It was a shocking, unforeseen turn of events when the Indian government banned the Rs. 500 & Rs. 1000 notes overnight, and simultaneously, the United States elected the new president. With the Indian government scheme banning the Rs. 500 & Rs. 1000 notes in India, many people and businesses are to be affected, especially those operating on cash or undeclared money also known as “black money.” With this move, black money holders are left with just two options – either route this money through banks, declare it to be their income, and pay taxes on it, or they burn their stashed notes. This basically means that money will stop flowing as cash, and most of it will be treated as tax-paid income also known as "white money.” Thus, the buying power of a person holding tax-paid money will be stronger than those who hold black money.
There are 3 ways NRIs will be affected by the currency ban:
The real estate market in India will be one of the most heavily affected by the move to ban currency notes of Rs 500 and Rs 1000. This market would crash slowly but is also expected to recover quickly. The market may not favor the seller at this point since very few people have tax-paid money to invest. It is surely a boon to any buyer who will be able to purchase at an affordable rate, however buyers will have to use tax-paid money in order to acquire properties in India. In this equation, the real estate market is expected to drop since the buying power of Indians in India will drastically weaken. On the flipside, the NRIs in the USA will have stronger purchasing power for Indian property as they will possess much more tax-paid cash flow, and the affordability of 1 USD at Rs. 68 will allow NRIs to obtain real-estate much more easily. Congruently, NRIs will have more power to acquire real-estate in the U.S. as the U.S. dollar is expected to depreciate considering the present scenario of eradicating black money.
With the new presidency in the U.S., one of the first things he has vowed to focus on at the inception of his presidency is immigration reform. By imposing strict immigration policies on legal immigration processes in order to keep it within “historic norms” and increasing prevailing wages for H-1B visa holders, there is a high possibility in employers reducing the number of skilled migrant workers. Immigration reform could also mean a delay in the immigration process for those waiting on permanent residency or citizenship. Though it is too early to conclude anything, it is certain that the cash flow from NRIs in the U.S. to India will begin to increase. This also means that the remittance industry will move to newer heights with NRIs sending more money overseas.
Due to the government’s efforts and objective on eradicating black money from India, the currency in circulation may decline substantially if scrutiny deters people with unaccounted cash from exchanging or depositing money. However, with higher deposits to the currency ratio, the increase in money might mitigate the impact on overall money supply. If the money supply declines temporarily, it may lead to a deflation on the economy. In the long run, this can mean the rupee may get stronger, and the spending power of NRIs holding dollar accounts would drastically increase, in turn, increasing the remittance flow to the USA.
Disclaimer: The information represented above is our views on the present scenario of how Currency bans will affect the remittance and NRIs in the USA. The authenticity and accuracy of the article is not guaranteed.