Even as domestic consumption, as well as private investment, continue to witness a deep slowdown, the outward remittance by resident Indians has been clocking a new high every passing month. If July saw a record outflow of $1.69 billion by resident Indians under the liberalised remittance scheme (LRS), August numbers are even higher, with the remittance hitting a new high of $1.875 billion.
The August figure takes the total outward remittance under LRS since April 2014 to $47 billion. It has been rising exponentially over the last five years. While it amounted to $1.3 billion in financial year (FY) 2014-15, it jumped to $4.6 billion in FY2015-16. For the year ended March 31, 2019, resident Indians sent $13.78 billion under the scheme.
Capital outflows a concern, but tax cuts a silver lining
At a time when domestic invesment and consumption are wintessing a slowdown, a sharp rise in remittance raises concern of capital outflows from the country, which , in turn, will not only hurt future investment and job creation, but wil also put pressure on the currency. There are some, however, who feel the recent corporate tax cut may push business sentiment and arrest this outflow.
In the first five months of the current fiscal year, the outward remittance amounted to $7.7 billion and it has outpaced the aggregate inflows by foreign portfolio investors (FPIs) this financial year. Between April and October (till date), FPIs invested a net of
Rs 32,094 crore (around $4.6 billion) in both debt and equity markets.
A look into the LRS data for August shows that while $784 million were remitted for travel purposes, $531 million were sent out for education. Another $281 million were sent on account of maintenance of close relatives and $177 million was sent under the head gift.
Under the Reserve Bank of India’s LRS, resident individuals are allowed to remit up to $250,000 in a financial year under various heads — including current account transactions such as going overseas on employment, studies overseas, emigration, maintenance of close relatives, and medical treatment.
The residents can also transfer money for capital account transactions under LRS, including opening of foreign currency account overseas with a bank, purchase of property and making investments in units of mutual funds, and venture capital funds.
Experts in the remittance business say that the recent jump in remittance under LRS is a result of various factors.
While the United States is set to raise the fee for EB5 Visa Green Card applications for US (for US residency and citizenship) from the current $500,000 to $900,000 beginning mid-November, the outflows also grew on account of domestic factors like weak investment and business climate in India and a sharp rise in effective tax rates for individuals earning over Rs 2 crore and Rs 5 crore.
One immigration advisor, however, said that there has been some positivity among businessmen in India after the government announced a cut in the corporate tax rate from 30 per cent (exclusive of surcharge and cess) to 22 per cent. “There is a sense that doing business in India may improve their return on investment as the tax rate has now been cut to 15 per cent for new business set-up,” said the advisor.
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