Outward remittances under RBI's LRS surge after FY21 lull due to Covid-19

Under LRS, all resident individuals, including minors, are allowed to remit up to $250,000 in every financial yr for any permissible current or capital account transactions, or a combination of both

Outward remittances under the Liberalised Remittance Scheme (LRS) picked up in the first six months of the current financial year, after a tepid 2020-21 due to Coronavirus (Covid-19) related restrictions on travelling and overseas education. 

According to latest data published by Reserve Bank of India (RBI), Indians remitted close to $9 billion during the April-September period of the current financial year as compared to $5.7 billion during the same period last year, a growth of 57% year on year. FY21, which was hit by Covid-19 related restrictions, saw an outflow of $12.7 billion. FY20, however, saw a record $18.8 billion in remittances under the LRS route. 

In August and September of the current financial year, Indians remitted close to $2 billion in each of the months. Travel and studies abroad are the two categories which have been driving the outflow. 

“Last year due to Covid, flows through LRS were hit. Particularly, studies abroad and travel, which did not happen last year, have started picking up,” said Ravindran Menon, chief executive officer, RemitX, a division of Capital India Finance Limited, that facilitates cross-border remittances. 

“This year, students have again started applying for universities abroad. They have to remit their fees and maintenance, living expenses – which contributed to a significant amount of rise. Plus, there are other reasons like remittances by small and medium enterprises,” Menon told Business Standard. 

Under the LRS, all resident individuals, including minors, are allowed to freely remit up to $250,000 in every financial year for any permissible current or capital account transactions, or a combination of both. 

Some of the current account transactions that are allowed under LRS are overseas travel, studies abroad, maintenance of close relatives abroad, gifts and donations among other. Capital account transactions like investment in deposits, equities and bonds, property purchases fall under LRS. 

Studies abroad, travel and maintenance of close relatives abroad – these three categories accounted for almost $1.6 billion of outward remittances in September.   

In a speech last month, RBI Deputy Governor T Rabi Sankar said, that the LRS is largely in current account transactions and that there is a need to review the scheme due to changing requirements. 

“The LRS for individuals, while it is open for both current and capital account transactions, is largely (more than 90%) in current account transactions like travel, studies etc,” Rabi Sankar said at an event organised by Foreign Exchange Dealers’ Association of India (FEDAI). 

“As the LRS Scheme has operated for some time and there may be a need to review it keeping in mind the changing requirements such as higher education for the youth, requirement of start-ups etc. There might even be a case for reviewing whether the limit can remain uniform or can be linked to some economic variable for individuals” he had said.