Collateral Damage

The fallout of the rupee slide is going to hurt you if you are looking to buy a property, invest overseas, send your child to a foreign university or buy gold
Team Money Today | Print Edition: September 2013

The fallout of the rupee slide is going to hurt you if you are looking to buy a property, invest overseas, send your child to a foreign university or buy gold. The Reserve Bank of India (RBI), in order to stall the rupee slide, has prohibited purchase of real estate by Indians in overseas markets, lowered the ceiling on outward remittance from $200,000 to $75,000 a year and increased the import tax on gold from 8% to 10%.

These steps, though believed to be short-term measures, will deprive investors of diversification opportunities overseas.

Domestic investors, who have seen both their fixed income and equity investment in India fall in value, might have been exploring alternative investment opportunities overseas. The recent move may spoil the party for some if not all investors.

Indian residents could earlier purchase real estate, invest in equities or debt or any other asset worth $200,000 annually outside India without prior approval of the RBI. That ceiling has now been reduced to $75,000 a year. At Rs 60 a dollar, the total outward remittance limit now stands at Rs 45 lakh.

RBI data show resident individuals remitted $1.2 billion from India in 2012-13. Out of this, $237 million was invested in foreign equities and debt securities and $77 million in real estate. Students studying abroad remitted $124 million.

For many high net worth individuals (HNIs), overseas real estate offers attractive investment options at cheaper valuations. According to Jones Lang LaSalle India, the US and the UK are the most favoured destination for Indians looking to buy property abroad. Other favourites include Singapore, Malaysia and Dubai.

"At present, the options available in the international property market offer very attractive rental yields and valuations, making the proposition of investing in property abroad a potentially lucrative one. However, the new restrictions will be a dampener for Indian investors who were considering this route," says Om Ahuja, chief executive officer, residential services, Jones Lang LaSalle India.

Parents who want to send more than one child to foreign universities for education may also find it tough to send money abroad given the ceiling of $75,000 a year. Typically, US universities charge on an average $30,000-35,000 a year for undergraduate courses.

However, Himanshu Kohli, co-founder, Client Associate, a private wealth management company, says in case one has exceeded the $75,000 ceiling, one can seek the RBI's approval for further remittances. According to experts, the move may impact a small number of individuals as $75,000 a year is a big amount and very few people will be able to exhaust this limit.

"It is just a precautionary measure. It will barely have an impact on the rupee movement as very few individuals would be exhausting the limit of $200,000," says Suresh Sadogopan of Ladder7 Financial Advisories.

In another move to curb the rupee fall, the RBI has increased the import duty on gold from 8% to 10%. The central bank has also banned import of gold coins and medallions. Apart from these, any approved agency importing gold should ensure that at least 20% of the imported metal is used for exports.

These moves have pushed up gold prices. The precious metal breached Rs 30,000 per 10 gm on 16 August, 2013 in domestic markets. It was trading below Rs 26,000 on 16 April. International gold prices moved from $1,386 per ounce on April 16 to 1,321 on August 13. Meanwhile, gold imports to India jumped to 338 tonnes in the April-June 2013 period against 153 tonnes a year ago.

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