In 2004, the UPA government removed the shackles on foreign remittances by Indian residents by putting in place the Liberalised Remittances Scheme (LRS) permitting them to remit through authorised banks without seeking specific Reserve Bank of India (RBI) approval so long as it was for prescribed current and capital account use. To start with the limit was $25,000 per financial year. Today the limit stands considerably liberalised at $250,000, ten times the initial limit.
This is baffling given the rapidly increasing outbound remittances which peaked to $1.69 billion in July (for a single month) 2019. This was exactly not an aberration. In fact the momentum has been building up over years. Including the July 2019 remittances, the outflow of money under the LRS scheme has hit $5.8 billion in the first four months of FY20 and aggregated to over $45 billion (Rs 3.15 lakh crore at exchange rate of 70 to a dollar) since the Narendra Modi-led NDA first came to power in May 2014. By comparison, in the five year period of UPA II, between April 2009 and March 2014, the aggregate outward remittance under LRS amounted to $5.45 billion.
The same Indian Express report says RBI data reveals that over the last five years, while outward remittance under LRS on account of travel amounted to over $14 billion, almost $10.5 billion was on account of maintenance of close relatives and $10 billion was sent for studies. Another $4.8 billion was remitted under the head of gifts and $1.9 billion for overseas investment in equity and debt.
By comparison, in the previous five-year period between FY10 and FY14, the amount remitted by Indians abroad on account of travel amounted to mere $129 million and that for maintenance of close relatives stood at $992 million. Similarly, for the purpose of gift, resident Indians remitted $1.17 billion in the five-year period.
While the inward remittances by the Indian diaspora in 2018-19 at $80 billion is considerably more than the outbound remittances and foreign direct investment (FDI) is also impressive at $64 billion, the government nevertheless ought to be worried if not press the panic button.
That out of $45 billion remitted abroad in the last five years, only a minuscule $1.9 billion was for investments in equity and debt shows that the LRS is not serving its main though unstated purpose. That $14 billion was on account of travel expenses and $10.5 billion was on account of maintenance of close relatives, hint at a possible sinister story.
Are the high net worth individuals (HNIs) enjoying themselves profligately with precious foreign exchange assiduously built over years? Is round-tripping at work, i.e. illegal remittances from India of black money through the subterranean hawala route coming back to India duly laundered and finding its way back again abroad through the LRS route?
The US government demands a mind-boggling $900,000 for granting residence which obviously has to be legit and clean money. Not for it would suffice money proffered from Camay Islands and Panama. Be that as it may, the silver lining is--$10 billion was for higher studies testifying to parents investing in their wards’ higher education, the most laudable cause and best family investment possible. And such sensible investments alone should be encouraged given the tight financial position the country is in, with external vulnerabilities having the potential to exacerbate the situation.
It is time the government had the whole LRS re-examined and fixed sub-limit for various purposes and causes instead of the present one-size-fits all of $2,50,000 per financial year. The huge legroom given by the present licentious regime is responsible for wealthy individuals paying their way through in precious foreign exchange for acquiring citizenship/residency in more salubrious climes in the US and Europe. While nobody is pining for the return of the draconian FERA, at the same time the country is not yet ready for facilitating a binge at the expense of the nation’s valuable, precious and by no means overflowing forex reserves.
(The author is a senior columnist and tweets @smurlidharan)
The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .
Updated Date: Sep 19, 2019 12:30:06 IST