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Indian Economy

Fall in Money Remitted Abroad

  • 08 Jun 2020
  • 6 min read

Why in News

According to data released by the Reserve Bank of India, the amount of money Indians send abroad has witnessed a 61% decline under the Liberalised Remittance Scheme (LRS) as Covid-19 and the lockdown cripple the global economy and ground international travel.

Key Points

  • In April 2020, Indians remitted $499.14 million under the Liberalised Remittance Scheme (LRS) — a 61% decline from $1,287.91 million in the same month last year.
    • The monthly outward flow in April 2020 is lowest since February 2016 when it was $449.28 million.
    • Substantial decline has been recorded in money sent for purchase of immovable property abroad; investment in equity/debt; deposit; gift; medical treatment; and other categories during April 2020.
  • A Triple Whammy Effect:
    • This dip reflects economic distress, lockdown at home and curbs on overseas travel.
    • Earlier, Resident Indians have remitted a record $18,750 million under LRS in the financial year ended March 31, 2020.
      • Despite the outflows reaching a record level during last financial year, March, 2020 saw a dip — $1,358.82 million — against $1,476.82 million in the corresponding month of 2019.
  • Money sent for Travel Purposes: The sharpest decline — 71.81% — has been recorded in money sent for travel purposes which came down to $121.13 million in April this year from $429.75 million a year ago.
    • This is significant as an estimated 2 million Indian nationals travel overseas every month.
  • Money Sent for Studies Abroad: This has also seen a sharp decline of 68.85% — $78.76 million in April this year from $252.84 million in the corresponding month last year.
    • Over 7 lakh Indian students pursued studies in foreign institutions in 2018.
  • Maintenance of Close Relatives: The category, which contributes the highest amount to total outward remittances under LRS has recorded a decline of 50%— $148.25 million in April this year from $296.14 million last year.
  • Deposit and Investment in Equity/Debt: These categories have recorded lesser decline i.e. of 29.91%.
  • Donations: The only exception (stands neutral in terms of decline or increase) to other sources of remittances is “donations” e.g. for charity or social service, which contribute a negligible amount to the total outflows.
  • Gift and Medical Treatment: While the category “Gift” has recorded a 66% decline in outward remittances, “medical treatment” has seen a decline of 45.85% in April 2020.
  • Overall Impact:
    • Significantly, the cut in expenses on education, medical treatment and maintenance of relatives may endure beyond the travel ban and Covid due to financial strain.
    • Investment in shares and debt instruments used to buy immovable properties in overseas markets may decline.
    • Opening of foreign currency accounts with banks outside India may also get reduced.
    • In nutshell it would affect the currency reserve of the country as an Indian resident needs to buy dollars using the Indian rupees (INR) from an authorised dealer (the bank) in India.

Liberalised Remittance Scheme

  • This is the scheme of the Reserve Bank of India, introduced in the year 2004.
  • Under the scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.
  • Not Eligible: The Scheme is not available to corporations, partnership firms, Hindu Undivided Family (HUF), Trusts etc.
  • Remitted Money can be used for:
    • Expenses related to travelling (private or for business), medical treatment, study, gifts and donations, maintenance of close relatives and so on.
    • Investment in shares, debt instruments, and buy immovable properties in the overseas market.
    • Individuals can also open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the scheme.
  • Prohibited Transactions:
    • Any purpose specifically prohibited under Schedule-I (like the purchase of lottery tickets, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
    • Trading in foreign exchange abroad.
    • Capital account remittances, directly or indirectly, to countries identified by the Financial Action Task Force (FATF) as “non- cooperative countries and territories”, from time to time.
    • Remittances directly or indirectly to those individuals and entities identified as posing a significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.
  • Requirements: It is mandatory for the resident individual to provide his/her Permanent Account Number (PAN) for all transactions under LRS made through Authorized Persons.

Source: IE

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