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By:

Kaustubh Kale

10 September 2024 at 6:07:15 pm

Silent Money Killer: Loss of Buying Power

In personal finance, we often worry about losing money in the stock market, dislike the volatility associated with equities or mutual funds, or feel anxious about missing out on a hot investment tip. Yet the biggest threat to our wealth is far quieter and far more dangerous: loss of buying power. It is the invisible erosion of your money caused by inflation - a force that operates every single day, without pause, without headlines, and often without being noticed until it is too late....

Silent Money Killer: Loss of Buying Power

In personal finance, we often worry about losing money in the stock market, dislike the volatility associated with equities or mutual funds, or feel anxious about missing out on a hot investment tip. Yet the biggest threat to our wealth is far quieter and far more dangerous: loss of buying power. It is the invisible erosion of your money caused by inflation - a force that operates every single day, without pause, without headlines, and often without being noticed until it is too late.
Inflation does not take away your capital visibly. It does not reduce the number in your bank account. Instead, it reduces what that number can buy. A Rs 100 note today buys far less than what it did ten years ago. This gradual and relentless decline is what truly destroys long-term financial security. The real damage happens when people invest in financial products that earn less than 10 per cent returns, especially over long periods. India’s long-term inflation averages around 6 to 7 per cent. When you add lifestyle inflation - the rising cost of healthcare, education, housing, travel, and personal aspirations - your effective inflation rate is often much higher. So, if you are earning 5 to 8 per cent on your money, you are not growing your wealth. You are moving backward. This is why low-yield products, despite feeling safe, often end up becoming wealth destroyers. Your money appears protected, but its strength - its ability to buy goods, services, experiences, and opportunities - is weakening year after year. Fixed-income products like bank fixed deposits and recurring deposits are essential, but only for short-term goals within the next three years. Beyond that period, the returns simply do not keep pace with inflation. A few products are a financial mess - they are locked in for the long term with poor liquidity and still give less than 8 per cent returns, which creates major problems in your financial goals journey. To genuinely grow wealth, your investments must consistently outperform inflation and achieve more than 10 per cent returns. For long-term financial goals - whether 5, 10, or 20 years away - only a few asset classes have historically achieved this: Direct stocks Equities represent ownership in businesses. As companies grow their revenues and profits, shareholders participate in that growth. Over long horizons, equities remain one of the most reliable inflation-beating asset classes. Equity and hybrid mutual funds These funds offer equity-debt-gold diversification, professional management, and disciplined investment structures that are essential for long-term compounding. Gold Gold has been a time-tested hedge against inflation and periods of economic uncertainty. Ultimately, financial planning is not about protecting your principal. It is about protecting and enhancing your purchasing power. That is what funds your child’s education, your child’s marriage, your retirement lifestyle, and your long-term dreams. Inflation does not announce its arrival. It works silently. The only defense is intelligent asset allocation and a long-term investment mindset. Your money is supposed to work for you. Make sure it continues to do so - not just in numbers, but in real value. (The author is a Chartered Accountant and CFA (USA). Financial Advisor.Views personal. He could be reached on 9833133605.)

Guns of Independence

While India has made big strides in defence self-reliance, a truly ‘Atmanirbhar’ military machine remains elusive.

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India likes to see itself as a rising power, capable not only of defending its borders but also of shaping security beyond them. For that ambition, self-reliance in defence is a necessity. Over the past decade, successive governments in New Delhi have spoken the language of ‘Atmanirbharta’ (self-reliance), tying it to the broader ‘Make in India’ campaign. On paper, the progress is striking: defence production has surged to Rs. 1.51 trillion, exports have risen tenfold in less than a decade to more than Rs. 23,000 crore, and Indian-made platforms from artillery guns to radar systems are finding buyers as far afield as the United States and France.


