drastic-increment-in-remittance-outflow-in-fy20

Context: According to data released by the RBI, the remittance in FY20 jumped 36 per cent over the previous high of $13.78 billion remitted in FY19.

More about the news:

  • Resident Indians remitted a record $18.75 billion under the liberalised remittance scheme (LRS) in the financial year ended March 31, 2020. 
  • The remittance in FY20 takes the total over the past six years to $58 billion.

Key takeaways from the data:

  • Outward remittance growing: Remittance under the Liberalised Remittance Scheme (LRS) scheme has been rising exponentially over the last six year and the outflow in FY20 was 17 times of what it was in FY14. 
  • While travel accounted for $6.94 billion worth of remittance, those for the purpose of study amounted to $4.99 billion. 
    • As coronavirus pandemic spread widely across US and Europe in March and countries started issuing travel advisories, travel related remittances under the liberalised remittance scheme fell sharply in March to a two-year low of $305.5 million.
  • The other two major heads were maintenance of close relatives ($3.4 billion) and gift ($1.9 billion).
    • Remittance of $344 million on account of maintenance of close relatives was 7 per cent higher than year-ago month. It was 20 per cent higher than average monthly remittance ($284 million) for the purpose in FY20.
  • FPI investment: By comparison, over the last six financial years, the foreign portfolio investors accounted for net inflow of $64.8 billion — 12 per cent higher than the LRS outflows.
  • Outflows have been growing on account of weak investment and business climate in India. 
    • Reports of raids by investigating agencies over the last couple of year and instances of harassment by tax officials across the country has only weakened confidence of businessmen.
  • Despite a dip in March, the financial year 2019-20 ended with record outflows of $18.75 billion, taking the aggregate over the last six-years at $58 billion. 

Significance:

  • Outward remittance growing: It is important to note that as domestic consumption, private investment continued to witness slowdown in FY19 and FY20 after the IL&FS crisis in September 2018, which resulted in a liquidity crisis for NBFCs and credit availability in the economy, the outward remittance by resident Indians continued to rise at a fast pace.
  • Ease of doing business: The Finance Minister announced a cut in the corporate tax rate from 30 per cent (exclusive of surcharge and cess) to 22 per cent in September 2019, there has been some positivity among businessmen. 
  • Panama papers issue: Preliminary inquiries into accounts of about 500 Indians featuring in the Panama Papers don’t appear to indicate large-scale wrongdoing, with most in accordance with Reserve Bank of India (RBI) rules under  liberalised remittance scheme (LRS).

About RBI’s liberalised remittance scheme

  • The Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI) allows resident individuals to remit a certain amount of money during a financial year to another country for investment and expenditure.
  • According to the prevailing regulations, resident individuals may remit up to $250,000 per financial year. 
  • Purpose: This money can be used to pay expenses related to travelling (private or for business), medical treatment, studying, gifts and donations, maintenance of close relatives and so on.
    • The remitted amount can also be invested in shares, debt instruments, and be used to buy immovable properties in overseas market. 
    • Individuals can also open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the scheme.
  • Restrictions: However, LRS restricts buying and selling of foreign exchange abroad, or purchase of lottery tickets or sweep stakes, proscribed magazines and so on, or any items that are restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000. Offshore accounts have long been associated with black money.
  • You also can’t make remittances directly or indirectly to countries identified by the Financial Action Task Force as “non cooperative countries and territories".