Buying power of US Dollar vs. Rupee. Price of Food, Clothes, Inflation
When I call my parents in India, my Mom asks about prices of vegetables, clothes and other stuff in US. I tell the price in dollars…when I complain about prices of few things in America, she replies saying, “for you guys living in America, one dollar is equal to one rupee…so it is ok…” I right away reply to my mom, “A dollar is never equal to rupee…the buying power of one Dollar is much higher than a rupee in India.” I quote an example saying, “in America, people can get a cheap cheese burger for a dollar or even cheaper taco in taco bell for 80 cents or so…but, what can you buy for a rupee in India…Nothing ! ”. In general, it is not logical to compare both currencies as their value is different, but just trying to explain the perceptions of people about currency. This article is part of the series Settle in US or India and will focus on inflation, cost of various things and how things are changing in America vs. India.
Inflation of USA vs India, Economy growth rate.
If you look at both of these graphs, you get a clear idea of the inflation rates based on consumer price index. In India, the inflation rate is over 10% or hovering around there…whereas in America, the inflation is under 2% and there was deflation in USA during recession. 
Logically, what is happening is, due to inflation in India prices are going up crazy and the effective buying power of a rupee is decreasing. People who work in IT companies in India, get Salary hikes ranging from 15% to 30% every year, where as in America the average hike per year in salary is around 3%. The logical reason for the disparity in the hike is the inflation. Also, Indian economy is a growth phase and we can expect to have the inflation for the new decade or so…who knows…
You can get good branded clothes in US for relatively less price, depending on sale or time of season….I took out few friends, who came from India few weeks ago, to shopping malls and outlet malls to buy clothes and shoes…they were surprised by the price of clothes and shoes in America….they said US prices were relatively cheap for the good brands they were buying….to add more, food is relatively cheap in America when compared to price of the food with India…Just a note, I am talking about the upper middle class people in India who have an IT job or a well paying job leading a lifestyle of spending money in Malls, multiplexes, etc…
Decision to Live in India vs. USA based on Inflation
On a macro level, based on the inflation data presented above and the continuing growth rate of Indian economy, it is a good idea to stay in America for next decade or so until the Indian economy stabilizes….the sole point of staying in US is based on stable economy and less inflation… If you stay in India and save money, unless you get over 10% interest rate on your savings, your savings money is not enough to meet inflation and it is worth nothing.…Also, you would have to pay lot more money for house interest rates and other stuff…there are so many things, I am just talking on a very high level…
What do you think about Inflation India vs. America ?
Image Credit : http://www.springercreative.com/uploads/preview/Inflation.gif
Data presentation credit : http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?Symbol=USD
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{ 12 comments… read them below or add one }
What about very basic needs? What I mean is,
when I donate fifty US dollars (2500 Rupees)
to my orphanage friends, how much can they get
in the way of dal rice and clean clothing? mango ice cream would be nice. Can they keep the lights on?
thanks
DEAR SIR : G.KARTHIK I MAY THING THAT YOU HAVE RECIVED THE NEW MESSAGE YESTERDAY YOU PAID MONEY 6,500 IN INDIAN BANK AT 1:54 pm I HAVE RECIVED THE MONEY FROM YOU I HAVE SENT THE YOUR MONEY TO THE CENTRAL GOVERNMENY OF INDIA RS 6,300 I WAS TAKEN MY SERVICE CHARGE RS 300 THEY WILL TAKE THE INCOME TAX AND REVINULE YOUR MONEY TO RESIVE BANK INDIA TO INTER CHANGE THE US DOLLERDS TO INDIAN COURENCY THEN IT GOES TO NEW DELHI AND YOU WILL GOT YOUR AT PERIOD OF DATE:20/5/2012 day :SUNDAY MONTH:may thanku for useing our network to inter change the money be carefull dont invest to other peoples they will take your money and they cheat you mind that your in international company job do well next you interchange your money in credit okay thanku
Hi
I am currently on L1B visa and my visa is going to get expired in April 2012, my company is going to apply for L1A extension. Question is can we get the indian visa for our to be born child on the basis of L1A extension receipt? What are the options to get Indian visa for our child in case of our L1A extension gets denied?
Thanks
thanku sir g.karthik you have send money to the card number 999245706 has succesfully transmited
In fact I was in Bangalore in September last year and wanted to buy a jeans, guess what, it was over Rs4,000. I dare not buy, I could get one in Costco for $12
Hmmm…..the points u made here is a good start of a discussion.
