Data: More than 50% of the Outward Remittances from India under LRS are for Travel & Education
Sai Krishna Muthyanolla
October 28, 2022
The Reserve Bank of India publishes data on outward remittances under the LRS scheme in its monthly bulletin. Data from the RBI shows that more than 50% of the Outward Remittances from India are for Travel & Education. Remittances for the purpose of investments & purchase of immovable property are also increasing.
Remittances are transfers, usually sent from one individual or family of migrants working in one country to another individual or family, residing in their country of origin. Inward Remittances are significant for low- and middle-income countries. They shield against unanticipated emergencies and often function as investment support for education and infrastructure. As per the migration data portal, remittances in 2022 is expected to grow by 4.2% to reach 630 billion USD. However, it is difficult to estimate the precise magnitude of remittance flows given many transactions take place through informal channels. Furthermore, remittances have significant human costs. Migrants may have to make big sacrifices—like leaving behind their families—and take risks, sometimes even face abuses when looking for a job and residence.
Remittances are one of the stable sources of external fund flows. Governments tend to provide incentives to boost remittance flows and direct them to productive purposes. Both demand side and supply side of remittances must be strengthened to productively utilize the remittance flows. Therefore, it becomes utmost important to streamline and ease the remittance transfers through official channels.
On the other hand, outward remittances from any country could be for multiple reasons such as education, travel & tourism, or other purposes. In today’s story, we look at the outward flow of remittances from India and associated causes and trends. The Reserve Bank of India publishes data on outward remittances under the LRS scheme in its monthly bulletin.
What is the Liberalized Remittance Scheme (LRS)?
Transferring money to people or organizations in foreign countries was time-consuming and laborious in the past. To streamline outward payments, the Reserve Bank of India (RBI), based on Tarapore committee’s recommendations, launched the Liberalized Remittance Scheme (LRS) in 2004. LRS acts as the guidelines for external remittances from India.
Under the LRS, any legal current or capital account transaction, or a combination of both, may be funded by resident individuals up to USD 2,50,000 every fiscal year (April-March). Corporate entities, partnership firms, HUFs, Trusts, etc., are not eligible for the Scheme. The Scheme forbids all other transactions that are otherwise prohibited by FEMA and those that are in the nature of margin calls or remittances for margins to foreign exchanges or foreign counterparties.
The limit for transfers undergoes revisions owing to the prevailing macro and micro-economic conditions. Below is the timeline of the revisions.
Any analysis of the values of outward remittances must be viewed keeping in mind the transfer limits.
Rising outward remittances, after a decline due to COVID-19
Outward remittances from India have been growing consistently. It was 808 million USD during 2008-09, which rose to 1326 USD during 2014-15. The years 2015-16 and 2016-17 saw a steep rise in the outward flow of remittances, registering almost 250% and 75% increase compared to respective previous years. This could be due to the increase in limits under the LRS. Thereafter, the increase has been moderate, but the outflows for pandemic year 2020-21 fell by almost one-thirds. The remittance flows in the year after the pandemic improved slightly compared to the pre-pandemic levels. The
Travel and education form a bulk of outward remittances
Outward remittances can be done for a variety of purposes- deposits, investment in equity/debt, purchase of immovable property, gift, travels, donations, education, medical treatments, maintenance of close relatives and others. Foreign travel and education form a substantial chunk of the total outward remittances from India. The cumulative remittances for travel and education abroad stood at 50% of the total during 2016-17, which rose to 64% during 2019-20. Owing to the restrictions on travel and education during the pandemic, its share fell to 56% during 2020-21. As the restrictions on travel are easing, the share in the total outward remittances is well on track to improve from the pre-pandemic levels. It is anticipated to rise steadily as a result of the expansion of the international education market, an increase in the volume of student traffic, and easing travel related COVID-19 restrictions across the world.
Increasing investments abroad and property purchases
After travel and education, gifts, and maintenance of close relatives account for approximately another 30% share in the total outward remittances. Apart from these, investments in equity/debt, deposits and purchase of immovable property have shown improvement over the years. The investments in equity/debt reached 746 million USD in 2021-22, an increase from 431 million USD during 2019-20. It is believed that a greater number of people are preferring to buy foreign stocks and hold a share in top multinational companies, thereby diversifying the portfolio. Similarly, the tendency to own a property abroad has increased owing to increased remittances for this purpose.
Remittances data of RBI and World Bank does not match
As stated earlier, it is complicated to arrive at an exact figure of the total outward remittances, as transactions often take place through unofficial channels. The data published by the ‘Reserve Bank of India’ and ‘The Global Knowledge Partnership on Migration and Development (KNOMAD), World Bank’ often do not match. The KNOMAD frequently publishes data on remittance inflows and outflows through its ‘Migration and Development Brief’. While the RBI publishes it in fiscal year mode, the data from World Bank follows the calendar year mode, which means exact comparison cannot be drawn. The methodology of the data collection may also vary. Below is the difference in the data published by the two agencies as far as outward remittances from India are concerned.
Need a comprehensive migrant-centred approach towards remittances
As mentioned earlier, remittances function as a stable source of foreign capital flows to the recipient countries. Hence, both the source nations and the recipient nations need to adopt a migrant-centred approach to enable the free flow of the remittances. The global average of transaction costs remains at 6% when compared to the target 3% of the Sustainable Development Goals. In addition, a timely availability of data on remittances could help in understanding the blockheads in the remittance cycle. Accordingly, the World Bank launched International Working Group to Improve Data on Remittances. Further, the volume and impact of the remittances are deeply impacted by the macro-economic policies, the exchange rates, and policies on migration. It is therefore of equal importance to have an enabling framework for the free flow of remittances across borders.
Featured Image: Remittances from India