For decades, India put a ceiling to Outward Remittances that can be considered as paltry to the least. The idea was to encourage inward remittances and putting a curb on the outward remittances. However, after the liberalization of the economy, the scope of outward remittances has broadened substantially. It now stands at a handsome $250,000 per year per person!
This has resulted in the increased outward remittances that have kept on augmenting each year. In January this year, Indians sent record remittances overseas that have been more than double compared to the previous year. The major parameters of remittances are funding children’s education, tourism, and money sent as gifts, data from the central bank showed.
The individual residents’ outbound remittances touched a new high of $1.2 billion in January, according to Reserve Bank of India data. The first ten months of FY18 have seen cumulative outflows of $8.17 billion, compared with $4.6 billion in the same period a year ago.
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The outward remittance ceiling of $250,000 per year per person also includes sending money to the relatives abroad for some specified expenses including investments. The remittances also include the creation of long-term income avenues for their overseas beneficiaries. Four categories –– gifts, maintenance of relatives abroad, travel and study –– accounted for more than 90% of the total flows.
“It is clear Indians are traveling abroad more and also high net worth individuals are encouraging their offspring to study abroad and sponsor their education,” said Moin Ladha, a partner at law firm Khaitan & Co.
“Many individuals are considering options for creating structures like trusts to create long-term avenues of income for their families abroad,” said Ladha.
Such huge outflows could be a cause of concern if they accelerate in the months ahead, given that the withdrawal of capital by foreign portfolio investors is putting pressure on the local currency.
“The overall amount is still insignificant to create any systemic risk,” said Ladha. An outflow of $8 billion from foreign exchange reserves of over $400 billion is not a reason to worry for economists.
Thus, the broadening of the outward remittance amount has, in turn, broadened the scope of income for people who are positioned in India as well. In this age of globalization and online businesses, outward remittances have added an investment option even for people in India. The investment thus made can catalyze a wide range of businesses with the export of not only goods but also services. This has been a good policy initiative overall.