The Indian rupee declined to to a low of Rs18.56 against one UAE dirham (Rs68.17 against the US dollar) at 8.30pm UAE time (5.30pm GMT) on Wednesday, january 20, 2016, surpassing its September 2013 lifetime low of Rs18.55 vs Dh1.
Several experts expect the beleaguered rupee’s worth to face a further decline in the medium term, and an exchange rate of Rs20 vs Dh1 may be a possibility this year.
In fact, Assocham, India’s industry body, sees the recent depreciation of the rupee as a welcome sign for India’s exports, and has called for Reserve Bank of India (RBI) to let the rupee take its natural exchange course unless there is massive fluctuation in the short term.
“India should allow its currency to slide while the RBI should use ample foreign exchange reserves to defend the currency only if there is a rout situation,” the industry body said in a report.
The body maintains that China’s recent yuan devaluation, third in five months, will negatively impact Indian firms which have export exposure to China in sectors such as tyres, pharmaceuticals, steel and organic chemicals textiles due to a volatile change in terms of trade.
China is among India’s largest trading partners, with Indian exports to China amounting to $11.95 billion in 2014-15 while imports stood at a massive $60.39bn, resulting in a trade deficit of $48.44bn for India. Recent successive yuan devaluations threaten to widen that trade deficit, as Indian exports become expensive and, therefore, unviable in some cases.
Analysts warn that deteriorating economic indicators in India and across emerging markets bode ill for the Indian currency, which has seen a decline of more than 73 per cent in the past eight years, or more than 7 per cent year-on-year decline.
In the most recent eight months, the rupee has shed 11.35 per cent, or more than 1.4 per cent a month.
Given that, it is only a matter of time that the rupee sheds another 8 or so per cent to decline below the Rs20-mark against the UAE dirham (Rs73.46vs $1).
That is indeed good news for Indian expats in the UAE and across the world who remit money home every month or who may have outstanding financial obligations back home that can be now fulfilled with less of dollars, dirhams and dinars as opposed to a year ago.
On the flip side, any gain is only notional – after all, we spend a majority of our earnings in the currency we earn and in the country we earn it, and only remit perhaps a small proportion of our income every month.
Nevertheless, with the rupee falling to its lowest level ever, the decline is an opportunity for NRIs to clean up their home-market debt or make a fresh investment at one of the most favourable exchange rates ever. Here’s how:
1. Remit it
The first step to any potential investment – be it in Indian shares, property, or even a fixed-income deposit – will need you to first remit the money, and you should do it while the exchange rate is rewarding. You might want to accumulate your resources (the next salary cheque for most employees is 10 days away).
2. Prepay your outstanding debt
It is no state secret that Indian nationals like to invest in property, and most NRIs secure a home in India before making property investment in the country they work in or elsewhere. Which means that many of us would have taken out home loans with Indian banks for properties in India. With interest rates beginning to go north now, the interest burden on that mortgage will go up too. It may be time to borrow cheap – some UAE banks and those in other Gulf states with a fixed peg to the dollar are still offering low borrowing rates – and prepay tat outstanding back home. Nevertheless, do your math before going for a prepayment by borrowing afresh and prepay only if you're making a reasonable saving in interest outgo.
3. Explore fixed income options
The recent revision in the US Federal Reserve’s interest rates have had their echoes heard across the world, including in the Indian banking system. You can still earn handsome returns (up to 9 per cent per annum) in fixed deposit products with some of India’s public sector banks. Keep in mind, though that the rupee could well depreciate at a similar rate, and you may not ‘earn’ anything on the deposit when compared with keeping your dirhams or dollars in a non-interest-paying account.
4. Invest in Indian shares
Okay, this advice comes with a strong disclaimer – the Indian stock market, like others in the world, is undergoing a correction, and could easily fall another 10 to 15 per cent from here on. But as the world renowned investor Warren Buffet once famously remarked – be fearful when others are greedy, and greedy when others are fearful. As markets reach their lows, it may be prudent to keep the cash ready and jump on the bandwagon once they’re on an upswing.
5. Buy a house in India
Again, do your homework before taking the plunge. Although not to the tune of stock markets, but property prices can and do fluctuate and it is best to study the proposed market’s potential movements before making a huge investment.
In the end, what you’d like to do with the extra rupees that your dirhams are earning today depends on your individual circumstances and investment objectives, but do remember the golden rule of investment – what goes up, comes down. And vice-versa.