Tourism, education of kids in some of the top universities, and maintenance of relatives like paying for medical costs of elders and for those suffering from critical illness were substantial portion of the spending by Indians, the data show.
“Wealthy individuals are looking at sending their children overseas for studies. It also means that the Indian household is not parking their savings back home and are looking for avenues abroad,’’ said SK Ghosh, chief economist at State Bank of IndiaNSE 1.13 %.
In February 2004, the government introduced the Liberalised Remittance Scheme (LRS) for Indians to remit overseas $250,000 a year per person for certain select current account and capital account transactions like shopping and even investments in stocks, bonds and property abroad. A family of four can thus send up to $1million abroad under this scheme.
Average monthly outflows seldom crossed $200-300 million a month until mid-2015. But the RBI broadened the scope of the scheme to include some travel related outflows and education funding expenses as well.
As a result, these two components, which account for over 50% of the outflows under the scheme which are also the fastest-growing components, have resulted in a sharp rise in outward remittances in the last three years.
One of the reasons for the spike in education funding may be due to the fact that scholarships have shrunk in the past few years.
Furthermore, Indians have also been investing more in the US and the UK as companies with technological edge and fast potential growth there provide better opportunities than companies in India.
Many investment schemes including that of mutual funds which invest overseas have holdings in companies like Google, Apple and Netflix which do not have peers in India.
“Besides, sponsoring children’s education and spending on travel, with the weakening of the (local) currency against the dollar and lack of clarity on the economic outlook, many HNIs are looking at investment opportunities abroad,” said Moin Ladha, partner at law firm KhaitanNSE -0.79 % and Company.
While the LRS was intended to provide better facilities for some, there were allegations that it was being misused by some, leading to the RBI tightening monitoring.
“In order to improve monitoring and also to ensure compliance with the LRS limits, it has been decided to put in place a daily reporting system by AD banks of transactions undertaken by individuals under LRS, which will be accessible to all the other ADs,” the RBI said in a notification in April last year.