Resident Indians remit record $18.75 bn in FY20

Tuesday 19th May 2020 15:30 EDT

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. 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.

Sources in the banking industry say while study-related remittance has been growing, over the years, a lot of remittance is also on account various factors including weak investment sentiment in India. “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,” said the MD of a leading financial services firm.

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.

Remittance under the 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 it amounted to $1.3 billion in FY15, it jumped to $4.6 billion in FY16. In FY19 resident Indians sent $13.78 billion under the scheme.

A look into the LRS data for the FY20 shows that while travel accounted for $6.94 billion worth of remittance, those for the purpose of study amounted to $4.99 billion. The other two major heads were maintenance of close relatives ($3.4 billion) and gift ($1.9 billion).

A closer look at the data released for the month of March 2020 shows that month saw the lowest overall monthly remittance under the LRS scheme in at least 12-months as it amounted to $1.35 billion. The previous low was in April 2019 when Indians remitted a total of $1.28 billion. In February 2020, resident Indian remitted $1.68 billion.

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. 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.

Even as the pace of outflows continues, an immigration advisor said that after 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. “There is a sense that doing business in India may improve their return on investment as the tax rate has now been cut to 15 per cent for new business set-up,” said the advisor.

Under the RBI’s liberalised remittance scheme, resident individuals are allowed to remit up to $250,000 in a financial year under various heads, including current account transactions such as going overseas on employment, studies overseas, emigration, maintenance of close relatives, medical treatment among others.

The residents can also transfer money for capital account transactions under LRS including opening of foreign currency account overseas with a bank, purchase of property and making investments in units of mutual funds, venture capital funds among others.

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.

Data released by the Reserve Bank of India shows that while travel-related remittance under LRS in March 2020 fell 28.8 per cent over March 2019, it was 47 per cent lower than average monthly remittance ($579 million) for the purpose of travel in FY20.

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.

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