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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.)

Pakistan’s Floods: Climate Curse or Man-Made Failure?

Climate change may fuel Pakistan’s floods, but governance failures are turning them into catastrophes.

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Pakistan is once again under water. Vast stretches of Sindh and Baluchistan resemble inland seas. Villages remain cut off; families huddle on rooftops and rescue boats are guided by drones through treacherous waters. Entire districts are submerged while are millions displaced and much of the country’s fragile infrastructure lies in ruins. The government describes this as the worst flooding in four decades - a grim reminder of the deluge of 2022, which left nearly a third of Pakistan submerged, killed more than 1,700 people and displaced millions.


Meteorologists report that rainfall in key provinces has exceeded seasonal averages several times over. The monsoon, supercharged by global warming, has turned unpredictable and more destructive. Climate scientists warn that South Asia, home to one-quarter of the world’s population, is especially exposed to shifts in weather patterns: hotter air holds more moisture, producing heavier downpours. For Pakistan, which relies heavily on the monsoon and is flanked by fragile glacial systems, the risks are existential.


Reckless expansion

Yet the devastation cannot be explained by climate alone. Pakistan’s floods are not just acts of nature but also of neglect. Outdated drainage, dilapidated embankments and reckless expansion into floodplains magnify the toll. Defence and counterterrorism continue to dominate the national budget, while flood-control projects are underfunded or abandoned. Corruption corrodes what little planning exists. The result is a country that greets each monsoon not with resilience but with dread.


This neglect has deep roots. Since the 1950s Pakistan has depended on foreign donors to plug gaps in disaster response. Earthquakes, droughts and especially floods have triggered billions of dollars in aid from the World Bank, IMF, America and countless emergency agencies. Yet the money has rarely translated into robust defences. Much of it is spent on immediate relief, absorbed into bureaucracy, or simply disappears. The unprecedented pledges of support after the 2022 floods, which the UN called a “climate catastrophe” were a squandered opportunity. Little of that money was invested in early-warning systems, resilient infrastructure or proper drainage.


Misplaced priorities

While Pakistan’s generals insist on swelling defence budgets to confront enemies, real or imagined. Political leaders, for their part, prefer the short-term optics of relief distribution to the slow grind of building embankments or regulating urban growth. Pointing fingers at India has become a well-worn reflex. Floods, droughts and water scarcity are framed as the result of hostile meddling. Such deflection may serve politics, but it leaves Pakistanis exposed when the waters rise.


Urbanisation has compounded the problem as cities sprawl chaotically into riverbeds and floodplains. Developers, often politically connected, pave over natural drainage channels. Informal settlements mushroom without planning permission, leaving their residents dangerously exposed. In rural areas, where most of the population lives, flood defences are weak or absent altogether. Embankments crumble, canals silt up and dams remain poorly maintained. In such conditions, even ordinary monsoons overwhelm the system.


Chronic underfunding

The financial crisis makes matters worse. Pakistan’s foreign reserves are thin, its debt unsustainable, its rupee in chronic decline. With little fiscal room, long-term adaptation is endlessly deferred. What scarce funds exist are consumed by subsidies, debt repayments and security outlays. Disaster-resilience schemes, by contrast, are chronically underfunded and often stalled midway.


The consequences are devastating not only for human lives but also for the economy. Agriculture, the country’s largest employer and biggest export earner, is repeatedly battered. Cotton fields vanish under water, livestock perish and food inflation soars. Roads, railways and power lines are washed away, further hobbling growth. Each flood wipes out years of progress, trapping communities in a cycle of destruction and recovery.


The irony is that Pakistan is among the world’s lowest emitters of greenhouse gases, being responsible for less than one percent of global emissions. Yet it ranks among the most climate-vulnerable. Successive governments have seized on this disparity to demand more aid from the West, portraying the floods as punishment for others’ pollution. There is some truth in that argument. But to stop there is to miss half the story as the scale of destruction is not dictated by rainfall alone but by the state’s failure to prepare.


The path forward is clear, if politically unpalatable. Investment must shift from guns to embankments, from short-term relief to long-term resilience. Cities need stricter zoning laws to halt construction on floodplains. Rural areas require properly maintained canals and embankments. Drainage systems, many dating back to colonial times, must be modernised. Transparent use of aid, subject to scrutiny by both donors and domestic watchdogs, could help restore public trust.


None of this is easy in a country beset by political turmoil, insurgencies and economic collapse. But Pakistan has little choice. Climate change will continue to intensify. Glacial melt in the Himalayas and erratic monsoons will only increase flood risks. Without urgent reforms, each disaster will be worse than the last.


For decades Pakistan’s leaders have treated floods as an act of fate, to be endured rather than managed. But fate is not the only culprit. The waters rise because the state has failed to build barriers, both physical and institutional, against them. Unless Pakistan confronts this uncomfortable truth, it will remain trapped in its cycle of deluge and neglect.


(The author is a Mumbai-based educator and an expert on the Indus Waters Treaty. Views personal.)

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