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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.)

Trump’s Tariff Tango

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President Donald Trump’s trade instincts have long confounded both allies and adversaries. A handshake one day, a punitive levy the next: the pattern has become his signature. India has felt this volatility acutely. First, Trump imposed a 50 percent tariff on certain Indian imports, citing New Delhi’s continued purchase of discounted Russian crude. In the process, he dismissed India as a “daddy economy” - a curious barb implying dependence rather than strength. Yet the country he appeared to belittle has only grown more formidable.


India’s economy, long portrayed as a sluggish giant, is now showing startling resilience. GDP growth in the last quarter topped 7.8 percent, outstripping most of its peers. Foreign-exchange reserves are at record highs, and gold stockpiles continue to swell. Agriculture and micro, small, and medium-sized enterprises are expanding steadily, while industrial output has surged by more than 17 percent in recent months. International institutions, from JP Morgan to the International Monetary Fund, now describe India as poised to overtake Germany and Japan within the decade.


For a nation once dismissed as slow-moving, the transformation is unmistakable.


The recent SCO summit in Tianjin, China, offered a symbolic confirmation of India’s newfound influence. Sitting alongside China and Russia, India projected itself not merely as a participant in regional dialogue but as a potential pole of power in a multipolar world. The summit reinforced the notion that America can no longer isolate India without strategic consequences. Trump’s language, once dismissive, has begun to soften in response. Bluster has given way to cautious respect - a rare recalibration for a president renowned for his rhetorical volatility.


Several factors underpin this shift. India’s dominance in information technology, its rapidly growing semiconductor ambitions under Prime Minister Narendra Modi, and its increasing integration into global supply chains make it indispensable. American firms, seeking alternatives to China, are eyeing India not just as a market but as a manufacturing hub. Agriculture, services and even defence procurement are becoming areas of growing interdependence. Startups, producing dozens of unicorns annually, highlight an innovation engine that few emerging economies can rival.


India’s role in shaping regional security in the Indo-Pacific and its participation in multilateral organizations positions it as a natural counterweight to China. For decades, U.S. policymakers have paid lip service to India as a stabilizing force in Asia. Today, that premise is being vindicated by data and diplomacy alike. The prospect of a multipolar world, with India, Russia and China forming an influential trio, challenges Washington to reconsider its assumptions about global influence.


Trump’s unpredictability remains a wildcard. His transactional approach means that tariffs and visa restrictions can continually resurface as leverage in negotiations. A single tweet or public address could undo months of careful diplomacy. Nonetheless, the structural trend is unmistakable: India’s economic heft and geopolitical influence are forcing a recalibration in Washington. Analysts note that Trump’s softened rhetoric may foreshadow a rollback of some punitive measures, particularly as American businesses lobby for greater access to the Indian market.


The political impact extends beyond trade as a new generation of urban Indian voters is asserting its preference for domestic over foreign brands, turning consumer choices into a form of geopolitical expression.


Another dimension is technology. India is emerging as a critical player in semiconductor manufacturing and digital services. Trump’s administration, keen to counter China’s technological dominance, has incentives to cultivate collaboration rather than confrontation. Energy is also a flashpoint: India’s growing reliance on renewable energy and its increasing role in global climate negotiations create arenas where cooperation, rather than tariffs, may be mutually beneficial.


The U.S.-India relationship is evolving into a complex matrix of economics, politics and symbolism. While Trump’s tariff threats capture headlines, the underlying dynamics reveal a broader story that India has grown too large, too innovative, and too strategically important to be ignored. The onus is on Washington to balance domestic political imperatives with the necessity of cultivating a partnership that serves both economies and stabilizes an increasingly fractious world.


India intends to assert its economic sovereignty while engaging with Washington pragmatically. The SCO summit and other forums underscore India’s confidence that its role in the world is now a decisive factor in shaping policy, not merely a backdrop to American strategy. The softening of Trump’s rhetoric, modest though it may be, only reinforces India’s standing as a global power.


(The writer is a foreign affairs expert. Views personal.)

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