Cross border investment: Why is money in hard and money out easy?
Determining the Indian landscape as a lucrative investment option is an easy part. But cumbersome paperwork, prolonged processing times, need for frequent travels and lack of knowledge deter NRIs from investing in India. It poses the biggest challenge for NRIs who work in an international country, envision a post-retirement life in India yet struggle to make diversified long-term investments in Indian assets and financial markets.
Back in December 2020, The Reserve Bank of India (RBI) announced the opening of the second cohort of the regulatory sandbox for cross-border payments. Out of 26 entities, the RBI has exited the cohort regulatory sandbox with four entities that have been found viable for setting up a simplified system for Indians to send outward remittances and make investments in international markets with much ease.
Understanding the existing cross-border payment scenario
The current cross-border investment landscape exposes a contradictory picture. With constant government impetus and changes to the regulatory framework, Indian investments overseas have risen multifold in the last decade. For instance, an Indian looking to invest in a foreign financial market can do so within 2-3 days from the comfort of their home. On the other hand, NRIs planning to invest in Indian markets continue to face hindrances. Plagued by regulatory challenges, taxation web and cumbersome banking procedures, NRI investments remain low. Indian investments across borders are strengthening foreign currencies while the Rupee is falling to record lows.
For NRIs to invest in Indian markets, they have to first open a PIS account that requires an attestation from Foreign bank branch or embassy, this results in almost 60% drop offs in NR- Demat-accounts being opened in the country, contradictory, isn’t it? Shouldn’t we make investing into India an easier process vis-à-vis the other way around?
Indian money in foreign markets/Indians investing in foreign markets
In the past 1-2 years, Indians have invested heavily in the foreign markets owing to simpler execution and the emergence of fintech players facilitating outward remittance. According to recent stats – Indians have spent approx. $673.8 million on foreign investments in the past 12 months, 63.8 percent higher than December 2021.
Apart from this, buying stocks from the US, Canada, UK (United Kingdom), Europe and Japan has become easier. Indians find it a rewarding investment avenue that proves to be a high ROI option in a way but ultimately benefits other markets than India.
Conventional landscape for managing NRI’s money
With highly complex rules around KYC for NRIs, foreign residents wanting to invest in Indian markets face tough times. Though India has become one of the global startup hubs in the world, it still lags in managing NRIs’ money in the market. In one of the fastest growing economies in the world, people pay huge interest on investments due to a lack of policies that could facilitate the simplified process of investments in India.
For instance, the primary challenge an NRI faces when investing across the border in India is the obligation to carry out the process physically. It is a well-known fact that NRIs during their visits to India struggle with the paucity of time. Short notices, jam-packed schedules and never-ending to-do lists end up exhausting most of their time.
As a result, critical investment decisions are pushed to the bottom rung or get delegated to friends and relatives staying in India. In addition, he has to undergo an offline NRO/NRE account opening process followed by almost 10-15 documents to open a Demat account.
This process costs them a high rate of interest which essentially is a major deterrent in the whole process. On the other hand, investing in the US market requires a maximum of 2-3 days for an Indian resident. Through its digitized process, one can start investing without getting lost in the tedious process of account opening unlike an NRI wanting to invest in the Indian market who undergoes a physical process and wait for about 30 days to actually start investing in the market.
Technology- A ray of hope
In this quagmire of challenging cross-border investments, technology offers a ray of hope to
NRIs. This is the best time for India to build what it has to offer to the world. This will strengthen the Indian Rupee’s position in the global index. To improve the inward remittances and attract foreign investments in India, RBI should also ease the cumbersome process of KYC verification for NRIs and foreign residents. In addition, embedding new technologies and easing the cross-border investment framework can reshape the cross-border investment landscape in India and make Indian Rupee the world’s next powerhouse.
Source / Credits / Reference: Times of IndiaRef URL: shorturl.at/gxHY9
Back to blogs
Blog Views : 347 04-12-2022
