If an American NRI visits India now, his dollars will buy much less. This is because the Indian rupee has strengthened against the dollar since 2002, crossing the watershed of Rs 41 to one dollar last week.
By this crossing, India joined the top dozen countries in the trillion-dollar club. The Indian economy is a trillion-dollar economy since its GDP is now valued at Rs 41 trillion. In 1998, the dollar was valued at Rs 41.26 but the Indian economy was not so big in terms of GDP.
Then the dollar become stronger vis-à-vis the rupee to 43.05 on its average annual rate in 1999, moving up to 44.94 in 2000, 47.18 in 2001, touching a peak of 48.59 in 2002. At one point in 2002, the dollar commanded over Rs 49! Then it started declining to 46.58 in 2003, easing off to 45.31 in 2004, edging down to 44.10 in 2005 and touching 43.21 in 2006.
Now when the dollar touched Rs 41, India entered this exclusive Club because its economy has grown dramatically in the last nine years.
So, is it an occasion for NRIs to celebrate India's progress?
For a start, the NRI visitor will get less for his dollars in India. This is a lot less than Rs 48-49 he got for his dollar in 2002. But his Indian relative visiting him on holiday in the US will have a few more dollars to spend there.
If the NRI wants to buy property in India, it will make a dent in his cash flow, as he will transfer many more dollars for the same property price. He would have been better off if he had bought his property five years ago when the prices were not so astronomical and the dollar was at a peak versus the rupee. For NRIs importing goods and services from India, may pay more but in almost all cases, Indian exporters always quote in dollars and this will not make much difference.
The NRI investor will benefit twice over. The Indian stock market capitalisation at $944 billion is still shy of the one trillion mark. A Credit Suisse report said that going by history, stock markets in eight out of 10 countries had risen in a one-year period after they first crossed the $1 trillion mark in GDP. Thus the Sensex can possibly maintain its bull run despite the yo-yo performance this year. So an NRI investing in Indian stocks can reap twin benefits of exchange rate and dividends over a period.
If an NRI is exporting goods to India, he may find that the demand is higher because Indian importers of American goods will now find them cheaper. So the NRI exporter to India stands to benefit by selling more. Another factor is the high growth of Indian economy and so the higher demand for 'capital goods' and specialized equipment to set up new factories and businesses.
A number of Indian companies rely heavily on imported capital equipment and consumables on a regular basis and they may well expand their operations if they save on their import costs from the US.
NRIs can also look forward to more Indian companies buying out more foreign companies. With a stronger rupee, they will pay less in terms of dollars for their new acquisitions. The Reserve Bank of India has recently allowed all Indians to invest up to $100,000 every year. Now NRIs may find their Indian cousins not just on a shopping spree in the US but also scouting for stocks by paying less for their dollar investments in rupees.
The Indian cousins may well become their neighbours after investing in property because they pay a down payment of $100,000, get a mortgage from an American bank with operations in India or an Indian bank with operations in the US and pay the balance over the next few years - all legally!
India, as an economy, stands to gain from this rupee-dollar rate. A big chunk of India's imports are crude oil and gold. Oil imports make up a third of all imports into India. Gold is consumed in large quantities in India. Now Indians will benefit by paying less for both these commodities. NRIs in the US buy a lot of gold ornaments before any wedding in the family. Now they can come to India to buy them as gold ornaments will perhaps be cheaper for them in India than in the US.
The trillion dollar club has only 12 members; the top member US having GDP of $13.4 trillion while number two Japan has a GDP of $4.4 trillion and the rest have GDP of between two and one trillion dollars. Now India has made it to this club, so all NRIs can celebrate!