Calculating Minimum Salaries for Indian Expats Looking to Shift Abroad (2024)

«Which is the best month to invest in PPF to get the highest interest? Sovereign Gold Bond (SGB) 2023-24 (Series II) priced at 5923: Who Should Invest?»

Tags: NRI

Discover how expats can secure the right salary abroad to get a better than India lifestyle using the concept of purchasing parity.

📚 Topics covered:

• Introduction
• What is purchasing power parity (PPP)?
• What are the PPP factor tables that we need to use?
• What minimum salary should you ask for when job searching aboard?
• Is PPP the same as the Big Mac index?
• What about IIT / IIM students who get 1 crore+ international packages?
• What are the caveats for using PPP to figure out expat salaries?

Introduction

A lot of people who are looking for a job abroad, either by themselves or via inter-company transfer, often wish to understand what should be the salary in the foreign country. Apart from job market trends that determine overall salaries in a field, there has to be a universal method of comparing prices across countries to understand the minimum salary needed to at least have the same quality of life as in India. This method exists and is called Purchasing power parity (PPP).

What is purchasing power parity (PPP)?

Here is a quick explainer of the concept:

PPP therefore compares the prices in different countries for a certain basket of goods and services e.g. food, housing, transportation etc. For example, if a family spends ₹50,000 a month in India and an equivalent family in the USA buys the same basket of stuff for $2,000, then the PPF-factor for USD is 25. You should now contrast this number against the USD/INR forex rate which is much higher at 80+ per dollar. Therefore, if you are earning ₹10 lakhs in India, the equivalent PPP-adjusted salary in the US is $40,000 found by dividing the India salary by the PPP-factor and not by the exchange rate. If you are looking for a job abroad in the US, then a package of more than $40,000/year should make you better off than in India.

What are the PPP factor tables that we need to use?

The table shows the PPP data for 2022.

Sources:

• https://data.oecd.org/conversion/purchasing-power-parities-ppp.htm
• https://data.worldbank.org/indicator/PA.NUS.PRVT.PP

The OECD link above gives the PPP-factor for USD in INR to be 24.0595. This means that a $100,000 salary in the US is equivalent to ₹24.06 lakhs in India in PPP terms.

Similarly, for UK, the PPP-factor for USD in GBP is 0.6813. We divide the USDINR rate of 24.0595 with this figure to get the GBP in INR PPP-factor as 35.32. So, a £100,000 salary is equivalent to ₹35.32 lakhs in India in PPP terms.

If we had done the naive method of multiplying by the forex rate, we would have got

• $100,000 is the same as ₹83 lakhs (taking USDINR rate = 83)
• £100,000 is the same as ₹1 crore (taking GBPINR rate = 100)

To understand better about how to calculate NRI salaries and cost of living:

What minimum salary should you ask for when job searching aboard?

Let us assume that the current salary is ₹10 lakhs. If we take the USD PPP-factor to be 24.0595, the equivalent USD salary = 1000000 / 24.0595 = $41,564.

The table shows the same calculation applied to other countries. Therefore for example, if you earn ₹15 lakhs today, and are looking for a job in Singapore, the salary you should target is at least S$ (41,148 * 15/10) = S$62,000. The comparison should be done using after-tax salaries.

Is PPP the same as the Big Mac index?

The Economist’s Big Mac Index is a humourous take on the PPP concept that uses the Big Mac of McDonald’s as the basket of goods and services to be compared in different countries. In India, the Big Mac is known as the Maharaja Mac. As per the Economist website,

A Big Mac costs 209 rupees in India and US$5.58 in the United States. The implied exchange rate is 37.46. The difference between this and the actual exchange rate, 82.25, suggests the Indian rupee is 54.5% undervalued.

The OECD PPP-factor, which obviously uses a wider basket of goods and services has PPF-factor vs. USD as 24.0595 instead.

What about IIT / IIM students who get 1 crore+ international packages?

It is very common to find newspaper headlines about students from prestigious colleges like IIT / IIM getting ₹1 crore+ salaries where the job is offered abroad.

As it is typical for a newspaper headline, this ₹1 crore figure comes by multiplying the CTC (plus bonus if any) with the current USD / GBP / SGD etc. exchange rate. However, that gives a misleading picture since the money is neither earned nor spent in India.

To get the real picture, we need to adjust the salary using the PPP-factor and get a comparable figure like this: ₹1 crore equivalent in USA in US dollars at an exchange rate of ₹83.20/dollar implies a package of around $1,20,192 which in PPP terms is ₹28.9 lakhs. While ₹28.9 lakhs is not a small figure, but it is not as sensational as ₹1 crore.

Similarly for UK and Singapore postings, ₹1 crore CTC comes to ₹15.8 lakhs and ₹39.1 lakhs respectively.

What are the caveats for using PPP to figure out expat salaries?

A PPP figure is calculated on a standard basket of goods and services. If you are looking for a job abroad, you need to understand how different your own consumption basket is different from the standard one. To understand this, you need to use websites for housing, groceries, transport, schooling etc. and calculate your own budget. Indian expat communities on Facebook or other social media sites can help.

Also, PPP is applied to the whole country. Regional variations will always exist due to location e.g high cost of living (HCOL) areas like New York or London vs. say Tulsa or Manchester. You also need to understand the impact of insurance, schooling, daycare and if applicable, the salary reduction due to a stay-at-home spouse.

All in all, a PPP figure should be the basis or anchor of your salary estimation if you are going abroad but requires a good amount of fine tuning.