Consumers and investors are being harmed by rising inflation in India, with NRIs facing unclear returns on their savings and investments. As a result of the growing prices, NRIs with expenses in India such as house maintenance, family upkeep, children’s schooling, and parents’ medical bills are feeling the heat of escalating charges.
For the 30th month in a row, India’s retail inflation rate, as measured by the consumer price index (CPI), reached a 17-month high of 6.95 percent in March, way above the Reserve Bank of India’s medium-term objective of 4%.
Food products were the primary drivers of India’s inflation. Food-related sub-groups accounted for four of the top five sub-groups with the biggest month-over-month rise in Index: oils and fats, meat and fish, fruits, and spices.
Gains in currency:
Due to the rupee’s devaluation against all major hard currencies, NRIs are better off than their Indian resident counterparts when it comes to the buying power impact of inflation. Cash depreciation means that a considerable chunk of the decline in buying power of NRIs in India is offset by increased amounts of rupees earned in hard currency.
NRIs often save money in India through non-resident bank accounts, fixed deposit accounts or corporate fixed deposit accounts. Rates on most of these fixed deposit programmes are 4.5-6 percent in the present low-interest climate. These fixed deposit programmes are giving negative returns due to the present inflation rate of roughly 7%.
“With the rupee’s buying power and exchange rate expected to fall further, NRIs should diversify their savings and investments away from strictly rupee-denominated asset classes,” said Krishnan Ramachandran, CEO of Barjeel Geojit Financial Services.
Deposits in foreign currencies:
In nominal terms, foreign currency non-resident (FCNR) deposits pay a lower interest rate than rupee deposits. These deposits in hard currencies protect the actual value and interest income from inflation to a large extent when inflation rises.
“In the coming months, rates on FCNR deposits are anticipated to rise,” said G.S Gopakumar, an investment adviser. “FCNR will remain an obvious choice until a clear trend emerges for the currency and Indian markets.”
NRIs and Persons of Indian Origin (PIOs) can open a term deposit account in India in any allowed foreign currency that is freely convertible (for terms of not less than one year and not more than five years). Many Indian banks have raised FCNR interest rates, and FCNR yields are expected to climb as global interest rates rise.
The stock indexes in India have been quite volatile. The markets have been falling for the past three trading days, and the trend resumed early Monday, with the Sensex plummeting by almost 1,000 points. “On account of inflation fueled by commodity prices, the crisis in Ukraine, the RBI’s continued cheap money policy and the increasing budget deficit scenario, the Indian market is expected to remain very volatile,” Ramachandran added. “In the long run, it’s a chance for investors to add fundamentally sound stocks to their portfolios.”
The Sensex has lost more than 3.5 percent this year. Foreign investors are fleeing Indian markets due to rising rates on hard currency assets.
While falling markets have taken a toll on NRIs’ equities and mutual fund portfolios, increasing inflation has peeled off a significant amount of value. “Markets have been weighed down by inflationary pressures due to the potential impact on margins and consequent profitability,” said Hemant Kanawala, Head – Equity, Kotak Mahindra Life Insurance.