THERE was a time when I would visit the bank for my monthly allowance while at university in Mumbai and come away smiling.

I would receive a little extra every month, thanks to the favourable exchange rate between the Bahraini dinar and the Indian rupee.

When I first left for India, the exchange rate remained around Rs125 and slowly as time passed and the economy slowed down, while the rupee weakened against the dollar, I received little increments.

The exchange rate stood at Rs150 last week and I couldn't help thinking that I would have been at the receiving end of a little fortune, if I were still in India.

However, the lucky run for the dinar is to receive a setback, thanks to the Indian government's move to tax remittances from the beginning of July.

While there's been much hue and cry about the policy change, which was introduced with the Indian budget earlier this year, it must be noted that the tax will be levied only on the transaction fee and not the whole amount remitted.

Nevertheless, it is still harsh on many remitters in Bahrain who send money periodically to dependent families back home.

India is looking to plug its budget deficit by raising money from any source possible.

It is ironic, though, that the service taxes will impact the Indian expatriate community who are one of the main contributors to the inflow of money into the economy.

Businessmen and bankers I've spoken to say that the taxes will deter people from remitting money to India.

Another concern is that additional charges will lead to a rise in money sent through illegal channels.

India's Central Bureau of Investigation estimates that $500 billion is stashed away by Indians in foreign banks to escape stringent income tax rules in the country.

There have been fasts and protests led by many activists in India to bring "black money" back into the country.

With the rupee at an all-time low and a slowing economy, the new policy measure would actually be counter-productive to any efforts to restore confidence in the India growth story.

While most economies are tightening their belts, it is inevitable that India would follow suit.

However, the measures are poorly executed as most exchanges seemed unaware of the policy change which will come into effect in a few days time.

Evidently, they don't want to turn away customers sending money home. At the other end of the spectrum, Indian students studying abroad with parents remitting money from India have been the hardest hit. It requires a lot of Indian currency to exchange money to dollars or pounds and expenses for students studying in the UK and the US have risen substantially in the last few months. A wiser policy would have been to exempt money sent to students and families from being taxed. It's a bit cruel to tax pocket money.