For the most part, Indians have looked on in horror as their rupee has undergone unprecedented declines against other foreign currencies. For example, the currency fell more than 20% against the US dollar between May and September 2013. While this is indicative of a gloomy economic outlook overall for India at the moment, there may be a few bright spots that have the potential to mitigate some of the worst effects.
First of all, Indian real estate prices have been on a tear in recent years, with prices rising since 2008 on average between 40% and 42% since 2008. However, the recent depreciation of the rupee has started to make the price of properties more attractive again, especially for non-resident Indians (NRIs) living in places like Dubai. In fact, it appears that investment inquiries from NRIs rose 20% there in June, and there are reports that investment levels have gone up by 50% year over year. This is a potential boon to the sagging Indian real estate development industry, which is also starting to offer schemes to NRIs to encourage investment.
Second, Indians working abroad send home more money than any other nation, using services such as Trans-Fast. Indians sent home $70 billion in 2012, a figure that represents almost 4% of the Indian GDP. This in turn has a positive impact on the incomes of Indian families whose breadwinners work abroad, creating an economic stimulus to the economy which goes some way to offsetting the general malaise.
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Of course, foreign institutional investors (FIIs) who have had a long-standing presence in India are starting to see some of the value of that investment erode as the rupee falls, but on the other hand this also means that new investment may be more attractive. FIIs are limited to only 24% ownership of any Indian company, but there is still the opportunity for them to invest further in order to take advantage of any rebound in the rupee. In fact, there has been a modest rebound already since Raghuram Rajan took over as the Reserve Bank chief there, so any FIIs that did follow this strategy are already starting to reap some modest rewards. At the same time, a further influx of investment can only serve to help India to move out of the economic doldrums in which it is currently mired.
Finally, India has been facing increasing economic competition in recent years as other countries start to undercut their prices. A devaluation of the rupee may start to reverse some of that trend over time. For example, the Indian BPO firm HGS has recently stated that it welcomes the fall, as it goes some way to mitigate suffering it has experienced at the hands of the Philippines. In fact, it is estimated that every percentage point decline in the rupee results in the addition of 30 to 40 basis points to the operating margin of a typical Indian BPO company.