Indian expat wages risk further slump

PAY THREAT: Millions of Indians working in Gulf will likely see the relative value of their salaries drop even further. (Getty Images)

Millions of Indians working in the Gulf will likely see the relative value of their salaries drop even further, with expected rate hikes in India set to drive up the value of the rupee.

The Reserve Bank of India (RBI) is gearing up to raise interest rates when it meets on April 29 to battle runaway inflation in the country, which touched a 13-month high of 6.68% in the middle of March.

The move will add further upward pressure on the value of the rupee as international investors seeking better returns in the global currency market buy up rupees.

Further increases in the value of rupee means Indians in the Gulf will have even less money to send home to their families.

Compounding the situation is the continued fall in the value of the US dollar, to which all Gulf countries, bar Kuwait, have their currency pegged.

The rupee appreciated around 12% against the dollar in 2007, and has gained another 1.5% since the start of the year.

The falling relative value of Indian workers' wages has become a major issue in the Gulf, especially for low-paid labourers in the construction sector.

Numerous strikes have taken place on construction sites across the Gulf, with Indian labourers calling for pay rises to make up for the falling value of the dirham against the rupee.

Analysts said the expected cut by India's central bank would pile further pressure on expatriates living in the GCC.

“Basically it [the appreciation of the rupee] makes India more expensive and much more difficult for expats living in the Gulf to send money home,” Marios Maratheftis, regional head of research at Standard Chartered Bank in Dubai, told ArabianBusiness.com.

“We see this continuing theme over the next one to two months, unless of course the Gulf countries depeg, revalue or both.”

A research note released by US investment bank Morgan Stanley on March 31 predicted increased volatility for the Indian rupee and higher rates at the end of April.

“If there is no tightening, it is seen as a sign that the RBI is putting growth before inflation, a trigger for rupee to head downhill,” Morgan Stanley said, quoted newswire Bloomberg. “If RBI shows its inflation fighting credentials, then the rupee could head uphill.”

The RBI has kept the benchmark interest rate unchanged at 7.75% since March 2007, but is likely to raise rates in response to an unexpected jump in inflation.

“We think that inflation is the big issue in India,” Maratheftis said. “It is an issue that authorities are concerned about and they are trying to be more aggressive in fighting it."

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