Indians sent a record $4.6 billion abroad as outward overseas remittances

MUMBAI: Indians have sent a record amount overseas under a facility that allows them to send money abroad either as a gift or maintenance of relatives and even investments abroad or even purchase of property without any questions asked.

Outward overseas remittances under the facility called liberalised remittances scheme (LRS) which allows residents to remit overseas $250,000 a year, has touched a record $ 4.6 billion, up from $ 1.6 billion a year ago.

An analysis of monthly trend in such remittances for the last one year shows, that there is a sudden spurt in remittances from June 2015 from a little over $100 million amonth to more than $400 million a month.

The spurt is driven by a sharp rise in outflow under ‘maintenance of close relatives’ and ‘study abroad’ heads. Together they have accounted for more than half the outflow under various heads since June 2015. There is no clear explanation for this sudden surge.

Economists speculate that a higher remittance limit, tougher taxation laws in countries such as the US and a depreciating Indian currency could have led to higher remittances from Indians with links abroad.

“All these portend towards the increasing propensity towards foreign consumption rather than towards saving,” said SK Ghosh, chief economic advisor, State Bank of India. He said that the negative correlation of 0.39 between growth rate of bank deposits and growth rate of outward remittance under LRS scheme also seems to corroborate this.

According to sources at the Reserve Bank of India, this spurt is largely because the scope of LRS has widened to allow higher limits under the head maintenance of close relatives and study abroad under the LRS since May 2015.

These outflow earlier appeared under a different heads. Besides, the limit for remittances which was lowered in September 2013 was restored to $250,000 per year per person in May, 2015. Therefore, such outflows are balance of payments neutral.