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 A
budding professional in India would have to save for about two years
to buy a snazzy motorcycle, but in the US he could save enough in
a year to buy a compact car. There is little doubt that the standard
of living is entirely different, writes MOHAN BABU
One
of the first things that acquaintances (even fairly distant acquaintances)
in India ask on meeting me is, “You must be earning a lot of
money in dollars, what exactly do you make?” This question
makes me uncomfortable, perhaps because of the western thought process
that kicks into my mindnone of your business! Of course, I try to
sound polite by gurgling an answer or skipping the topic altogether.
May be I should retortdo you know what I pay in rent? Or, maybe
add that my monthly car insurance payment alone would be more than
what most Indians pay in rent, which does not really make me rich,
but goes to prove that I spend as I earn, even though I live and
earn in a foreign country. In reality, I should probably start talking
about the PPP (Purchasing Power Parity) or the “The Big Mac
Index”.
In
recent times, aided by the demand for a mobile global workforce,
hordes of youngsters from India moved to the US, Europe and other
western lands in search of opportunities and wealth. They were aided
by the dynamics between the exchange rates of the Indian rupee and
other currencies, making this move especially attractive. A budding
professional in India who would have to save for about two years
to buy a snazzy motorcycle back home, could save enough in a year
to buy a compact car here. There is little doubt that the standard
of living is entirely different, especially if one were to compare
to that of a professional in America with that of an Indian.
The
risk-and-rewards factor also comes to play when an Indian professional
moves to a foreign country. He is taking a big risk with respect
to the marketability of his skills and in trying to sustain his
earning and savings potential, a fact that hit home during the current
downturn when thousands of Indians had to pack their bags and leave.
The
exchange rate differences and Purchasing Power Parity (PPP) make
a move from India to western nations especially attractive. The
PPP theory states that exchange rates between currencies are in
equilibrium when their purchasing power is the same in each of the
two countries. Take for example the Big Mac sold by McDonald’s
in 116 countries around the world. It is a truly global consumer
product. Since 1986, the Economist magazine has tracked the price
of the Big Mac around the world. To the Indian reader, contemplating
a move to a foreign country, a study of PPP and the “The Big
Mac Index” will give an indication of the amount one would
have to spend in order to maintain a similar “standard of living”
in the new environment. Of course, this also means that the percentage
of salary saved, say ten percent of one’s salary, will have
a greater bang for the buck when saved in the US than in India since
a US dollar is stronger than a rupee.
Currency
conversion and exchange rate is really significant to companies
that wish to do business in the global marketplace. For this discussion,
I am assuming a conversion rate of 1 dollar to about 47 rupees.
A million dollars converts to about 4.7 crore rupees. Take the example
of Compuware, a “mid-sized” American company with revenues
of 2 billion dollars last year. The company is spending over 250
million dollars in building a new headquarters building in Detroit.
Translating this to rupees, it comes to about 117.5 crore rupees!
Last year, after the economy started tanking, Cisco, the darling
of the Internet age, took a monster $2.5 billion write-off of its
swollen inventory. Now, that translates to a staggering 11,750 crore
rupees. How many Indian companies are worth that much, leave alone
being able to write-off inventories worth that amount? This is not
to say that Indian companies are not valuable or market savvy. The
flip side of this is that Indian companies in the global marketplace
can use the cost-savings and lower wages in India to compete more
efficiently, the main reason Indian companies vie for a share of
the big export market.
Interestingly,
even the dollar-rupee exchange rate has been declining steadily.
When I moved to the US in 1997, a dollar was worth about 35 rupees34
percent decline in the exchange rate in five years! Does this mean
that it is more attractive to move to the US now than it was five
years ago? Probably not, since the exchange rate is just an indicator
of a number of factors including the PPP. However, a declining exchange
rate makes it especially attractive for Indian businesses and exporters
to sell goods and services to Americans.
The
downturn in the global economy, combined with the attractive exchange
of the Indian rupee in the international market, makes Indian exports
of goods and software services a really attractive proposition.
Why aren’t we seeing a renewed focus on Indian exports?
Post
script: If you were expecting me to talk about my earnings in this
article, tough!
(Mohan
Babu is a software consultant based in Colorado Springs, USA. E-mail:mohan@indusdemographics.com)
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