Indian Budget 2025: Middle-class NRIs unimpressed
The Union Budget presented by Indian Finance Minister Nirmala Sitharaman on February 1, 2025, was a big win for the Indian middle class but failed to address many of the long-pending demands of the middle-class Indian diaspora.
Their demands included, among other things, a comprehensive social security scheme under one umbrella covering pension, health insurance, other contingency schemes, and a rehabilitation programme on resettlement. The existing schemes have not reached them due to multiple reasons.
Currently, NRIs are not permitted to join most of the popular Small Saving Schemes of the Indian government, including the Sovereign Gold Bond Scheme (SGBs). Discriminatory personal tax laws and excessive airfare during festive and school vacations are other areas of concern.
The representations made by Overseas Associations did not find any respite in this matter. On the other hand, the Union Budget tightens tax regulations for NRIs including students and young professionals abroad.
There will be more scrutiny on their remittances, residential status, financial transfer, and higher compliance and risk of double taxation. These reforms, positioned as part of India's broader alignment with international tax norms, introduce financial complexity for those balancing obligations between their host country and India.
It is worthwhile to mention that the Indian diaspora has sent back home a whopping amount of $129 billion in 2024, the highest ever. The forex earnings are vital for the economic development of India. As such NRIs deserve better treatment.
However, the NRIs also benefited from the proposed income tax upward revision on the basic exemption limit of Rs 12 lakhs from the existing Rs 7 lakhs and the benefits due to the revised tax slabs, on their domestic income.
The NRI entrepreneurs and the investing community are happy as their demand for parity in taxation, and exemptions were met. The foreign investor-friendly announcements and the 100 per cent FDI in the insurance sector will attract more capital flows to the country.
Back home, various initiatives in the agricultural MSME, urban reforms, increase in capex, education, employment generations, duty cuts, export reforms, the commitment to doing ease of business, etc. are the government's efforts to accelerate growth.
INDIAN RUPEE OUTLOOK
No concrete measures were seen to arrest the depreciation of the INR. The Indian Rupee has been under pressure since October 2024 and it depreciated over 4 per cent against USD.
All Emerging Market (EM) currencies will continue to be under pressure in the short term because of the rates held, the hawkish stand of the FED, and the US trade and tariff policies. Indian forex outflow is continuing.
In a statement, the Indian Finance Minister: 'There has been no 'devaluation' of the Indian Rupee, which is a feature of a fixed exchange rate regime. The value of the INR is market-determined, with no target or specific level or band.' This statement is also to be seen as a shift from the earlier stand.
The Reserve Bank of India (RBI) has been constantly intervening in the forex market to keep the rupee fall minimum. Going forward, the intervention will be less and the rate will be market driven. NRIs and Indian exporters are expected to benefit from this move. The RBI policy review scheduled during the week will give cues about the rupee's movements in the short term.
The NRIs and Indian exporters are happy with the INR depreciation as they get more value for their earnings.
No doubt, the provisions of the budget indicate the strategic approach of the government toward economic expansion, fiscal prudence, and sectoral growth. While the Indian middle class has been taken by surprise by giving higher tax exemptions and reduced tax slabs, it failed to impress its counterparts abroad whose remittances are vital to the Indian economy.
The writer is the Executive Advisor to the Board, Global Money Exchange, Muscat
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