The fall indicates that Indians are sending less money abroad for various purposes, including education, aiding close relatives, and even travel.
The LRS allows Indians to spend up to $250,000 abroad for reasons, including education, medical purposes and travel. The value of the outflows had been rising steadily after a dip in 2021 during the pandemic. It has now been below its post-pandemic high for 23 months.
According to experts, this may have a short-term positive impact on the current account deficit (CAD), though the longer-term impact may be more ambiguous.
The CAD is broadly the difference between a country’s earnings from the rest of the world through trade, remittances and other means, and the money it spends on similar international transactions.
India had a current account deficit of $23.3 billion or 0.6 per cent of gross domestic product (GDP) in the financial year 2024-25 (FY25). The deficit essentially means that there was less earned from abroad than was spent. Key categories for outward remittances have fallen from their peak barring equity and debt investments, which hit $2.3 billion- the highest in data going back to 2009.
Indians looking for higher returns amid a surge in global markets like the US may have driven increased remittances for equity investments, suggested Madhavi Arora, chief economist at Emkay Global, speaking in November to Business Standard.
Lower outward remittances overall may also be driven by the sharp depreciation in the rupee which can impact discretionary spending. The longer-term impact remains to be seen, but in the short-term, lower remittances help India's macroeconomic indicators at the margin, according to Arora.
“It's a positive for CAD,” she said.
The impact on the CAD may be positive in the short term, but the longer-term effects of the factors driving down outward remittances may also eventually affect money coming in, suggested Bank of Baroda Chief Economist Madan Sabnavis in November.
More onerous visa conditions in the US may have contributed to fewer students choosing to study in the US, according to Sabnavis. Many are also reconsidering the US because it is no longer as easy to get a job there after completing their education. Even if the same students choose to study abroad in another country, the remittances involved would be lower since the US is among the more expensive countries for a foreign education. The same holds true for tourists who may choose locations other than the US and Europe, both of which have seen the tourist visa process become more difficult. Spends in East Asia for the same travel period would be lower than in western countries, he pointed out.
The longer-term impact of a US crackdown on immigration could be fewer Indians residing in the country, and therefore contributing less to foreign inward remittances. India received $135 billion worth of inward remittances in the financial year 2024-25 (FY25) compared to $30 billion in outward remittances. The United States has been the largest source of inward remittances ($27.7 billion) as of FY24, nearly as much as all of India’s outward remittances combined. This means that fewer Indians working in the US will likely have a net negative impact on remittances coming into the country over the longer term, according to Sabnavis.
“To that extent, the impact on CAD could be negative,” he said.
The external sector outlook is presently benign, suggests a recent RBI bulletin.
“India’s economy is turning out to be more resilient to external shocks over time, backed by strong services exports, remittances receipts and oil prices becoming less detrimental to the current account sustainability,” it said.
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