The Gulf countries, a major source of NRI remittances to India, have been experiencing unprecedented growth in the cost of living on the one hand and a steep decline in exchange rates due to most Gulf currencies' peg to the dollar.

Indians in the UAE have lost about 12 per cent of their earnings due to exchange rate variations and nearly 10 per cent is lost in the increased cost of living, the Gulf News said.

NRI deposits, which account for a major share of India's forex reserves, are on a declining spree due to the weakening dollar, lower interest rates and the Gulf's rising cost of living.

"The saving potential of an average Indian working in the Gulf has come down by more than 30 per cent during the past two years. Although many of them are remitting the same amount or more in dollars, the reduced exchange rates of Gulf currencies are directly hitting their saving potential," said

Sudhir Shetty, general Manager of the UAE Exchange Centre. "However, with falling exchange rates, people's saving potential has come down. That is reflected in declining bank deposits," Shetty was quoted as saying by the paper.

"While falling rates and the interest rate cap on foreign currency deposits are the main reasons attributed to the decline, people have also started diverting funds to other investment options like real estate and the stock market," another banker said.