If you compare in terms of purchasing power parity, the value of a dollar in rupee terms is around 20, whereas the exchange rate is 47. Hence the rupee is undervalued or has been deliberately made undervalue due to various reasons which we are not discussing here.
The impact of this is whatever India is buying in dollar, it is paying more than double.
Obviously, it is better to be in US compared to India due to these reasons. In US a decent engineer salary is more than sufficient to live comfortably and save a large part. Whereas in India the salary of an engineer is barely sufficient. In a good city of US u can buy a large lavish house in around 300,000 $, which is around approx. 5 years of an engineer’s salary give or take. If u buy a flat in Delhi today leave alone a lavish house, u will have to giveaway almost 10-15 years of salary. And buying a lavish house is impossible for even the highest salary paid officials.
Its about time India need to think about what it is paying for resources like Oil (more than double in reality) and what it is getting for its resources like iron ore (less than half in reality). Revaluation and letting the currency to appreciate should be thought, else u are just giving away your precious resources to countries like US and Europe whose currencies are overvalued abnormally (European currencies are the most overvalued in the whole world!!)
For more clarifications google PPP (Purchasing power parity)
Yeap, I fully agree that the rupee has been possibly under valued deliberately. In such case the ratio of Import to Export in terms of USD is to be necessarily maintained in the same ratio the rupee is undervalued. Considering the present situation and the ratio of rupee under valued with respect to USD, the ratio is around 2.3 i.e. India has to increase its export 2.3 times its import. This is the basic that we all need to understand and act. There can be political pressures from outside to keep our currency under valued. It is not the time to confront and get the equal ratio but it is time for all of us to look into the possible avenues, products & services those can be converted to values and exported to other countries where we can generate our export business and try and reach the ratio of under valued rupee. To make the life in India better we have to see that the ratio of under value of rupee is not further increased but rather brought down. Unless the purchase power of rupee is increased the souring prices of commodities will never come down. We have to exert ourselves to reduce our requirements of import and increase the export and realize the money. The bank interest rates are decided by RBI, which will always be few points less than the prevailing rate of inflation, this will be always the same in any country because no country would like to print bills just to pay the interest on deposits.
How about if one was planning on going to India for an extended period of time in like 5 years? The interest rates in India are great (I saw 9%-11% for resident Indians) compared to the 1/2% in the US. If I were to start depositing money into a safe savings account (without going into details on how, that is irrelevant), wouldn’t you get more for your dollar than just having money sitting in a US account making next to nil? As long as the money was just kept in the account and re-invested, is what I am talking about.
Few things you need to keep in mind:
- If you are living in US and have NRI status, then technically/legally your Indian accounts should be converted to NRO or NRE
- Interest rates on NRE/NRO accounts is not 7-9% but more in the range of 3-5%
- You need to pay US income tax on interest generated in NRE accounts. Banks like Citi actually issue you a 1099 for your NRE account. I know a lot of Indian banks don’t issue 1099, but legally they are supposed to
- If you have more than 10K USD in bank assets outside US, the same needs to be declared in your US tax return
- While looking at the interest rate, you need to take conversion rates into consideration as well. At least one way of conversion rate will apply (USD to INR); the other may or may not apply depending upon whether you plan to bring that money back to US or not
I am not saying that Indian investments are not attractive, but they aren’t as attractive as they look from outside (assuming one decides to follow all rules and procedures).
The Comparison is good, But it Would be more useful if we can compare in terms of % wise the Salary & Expenditure..For eg: India, a person who is getting 50,000 p.m.salary,he or she will have to spend 10,000 rent, 8000 food, utilities etc..expenses, 5000 other expenses for a family of 2 or 3.
Where as a person in US getting around $4000 p.m. would spend $1000 rent, $300 food,utilities, $200 other expenses..So all the expenditures %-wise in India are much higher to US. Sometimeback, read an article that a Masala Dosa would cost Rs.217 in India in 2017. God only save people who need to rely on India salaries.(Of course life on H1 in US is not not that much safe compared to India).
Rajesh, I agree with you, it would be more useful. I will add it to my list and will post it sometime. Thanks for suggestion !
Dear Kumar,
This is very interesting thread! Could you please share if you were ever able to gather this general information at high level for general people?