Overseas Remittances by Indians under LRS were Down 29%

Syllabus: GS3/Economy

Context

• Overseas remittances by Indian residents under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI) fell by 29% to $1,964.21 million in February 2025 from $2,768.89 million in January.

The Liberalised Remittance Scheme (LRS)

• LRS is part of the Foreign Exchange Management Act (FEMA) 1999 which lays down the guidelines for outward remittance from India. 
• Under the Scheme, resident individuals, including minors, can freely remit up to $2,50,000 per financial year for permissible current or capital account transactions.
  • These transactions include education, medical treatment abroad, purchase of property, and investments in foreign stocks.
• The Union Budget in February 2025 increased the threshold for collecting Tax Collected at Source (TCS) on LRS transactions from Rs 7 lakh to Rs 10 lakh. 
  • This change was expected to benefit the travel and foreign exchange sectors, providing a boost to outbound tourism, education and the airline sectors.

Reasons for Decline: 

• The number of Indian students heading to foreign universities has simultaneously declined across the top three destination countries — Canada, the United States and the UK.
  • The data shows a sharp decline of at least 25% Indian students receiving study permits across these key destinations in 2024.
• A good number of people dropped or postponed their travel plans since the global economy and markets faced volatile movements during the period.

Remittances

• Remittances are a way to electronically send funds to people, often family, in another country.
  • Usually sent by individuals working in foreign countries, especially those employed in blue-collar or skilled jobs.
• Impact: Remittances are a significant source of income for many countries, contributing to their economic stability, supporting local economies, and sometimes helping to finance national trade deficits.
• Modes of Transfer: Remittances can be sent through banks, money transfer operators, or digital platforms.

Two Types of Remittances

• There are two types of remittances based on the transaction purpose: Inward Remittance and Outward Remittance.
  • Inward Remittance: The term inward remittance indicates transfer of funds from one account to another either domestically or internationally.
  • Outward Remittance: The transfer of funds out of the country or overseas is termed as outward remittance.

India’s Remittances

• India’s remittances have more than doubled from $55.6 billion in 2010-11 to $118.7 billion in 2023-24.

• U.S. and U.K. Contribution: Remittances from the U.S. and U.K. nearly doubled to 40% of total inward remittances in FY24, up from 26% in FY17. 
• U.S. as Leading Contributor: The U.S. became the top source of remittances in FY21, contributing 23.4%. This increased to nearly 28% in FY24.
• UAE’s Role: UAE is still the second-largest remittance source, contributing 19.2%, with Indian migrants in blue-collar jobs like construction, healthcare, hospitality, and tourism.
• Singapore’s Rising Share: Singapore’s share reached 6.6% in FY24, up from 5.5% in FY17, marking its highest share since then.
• State-wise Distribution: Half of the remittances went to Maharashtra, Kerala, and Tamil Nadu. Other states like Haryana, Gujarat, and Punjab had smaller shares (below 5%).
• Size of Remittances: Remittances above ₹5 lakh accounted for 28.6% of total remittances, while 40.6% of the remittances were ₹16,500 or less.

Source: IE