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Indians are spending more on overseas travel and education than on investing in foreign assets, according to data from the Reserve Bank of India.
Under the Liberalised Remittance Scheme (LRS), Indian residents are allowed to spend in foreign currency for travel, education, and investments in debt and equity.
Currently, the spending limit is $250,000 for a financial year. The total outward remittance under the LRS has grown from $1.16 billion in 2013-14, to $11.33 billion in 2017-18.
While the share of investments in equity and debt has shrunk from 23 per cent in FY11, to 4 per cent in FY18, expenses on travelling overseas, remittances for relatives, and studying abroad now account for a much larger share.
Changing trend
The RBI had lowered the remittance limit from $200,000 to $75,000 in August 2013 as a measure to curb the rupee’s free fall. This limit was then increased to $125,000 in June 2014, and then to the current level of $250,000 in May 2015. The lifting of these curbs may have led to the spike in total remittances over the last three fiscals.
However, it is noteworthy that the share of investments in overseas equity and debt has reduced sharply since 2011. Similarly, remittances for gifts, which accounted for a 21 per cent share in FY11, has dropped to 10 per cent in FY18.
Ranen Banerjee, Partner & Leader – Public Finance and Economics, PwC India, says, “Greater monitoring of the remittances under the LRS over time has possibly made people more risk-averse to avoid coming under unnecessary scrutiny. This could be a major reason for the share of gifts coming down.”
Higher disclosures regarding overseas assets in income-tax returns could also be a reason.
The average share of travel in the LRS has surged from just one per cent in FY11 to about 35 per cent now. Similarly, the education segment’s share has increased to 18 per cent from 13 per cent in FY11.
Why the shift?
While overseas investments have increased in absolute terms, the pace of growth is much slower when compared to travel. Annual investments in debt and equity have increased from $195 million FY15 to $442 million in FY18, whereas the travel segment surged from just $10 million to over $4 billion over the same period.
Suresh Surana, Founder, RSM Astute Group, says, “Moderation in airfares, quicker visa processing, visa-on-arrival in many countries for Indian passport holders and better connectivity to many foreign tourist destinations could be the reason for such exponential jump in travel segment.”
The remittances for education have risen from $150 million in FY11 to $2 billion in FY18. Ranen says: “The number of people who are aware of the opportunity to invest in an equity market abroad and those who have the risk appetite are not many, and not growing, whereas the number of households sending their children for overseas education or going on international holidays has been increasing exponentially.”
Phani Shankar, Senior Executive Vice-President, Kotak Mahindra Bank said: “The trend in both education and travel is due to the demographic shift and income levels of people. The affordability of Indians has gone up due to the increase in income level.” While the investment might be large, the number investing is small, he adds.
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