In News:

• Total outward remittances, under the RBI’s Liberalised Remittance Scheme, shot up to an all-time high of $19.610 billion in the year ended March 2022.

What’s in Today’s Article:

• Liberalised Remittance Scheme (About, background, allowed transactions, restrictions)
• News Summary

In Focus: Liberalised Remittance Scheme (LRS)

• Liberalised Remittance Scheme (LRS) was brought out by the RBI in
• It allows resident individuals to remit a certain amount of money during a financial year to another country for investment and expenditure.
• According to the prevailing regulations, resident individuals may remit up to $250,000 per financial year.

Background:

• Resident Indians or people resident in India are allowed to transfer foreign currency under the foreign exchange regulations.
  • The transfer of foreign currency outside India is governed by the Foreign Exchange Management Act, 1999 (FEMA).
• Hence, to regulate transferring of funds within a specified limit, RBI brought the LRS.

Allowed transactions under the LRS

• Apart from the areas highlighted in the above diagram, the remitted amount can also be invested in shares, debt instruments, and be used to buy immovable properties in overseas market.
• Individuals can also open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the scheme.

Restrictions under LRS

• LRS restricts
  • Buying and selling of foreign exchange abroad, or purchase of lottery tickets or sweep stakes, proscribed magazines and so on,
  • Any items that is restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
• Also, one cannot make remittances directly or indirectly to countries identified by the Financial Action Task Force as non-co-operative countries and territories.

News Summary

• Foreign exchange, including the US dollar and euro, taken out of the country by resident Indians has shot up by 54.60 per cent during the fiscal ended March 2022.

Key Highlights:

• Total outward remittances
  • Total outward remittances under the RBI’s LRS shot up to an all-time high of $19.610 billion in the year ended March 2022.
    • It was $12.684 billion in the year ended March 2021.
  • The total outward remittances were at an all-time high in FY22 as it made a strong comeback from the previous year’s tepid show because of Covid-19-led disruptions.
  • The comeback was aided by Indian’s spending more on international travel and overseas education.
• Various segments where outward remittances showed healthy growth
  • In FY22, international travel picked up, resulting in India's spending $6.91 billion on travel, which is more than double that was spent on travel in FY21.
    • In FY20, however, spends on travel by Indians was also almost $6.95 billion.
  • Overseas education is another segment that has seen healthy growth in FY22 as Indians remitted over $5.17 billion in the year.
    • This showed an increase of 35 per cent from FY21, where Indians had remitted $3.83 billion.
    • In FY20, remittances for overseas education were nearly $5 billion.
  • Another segment that saw a healthy rise was gifts.
    • Indians remitted $2.34 billion as gifts in FY22, up 47.28 per cent over FY21.
    • In FY20, Indians remitted about $1.91 billion as gifts under the LRS scheme.
• Investments in overseas equity and debt by Indians also shot
  • Investments in overseas equity and debt by Indians also shot up to $746.5 million in FY22 as against $471.80 million in the previous year.