Saturday, July 28, 2012

NRIs in US: Some Food for Thought

There is a large contingent of “Hindustan Leavers” in the West, in places like the US, Canada, and the UK. In the US, there are probably over a million NRI Dollar-millionaires, in terms of liquid assets. Let us take the case of one such NRI with exactly a million US in liquid savings under his belt.
Such an NRI is either a well-paid salaried professional or a businessman. Either way, these days, the economic environment in the US has turned hostile for both these groups. Business climate has deteriorated significantly in most business sectors; and those still in jobs are facing long periods of zero pay increases, and near-zero lateral shift options.
Property, debt and equity (including through mutual funds) are no longer attractive investment options in the US, with positive returns by no means guaranteed. For many NRIs, their home loans are “underwater”, meaning that the loan outstanding is higher than the value the home will fetch if sold. Even if it is not, home prices are so low that most cannot countenance selling the homes they live in. Those approaching retirement age, say those around 60 years of age, are facing the grim prospect of living on their capital post-retirement, because, the years since 9/11 have been “the lost decade”, with their savings dwindling to half or less what it was worth before that watershed event. So, even if he has unencumbered savings and investments of US $1 Mn or its equivalent, with current earnings of around the same sum, assuming interest earning @3% on savings, they are looking at a net pre-tax annual investment income of no more than $30,000 per annum or $2,500 per month, which is close to the minimum wage in some places in the US. So much for the attractiveness of being a dollar millionaire!
Now assume that the same person chucks up everything and brings his $1Mn to India. He gets Rs.5.6 crores. For Rs.0.6 crores, he can buy a comfortable, lavish home of his choice in any place other than in Greater Mumbai (Mumbai-Navi Mumbai-Thane) and NCR (Delhi-Rohtak-Gurgaon-Noida). If he wants to avoid traffic jams, pollution and bad roads, he needs to give a few other cities, like Bangalore and Chennai a miss. (Think Mysore, Surat, Coimbatore, Chandigarh) The remaining Rs.5 crores, he can invest in nearly risk-free securities at no less than 8.5% per annum. Even allowing for average rate of tax @28%, he will be able to earn after-tax income of over Rs.250,000 per month – a princely sum that takes him into the wealthiest 1% of India's population! At a cost of not much more than Rs.10,000 per month, a mere 4% of his monthly after-tax income, he can get all the domestic help he needs, to live a cosy, pampered life. For a few Lakhs more, they can get entry into the most exclusive clubs in any town – a passport to a genteel life of leisure. He has the chance of investing almost all his spare cash in gold (taking Nouriel Roubini's advice to heart) and thereby reduce his tax bill (capital gains for gold held for over 3 years is taxed at concessional rate).
Indeed, he will find that while, in the US, he can look forward to only bad news, and being able to barely make ends meet financially, in India, he is positively rich – and concomitantly, has a risk appetite and margin for losses that allows him to earn superior returns through judicious investment in equity shares.
So then, what is stopping a reverse India-bound exodus of rich NRIs? 
  • First and probably foremost, inertia and resistance to change. They have become telephonically mobile but geographically immobile! But there is evidence that many are moving when they see the light, rather than waiting to feel the heat of a receding economy.
  • Second, many of them think that India means Mumbai or Delhi; the rest of India does not exist. 
  • Third, many cite unwillingness of children to move to India. That should not be a problem for the "empty nest" stage NRIs. 
  • Fourth, they simply haven't realised how cheap the Indian rupee has become; and how this changes the scenario materially. This, juxtaposed with the fact that India is among the few countries where business sentiment continues to be buoyant, with several attractive investment options, offers a compelling proposition: choose India as a retirement destination! 
  • Indeed, some who are reluctant to move lock, stock and barrel, can simply use India as a waiting room to wait out the recession – and then return to their locked up homes when the US economy looks up again. There is no need to give up US citizenship or green card. All you need is a PIO card! 

Good idea, don't you think?  

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