This is the first time annual remittance outflows contracted since 2015 when the Reserve Bank of India (RBI) doubled the annual limit for sending money abroad to $250,000 and allowed more current account transactions under the Liberalised Remittance Scheme (LRS).
Total outflows contracted 32% in FY21 as major heads like travel, overseas studies and maintenance of close relatives saw a sharp dip. But outflows under permissible capital account transactions like investment in overseas deposits picked up.
“The fall is largely due to complete restrictions on travel. Nil MICE (meetings & incentive) movements, and there are no trade fairs and exhibitions due to Covid,” said Harsh Kumar Bhanwala, executive chairman of Capital India Finance, which makes outward remittances under the RemitX brand.
Curbs on leisure travel contributed to this trend while outbound student traffic was almost nil last year as overseas universities moved online to check the spread of the pandemic, Bhanwala said.
Outward remittances fell to $12.7 billion during FY21, from $18.7 billion in FY20, RBI data showed. Under the LRS started in 2004, all resident individuals, including minors, are allowed to remit up to $250,000 per financial year for any permissible current or capital account transaction or a combination of both.
These include private visits to any country (except Nepal and Bhutan), gift or donation, going abroad for employment, emigration, maintenance of close relatives abroad, travel for business, or for meeting medical expenses, or for studies abroad or any other current account transaction which is not covered under the definition of current account in FEMA 1999.
Two heads — travel and remittance for studies abroad – accounted for about 56% of outward remittance during the year as the pandemic induced lockdown globally even restricted essential travel forcing students to defer their travel plans for overseas studies. While travel outgo dipped 53% to $3.2 billion, expenses for studies abroad dipped 23% to $3.8 billion during the year.
Significantly, capital account transactions like resident individual investments in overseas financial markets rose during the year, albeit on a small base, with investors likely eying the combined benefit of rising yields and dollar strength over a period of time. Investment in overseas equity and debt rose 9.4 per cent to $472 million and investment in overseas deposits rose per 9.1 cent to $680.4 million.