Outward remittances dropped about 40% in July to $2.36 bn: RBI data

Outward remittances under the Reserve Bank of India’s (RBI’s) liberalised remittance scheme (LRS) for resident individuals declined by 39.36 per cent in July 2023 compared to the previous month. This month-on-month (M-o-M) fall was due to a steep decline in funds sent for maintenance of close relatives.

According to data released by the Reserve Bank of India (RBI), in its monthly bulletin for July, outward remittances under the scheme were $2.36 billion during the month as compared to $3.89 billion in June.

However, it is 19.02 per cent higher than the $1.982 billion remitted in FY22.

During the reported month, deposits remitted declined to $50.12 million from $227.23 million in June.

Similarly, investment in equity/debt schemes tapered down to $58.06 million in July compared to $314.73 million in June. Also, purchase of immovable assets reduced to $58.06 million in July from $314.73 million in June.

Across the time period, funds sent for maintenance of close relatives have fallen to $282.30 million from $890.89 million.

“One reason for the decline in LRS is the preponement of remittances under the scheme by Indians in June. This is due to the change in the LRS tax scheme. Citizens, who wanted to park their funds, may have already done so in June causing the correction in July,” said Radhika Piplani, chief economist at DAM Capital Advisors.

During the Union Budget FY23, the government had proposed raising tax collected at source on liberalised foreign remittances to 20 per cent from the existing 5 per cent. It is for amounts exceeding Rs 7 lakh for all purposes except education and medical treatment. The revision was initially scheduled to be effective from July 1, but the ministry of finance later deferred it to October 1.

Meanwhile, for the same time period, contribution to international travel stood at $1419.42 million, followed by gifts at $233.96 million. Overseas education and medical treatment were at $267.28 and $4.22 million, respectively.

The LRS scheme, introduced in 2004, allows all resident individuals, including minors, to remit up to $250,000 per financial year for any permissible current or capital account transaction or a combination of both. Initially, the scheme was introduced with a limit of $25,000. The LRS limit has been revised in stages consistent with the prevailing macro and micro economic conditions.