A chart showing the Indian Rupee’s performance against the US Dollar since 2008.
We expect the rupee will continue its weak performance in the future. Such a scenario is in India’s best interest because they want to become a top global exporter. Whereas a falling currency is a good thing for export numbers, it’s horrible for global investors holding assets in India.
Here’s an example: the Indian stock exchange’s main benchmark index, the NIFTY 50, doubled since 2008. Yet those gains aren’t impressive after considering the rupee’s nearly 50% decline against the U.S. dollar throughout that same period.
If you bought Indian stocks ten years ago, they’ve probably showed poor performance in terms of most foreign currencies.
Investing in India is Difficult
Determining whether a country has good investment potential is the easy part. The challenge is following up and going through the process of actually buying property or stocks in a foreign market.
Foreign stock traders and real estate buyers face numerous hurdles when investing in India. In fact, you can’t even legally purchase India property as a foreigner. You must either have status as an Indian citizen or PIO (person of Indian Origin) to own freehold land.
Investing in India is also difficult if you’re a stock trader. You can only directly buy Indian stocks if you’re a Qualified Foreign Investor (QFI) and achieving this status isn’t easy.
Unless you’re a citizen from a list of about thirty countries, are willing to go visit India, register with several departments, and jump through hoops, your sole realistic option for buying Indian stocks is through a mutual fund or ETF based outside of India.
A few India-focused funds that come to mind are the iShares MSCI India ETF (INDA) and VanEck Vectors India Small Cap ETF (SCIF). Your options are truly minimal as a foreign investor though.
Forming and maintaining an Indian company is a bureaucratic nightmare too. Corporate taxes are very high at between 25%-30%, many foreign investment laws are vague, and corruption is rampant.
To briefly summarize: there aren’t any simple ways you can invest in India as a foreigner. Your two major options, buying stocks and starting a business, are restrictive and bureaucratic.
India’s Massive Debt Problems
India faces several economic issues. Quite frankly, covering them all would take too long for a single article. But India’s debt levels are perhaps its most pressing concern.
Public debt rose by more than 50% since 2014 to reach US$550 and is now above 70% of the entire country’s GDP. It appears like those numbers will only climb from here.
Even worse yet, about half of India’s foreign debt is held in terms of U.S. Dollars. That means the rupee’s decline mentioned further above will magnify India’s debt struggles.
Borrowers must pay back their debt, plus interest, in terms of currencies that are increasingly rising against the Indian rupee.
Sadly, individuals are not faring better than the government. India’s household debt doubled between 2017 and 2018 as consumers racked up loans at an unprecedented pace.
Buying property was the most common reason for getting a loan application in India, followed by personal expenses. Not exactly the most optimistic signs.
