This Is How the Declining Rupee Is Affecting You

Published June 24th, 2018 - 08:32 GMT
India was the top recipient of remittances from the UAE in the last quarter of 2017. (Pixabay)
India was the top recipient of remittances from the UAE in the last quarter of 2017. (Pixabay)

As a second-generation non-resident Indian and with my vocational understanding of the financial world, I am constantly watching forex for where the rupee stands, and I'm not alone.

We've seen the value of the rupee fall three per cent just in the first quarter of 2018, and there's a forecast of a fall on the wrong side of five per cent across the coming quarters. This means different things for different people, depending on who they are, what conversion their fixed assets follow, and even what they do.

The good news is mainly for blue-collar expats living in the UAE: your monthly remittances just had an incredible bump as a result of this drop in the value of the rupee. And with VAT and sales taxes all merging into a single [albeit quite inflated] charge of 18 per cent across the board, as well as the government's bid to regulate rations for the lower classes and the maximum retail price being taken more seriously than ever, this is actually working out favourably in India as well. Last year, expats in the UAE remitted around $44.7 billion, up 2.2 per cent from 2016, according to the Central Bank of the UAE. India was the top recipient of remittances from the UAE in the last quarter of 2017, receiving 34.2 per cent of the overall amount remitted from the country, or $15.3 billion. Exchange houses across the country are reporting a general 10 per cent jump in remittances since April 2018, when the rupee's fall became most apparent.

This begs the question: how does the downward trajectory of the Indian rupee affect trade, prices and business in the UAE?

The short answer is that this major setback for India causes a slight dent in certain markets (like realty). That doesn't sound so bad, does it? On paper, it really doesn't. There are heavy restrictions that the Indian government imposes on remittances, on foreign affairs, as well as trade and commerce between India and abroad. The rupee might stop depreciating if the Reserve Bank of India starts lifting the interest rates to combat rising inflation, but this may never happen. While any real estate already locked up by Indian NRIs is unlikely to be let go, new foreign trades will be hard to come by, and it won't be long before there is a state of stagnation in trade flows should the rupee continue to depreciate.

Moreover, other factors are coming into play with the UAE's current fiscal standing. The UAE recorded a current account surplus of 6.90 per cent of the country's gross domestic product in 2017 - that's almost double its GDP in 2016.

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While imports from countries like India are bound to increase what with the fall in the value of the rupee not only in India alone, but also its neighbour, Pakistan, it's unlikely that exports will increase at the same rate, and it's envisioned that the UAE's current account deficit is to widen to 1.9 per cent by the end of 2018. This is definitely a bad sign, and despite temporary relief from the new five per cent VAT scene and other taxes like the sin tax, there will be a need to increase the value of these taxes, inflate rents and realty values, regulate goods and services, increase interests on loans - and this can even lead to the introduction of new taxation politics, such as income tax for the middle and lower-middle classes.

Furthermore, to upkeep its resolutions for Expo 2020 Dubai, the UAE will may see an increase in governmental taxes, transport and road fines and prices, and the general cost of living may increase in the coming future.

Is there a solution or relief? We don't see it coming at a governmental level - unless India decides to change policies, or there is a miraculous growth in GDP there. At an individual level however, a good way to go about is to plan for your personal wealth and save for a better future, and systematic investment is a really effective way to achieve this. Wealth preservation is any investor's goal, and SIPs are a mechanism that helps do that.

The rules are simple: you can make fixed-amount investments in mutual funds on a regular basis and installments are equivalent and designed to get you long-term benefits that will be, for the most part, unaffected by forex. Regardless of what colour your collar is, you can start an SIP; there's a low investing minimum unlike the ones that tend to blow away new investors. You can maximise returns and enjoy time-bound withdrawals that allow for a regular, passive income. Should you ever feel like you need to leave, or travel, or an unplanned expenditure, this is an excellent way to take benefit of various moods of markets and forex rates.

The downward spiral of the rupee is troublesome to families in India and can be an omen spelling darker time ahead. But that doesn't mean it should take your personal account down with it.

By Pankaj Gupta

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