Yet statistics, however dazzling, can be deceptive. True Atmanirbharta is not measured merely by output or export numbers but by the ability to design, develop and sustain advanced technologies without recourse to foreign suppliers. By that yardstick, India is still some distance from its goal as the gap between aspiration and reality remains wide.


Self-sufficiency mirage

India’s defence industry has long been defined by dependence. During the Cold War, Moscow supplied the bulk of its hardware. Even today, Russia remains India’s largest supplier, though its share has declined as New Delhi diversifies. French fighter jets, American transport aircraft and Israeli drones dot Indian inventories. Even when equipment is ‘indigenously produced,’ critical components often come from abroad. Fighter engines, advanced sensors, jet trainers and submarines are all still imported in varying degrees.


The government deserves credit for narrowing this gap. The Defence Acquisition Procedure has been revised to privilege domestic suppliers, a negative import list bans procurement of certain categories from overseas, and industrial corridors are being set up in Uttar Pradesh and Tamil Nadu. Yet India’s climb towards self-sufficiency is slowed by stubborn obstacles.


Stumbling blocks

The first is infrastructure. Defence production demands reliable power, fast transport links and robust supply chains. Too often, Indian manufacturers face bottlenecks that delay deliveries and inflate costs. The second is skills. A large share of the workforce lacks the training needed for high-precision manufacturing or for research in advanced domains such as artificial intelligence, hypersonics and quantum technologies. Skilling programmes exist, but they lag behind the pace at which the sector is expanding.


Finance is another stumbling block. Access to capital for small and medium enterprises is cumbersome. For many firms, navigating procurement red tape is as challenging as developing the product itself.


A fourth weakness lies in regulation. Defence remains overburdened with approvals, certifications and quality checks that are lengthy, opaque and prone to bureaucratic delay. While designed to safeguard standards, the process too often strangles innovation.


Finally, innovation itself remains thin. India spends barely 0.7 percent of GDP on research and development across all sectors, far less than China or Israel. Within defence, public sector undertakings dominate, while private firms and start-ups face hurdles in accessing research grants or testing facilities.


Bridging these gaps will require a mix of persistence and imagination. The state must spend more on research, but also change how it spends by opening laboratories and test facilities to private firms, universities and start-ups. Competition should be encouraged between public-sector giants and nimble private players, not stifled.


The workforce must be upgraded through large-scale skilling initiatives that link universities, technical institutes and industry. India’s young demography is an asset; but without specialised training, it risks being squandered. The Strategic Partnership model, envisaged as a mechanism to pair Indian firms with global giants for technology transfer, must be made to work. Too often, such schemes get stuck in paperwork or mistrust. Successful partnerships could help India master technologies from jet engines to undersea warfare systems.


Defence start-ups should be given easier access to credit lines and venture funds, backed by government guarantees. Procurement should be streamlined, with single-window clearances replacing the tortuous approval maze.


India should also court foreign direct investment more openly. A more liberal FDI regime could bring not just capital but also know-how. The aim should not be to shun foreign firms but to embed them into local supply chains, gradually building domestic competence.


Exports, meanwhile, must be scaled up not only for commercial gain but also as an instrument of diplomacy. Supplying equipment to partners in Africa, Southeast Asia and the Indian Ocean will expand India’s influence and create leverage against rivals such as China, which is aggressively marketing low-cost arms in many of the same markets.


The government’s target of Rs. 3 trillion in defence production and Rs. 50,000 crore in exports by 2029 is ambitious but not implausible. Ultimately, Atmanirbharta must not become an exercise in protectionism or accounting triumphalism. It should be judged by whether India can design and produce next-generation systems on its own, whether drones that can match Chinese swarms, or naval platforms that can secure sea lanes without imported engines. India is better placed today than ever before to reach that standard. But the road to true self-reliance is long, steep and strewn with obstacles. Dreams of a global role rest on whether it can master that climb. They demand relentless execution.


(The author is a retired Naval Aviation Officer and a defence and geopolitical analyst. Views personal.)

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