Late Extra: Low returns better than vanishing capital

The weakening of the American dollar, rising inflation and practically non-existent interest rates are expected to take a higher toll worldwide compared to that on the newest battleground – Iraq.

As for non-resident Indians (NRIs), it is imperative that you keep your cool. Hold on to your money. Low or no returns are still better than sinking your hard earned savings into schemes which turn out to be scams. Be warned that there are plenty being floated in India which, while not being outright scams, are devised in ways that border on one.

Now if we are agreed on the coinage, remember the cliché – two sides to a coin. Well, for the NRIs, it is literally that. For those who are going to remit funds to India now or over the next few months the weakness of the greenback means getting fewer rupees to the dollar. For those who may want to repatriate funds at a later date the strengthening of the rupee will mean paying fewer rupees for each dollar bought. It all depends on what one wants to do.

One of the results announced at the closing of the Indian financial year 2002-03 was that the rupee had ended the year on a much stronger note than the previous one. In fact, the rupee ended on an 18-month high from the 2001-2002 close of Rs48.79 to the dollar to Rs47.48 at the end of 2002-03 fiscal.

Other categories apart, like the Indian exporter, for the NRI, this strengthening of the rupee and weakening of the dollar 'may' be good news. I have chosen to qualify my statement with a 'may' because in this fast changing politically driven economic scenario, when the war on Iraq threatens to prolong, a long-term forecast would be sheer folly.

In the short term, however, NRIs, especially in the Gulf, who have remitted their savings to a supposed safe haven in India could still gain albeit marginally on the conversion rates at a later date.

The Indian government has taken two very important decisions in the last financial year, which will directly impact on the NRIs, especially over the next three months.

The first was the permission to repatriate funds within a limit and the second which hurts (but is still not a law since the finance bill is yet to become an Act) is the Not Ordinarily Resident (NOR) status of returning Indians.

It will depend in which category the NRIs find themselves. The equation will differ from person to person. In the first category will be those who have repatriated funds especially from the perceived war zones like Kuwait but have not returned to India.

In the second will be those who are in low risk areas like the United Arab Emirates but have still chosen to repatriate whole or part of their savings.

In the third category are those who have been forced to return due to a variety of reasons ranging from job loss to business failure.

Whichever category you may find yourself in, I am sure that you would like to have access to foreign exchange at a later date. It may be as capital if your papers for emigration to another country are being processed; or you need to pay for the education of your children studying or intending to study abroad or even to service your insurance policy (whatever that is worth), the premiums of which are still due.

As matters stand today, if you have parked your money in India, you may gain marginally or even handsomely. Suppose the dollar to the Indian rupee exchange rate is presently 47 and if the rupee continues to strengthen and goes up to 46 to the dollar you would be a marginal gainer. If the Indian rupee continues to gain and the exchange rate becomes 40 to the dollar you would have gained handsomely.

In theory this scenario seems very attractive. In practice, you would have to take into account the rate of inflation both in India and abroad and the buying power of the dollar when you actually take a decision.

I wish I could second-guess the monetary values say over the next six months. But no respectable financial analyst will hazard such speculation, especially when the world economic scenario is so fluid.

The Iraq war is the most immediate factor. It will be after the war is over, hopefully soon, that a review would have to be done.

Give your financial crystal ball a rest. Be content with what you have and hold on to it for dear life. Sit out the war – and then take a decision. Under no circumstances venture into investment schemes which promise everything under the sun but when pay back time arrives, you find that it is not just the promised return, which has vanished, but your capital, too.