Liberalised Remittance Scheme

Funds sent abroad by students under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS) declined by over 42 per cent to $2.57 billion during the nine months ended December 2022 of the current fiscal (2022-23). This amount was $ 4.4 billion in the same period of 2021.

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.

Details –

• Overall remittances by resident individuals under LRS have shot up by 40 per cent to $19.35 billion during the nine months ended December 2022 from $13.79 billion a year ago. Remittances in 2022-23 are expected to exceed $19.61 billion registered in fiscal 2021-22.
• However, funds sent abroad by students under LRS declined by over 42 per cent in first nine months of FY 23.
  • • The fall in outward student remittances is due to difficulty in getting visas and uncertainty over job scenarios amid the slowdown in major developed economies triggered by rising inflation and interest rates.
    • The rising cost of education due to the falling rupee also makes it difficult for students to pursue higher studies.
    • Among other countries, students from India also go to Russia and Ukraine for studies. After the Russia-Ukraine war, students are not going to these countries.
• The biggest jump in remittances was in overseas travel by Indians who took out $ 9.94 billion during the nine months ended December 2022 as air travel opened up after the pandemic. Travel remittances were $ 6.90 billion during the previous fiscal 2020-21.

About the ‘Liberalised Remittance Scheme’ –

• Liberalised Remittance Scheme (LRS) was brought out by the RBI in 2004.
• 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.
• This money can be used to pay expenses related to travelling (private or for business), medical treatment, studying, gifts and donations, maintenance of close relatives and so on.
• Apart from this, 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 –

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.