Amit Ranjan was stunned. For years, financial advisers had recommended only homegrown investment options to the Indian tech entrepreneur and angel investor. But earlier this year, the advice changed dramatically: Ranjan, they said, should invest 20 percent of his portfolio outside of India.
“I couldn’t believe what they were saying, so I asked them to repeat it,” he recalled. Ranjan then called his friends to verify what his advisers were telling them. They confirmed it: they, too, were receiving similar guidance.
And it is showing.
Rich Indians are investing abroad at record rates, data from the country’s central bank reveals. In fiscal year 2021-22, Indians invested $1.69 billion directly in foreign bank deposits, equity and debt instruments, and buying property outside the country, according to the Reserve Bank of India (RBI). That’s nearly 40% higher than the 2020-21 figure and nearly six times the $292 million Indians invested abroad in real estate, deposits, debt and equity in 2014-15, when the current government of the Prime Minister Narendra Modi came to power. , promising to turn the country into a magnet for global wealth.
The country’s own mutual funds have also increasingly sought to invest their clients’ money abroad. So much so that in February, the Securities and Exchange Board of India, the country’s stock market regulator, banned new overseas investment through Indian mutual funds amid fears that a limit would be breached for the first time. of the $7 billion industry. That ban was lifted in June, but experts expect the relief to be temporary as the limit remains the same.
And rich Indians don’t just send their money abroad: 8,000 Indian millionaires They are also expected to pack up and move elsewhere this year, outnumbered only by wealthy Chinese and Russians, according to investment migration consultancy Henley & Partners.
The outflow of money and millionaires is being driven by factors ranging from the desire to diversify investments geographically to the search for safe havens following the COVID-19 pandemic, analysts said. But this exodus of wealth reduces the pool of investments that might otherwise have been made in India and reduces potential tax collection. It also undermines India’s image as a country the rest of the world should invest in.
“This cannot be good for India,” Ranjan told Al Jazeera.
Investments beyond Indian borders
The increase in total investments abroad by Indians is not entirely surprising, according to Joseph Thomas, head of research at Emkay Wealth Management, a Mumbai-based financial planning firm. The number of millionaires in the country has skyrocketed from 170,000 in 2010 to almost 700,000 in 2020, according to Credit Suisse. “This naturally resulted in people looking elsewhere for opportunities, apart from rupee-denominated products,” Thomas told Al Jazeera.
An increasing number of companies now also offer access to foreign markets, from big Indian banks like HDFC and ICICI, portfolio managers like Emkay, and new-age digital banking platforms like Kristal.ai. Indian investors today understand the “importance of geographical diversification,” Thomas said.
But the pandemic has accelerated India’s appetite for investment beyond the country’s borders, experts said. As global tech and healthcare stocks surged, so did Indians’ interest in buying stocks in those sectors. “Especially with technology, these are products and brands that Indians are very familiar with as users, so there is more affinity,” Ranjan said.
The pandemic has also created new incentives for Indians to buy homes abroad. “Cities and countries that are perceived to have done well in the fight against COVID-19 have seen an increase in interest,” said Akash Puri, director of global business at India Sotheby’s International Realty. He cited New Zealand and Dubai as examples. In total, Indians spent almost $113 million buying real estate abroad in 2021-22, compared to $63 million a year earlier.
Dollar-denominated markets such as New York and Dubai are also popular because the dollar’s rise against the rupee means Indian homeowners gain even if local real estate values don’t rise, Puri told Al Jazeera. Other popular destinations where wealthy Indians are buying homes include London and Portugal, a country that offers residency for investment and requires an average stay of just one week a year. Those with Portuguese passports then gain visa-free access to stay and work throughout the European Union.
With central banks in different countries, including the United States, raising interest rates, Puri expects that demand for overseas real estate will only grow among India’s wealthy. In the US, for example, rate hikes would make mortgages more expensive for residents, causing them to opt for leases rather than purchases. That, in turn, would lead to lower prices and a larger inventory of homes available for purchase by Indians, who mostly pay up front. “There could be a new window of opportunity for the Indians,” Puri said.
Rising interest rates and the rising value of the dollar against the rupee also explain why Indians are putting their cash in offshore bank deposits like never before, experts said: $830 million in 2021-22, compared with $680 million the previous year. Always safe, these deposits now also provide returns that were previously impossible.
Since the pandemic, Indians are increasingly seeking safe destinations not only for their wealth but also for themselves, causing millionaires to emigrate. Global economic uncertainty and conflicts such as the war in Ukraine have only added urgency to this change, according to analysts. “The importance of having options in multiple jurisdictions in terms of where you can relocate and reside is gaining traction,” said Henley & Partners, in response to questions from Al Jazeera. “And for those who can afford it, residency and citizenship by investment is the simplest, fastest and most effective way to achieve it.”
None of this is irreversible. “As the standard of living in the country improves, we expect wealthy people to return in increasing numbers,” the investment migration consultancy said.
At the moment, however, the Indian government’s approach to citizens investing abroad is driven by fears of uncontrolled capital flight, according to experts. In addition to the $7 billion national limit on mutual funds, India also prohibits people from sending more than $250,000 abroad each year. These limits help the RBI manage the foreign exchange rate and maintain acceptable levels of foreign exchange reserves.
But ultimately, Ranjan said, money tends to find a way around such restrictions. “We should think less about how to prevent people from investing abroad and more about making it attractive for them to keep their money in India,” he said. “How do we do that is the question.”