in India have surely helped foreign investors to get good returns. But, there is no need to worry now as India is witnessing strong capital flow as these out flows may, in fact, help rein in the value of the rupee. according to the data on 'invisible' in the balance of payments, released by the Reserve Bank of India, Of the $39.2 billion of investment income transferred back home by foreign investors, $6.4 billion is transfer of profits and dividends earned back home on local investments and $12.3 billion is reinvested earnings,. Besides this, another major item of outflow is $5.6 billion interest on NRI deposit and $12.8 billion as interest on overseas borrowings.
"The bulk rise in income repatriated the dividends and profits from FDI and FPI equity investments, but rein vested earnings have also risen sharply," said Saugata Bhattacharya, chief economist, Axis Bank. She further added that general tightening of tax compliance in home countries, especially OECD, might also be adding to the repatriation."
From a market perspective, a strong rupee could have contributed to higher repatriation by foreigninvestors as there could be apprehensions that the rupee could weaken. "Also, expectations in the previous years that the rupee might weaken would have accelerated outflow, but this will mitigate going forward," Saugata said.
Economists often raise concern when such outflows, which are part of the current account in the balance of payments, rise as it could widen the current account deficit, an indication of a weak external sector balance sheet, stated Economic Times.