Indians are now sending more money abroad than ever before

  • Remittance outflows nearly doubled in the first ten months of the 2017-2018 financial year.
  • 90% of these outflows were for education, tourism and payments to relatives abroad.
  • While the amount sent abroad is relatively small in light of India’s foreign exchange reserves, it does highlight India's vulnerability to capital flight.

Remittance outflows from India amounted to 8.2 billion dollars between April 2017 and January 2018, data from the Reserve Bank of India (RBI) showed. This was nearly double the 4.6 billion dollars that Indians sent abroad in the first ten months of 2016-17. The month of January 2018 alone accounted for more than 1.2 billion dollars of outflows - a record figure.

Around 90% of the cumulative outflows were for education, tourism as well as payments and gifts to relatives. Under the RBI’s Liberalised Remittance Scheme, which was implemented to counter the surge in foreign exchange inflows and prevent the appreciation of the exchange rate, an Indian resident can convert their rupees and send up to 250,000 dollars a year to relatives in any foreign country without the central bank’s approval.

The original limit was set at 25,000 dollars when the scheme was launched in 2004. This was later hiked to 50,000 dollars in 2006, and then twice in 2007, to 100,000 dollars and 200,000 dollars, respectively. However, the limit was cut to 75,000 dollars in 2013 in order to prevent a surge in outflows after the rise in yields on US Treasury bonds. This was later increased to 125,000 dollars in 2014 and then finally, 250,000 dollars in 2015.

The increasing trend in remittance outflows has not gone unnoticed by companies. Earlier this month, the CEO of Western Union, Hikmet Ersek, told the Economic Times about the company’s plans to facilitate the transfer of money abroad by Indian residents. He also compared India to countries like Mexico and Turkey, which went from primarily being remittance receivers in the last decade to reaching an equitable level of outflows and inflows.

While the amount sent abroad in the first ten months of the 2017-18 financial year is relatively small in light of India’s foreign exchange reserves, it does highlight the country’s vulnerability to capital flight if the economic situation were to deteriorate. Residents will look to park their wealth in developed economies in search of stable returns. Furthermore, remittance inflows to India have been declining due to the economic slowdown in the Gulf region, falling by 4.3 billion dollars to 61.3 billion dollars in the 2016-2017 financial year.

While it may be a premature move to implement capital controls like China, the Indian government should keep a close eye on the situation.
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