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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.)

South Asia’s Water Stress Test

Flash floods in Jammu & Kashmir expose the fragility of the Indus Water Treaty that has long kept the peace between India and Pakistan.

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Just before dawn on August 17, the skies above Kathua district in Jammu & Kashmir split open. A sudden cloudburst over Jodh Ghati unleashed torrents of water and debris that tore through villages, flattening homes, cutting off roads and swallowing fields. At least seven people died, dozens were injured and many more were left stranded. Helicopters of the Indian Army scoured the valley to airlift survivors, while rescuers dug through mud and rubble.

 

Such tragedies are no longer rare in the Himalayas. Once freak events, cloudbursts today have become a grim seasonal certainty. They dump more than 100mm of rain in under an hour, overwhelming slopes and settlements. This year alone, four such downpours struck the subcontinent: two in India - in Kishtwar and Kathua - and two across the border in Pakistan. The Intergovernmental Panel on Climate Change (IPCC) has long warned that South Asia’s mountains will suffer “intense precipitation events.” In Kathua, the geography is anyway fragile and the margin for survival is rapidly narrowing.

 

Yet in Jammu & Kashmir, water has always been a political, strategic and international flashpoint. The Ujh and Ravi rivers, which swelled in the Kathua floods, form part of the Indus basin governed since 1960 by the Indus Waters Treaty (IWT). That agreement, brokered by the World Bank, divided the basin: India would control the eastern rivers (Ravi, Beas, Sutlej); Pakistan the western ones (Indus, Jhelum, Chenab). For decades, the IWT was hailed as one of the world’s most durable water-sharing pacts, surviving wars, coups and diplomatic freezes.

 

But every fresh disaster sharpens anxieties across the border. Pakistan has long fretted over India’s hydropower projects and diversion plans, fearing they could starve its farms of water. Flash floods muddy the picture further: what begins as a deluge in an Indian valley today can echo as allegations of manipulation in Pakistan tomorrow. Nature’s fury blurs into geopolitical suspicion.

 

This year has already provided a glimpse of how fragile the treaty’s mechanisms can be. In April, following a terrorist attack in Pahalgam, India temporarily suspended treaty obligations. Releases from the Baglihar and Salal dams were halted. Hydrological data, which Article IV of the treaty requires India to share during “extraordinary discharges,” was withheld. The pause lasted only weeks, but in Islamabad the reaction was incendiary. Officials branded India’s actions “acts of war” and even threatened to suspend the Simla Agreement, the fragile framework that underpins bilateral relations. Talks resumed by mid-May, but the episode underscored how quickly technical cooperation could be sacrificed at the altar of politics.

 

The truth is that India cannot, as populists sometimes demand, simply “turn off” Pakistan’s rivers. The engineering infrastructure simply does not exist, nor would international law allow it. Even short disruptions or withheld data, however, can magnify downstream disasters. Floodwaters do not wait for diplomatic thaw; they surge where they please.

Meanwhile, climate change is making the IWT look increasingly outdated. Its designers assumed that Himalayan hydrology would remain relatively stable. They focused on allocations and rights, not adaptation. Storage provisions, once sufficient, now look meagre. Processes that require arbitration panels or neutral experts struggle to match the pace of cloudbursts that unfold in minutes. In Kathua, rainfall totals for the season were technically ‘normal.’ But averages conceal extremes.

 

The paradox is glaring. Disasters such as Kathua’s could be an opportunity for cooperation. Joint flood forecasting, real-time data sharing, and basin-wide risk mapping could save lives on both sides of the border. River basins ignore the line of control. The same torrent that sweeps away a house in Jammu may submerge fields in Punjab the next day. Yet instead of recognising this shared vulnerability, India and Pakistan view every dam, every data point, through a lens of suspicion.

 

The disputes are not theoretical. India’s Baglihar and Kishanganga projects were both contested through the IWT’s cumbersome dispute-resolution machinery. Arbitration may suffice for questions of megawatts and diversion volumes but are hopelessly slow against cloudbursts and glacial surges. Natural disasters demand agility. The treaty provides bureaucracy.

What Kathua reveals is simple but urgent. The IWT was crafted to divide rivers fairly. Its future may depend on managing them jointly under stress. The next frontier is not allocation but adaptation. Without provisions for climate volatility, the treaty risks becoming an artefact, celebrated for its past endurance but irrelevant to present needs.

 

The implications stretch beyond bilateral ties. South Asia’s security architecture rests on fragile bargains. Water is central to both countries’ economies: Pakistan depends on the Indus for 90 percent of its food production, while India’s hydropower ambitions rely on mountain rivers. In this context, the treaty is more than a water-sharing pact. It is a test of resilience for the basin, for the two states and for diplomacy itself.

 

Every flood chisels away the IWT’s credibility. For when mountains weep and rivers rebel, treaties are no longer ink on paper. They are living compacts, to be renewed or broken with each storm. The next cloudburst could come sooner than either government expects. The question is whether it will wash away another village or the last vestiges of trust in the Indus Waters Treaty.

 

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


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