Indians remit $1bn abroad in cash & gifts

Resident Indians have remitted close to $1 billion abroad and one out of every $3 sent abroad is sent as gift and maintenance of close relatives. Reserve Bank of India’s (RBI) latest data shows that overseas remittances by Indians under the liberalised remittance scheme (LRS) touched $983 million in FY10, up from $808 million in FY09. 

While gifts rose 20% to $159.9 million from $133 million, money sent as maintenance for close relatives touched $170.9 million (previous comparison is not available as this was a part of other sources in the 
previous year). 

Together these two components accounted for almost a third of the outward remittances during the year. Other major sources of outward remittances were returns on investments in equity and debt ($206.5 million) and for studies abroad ($217 million). 

Under the scheme, each resident Indian can remit up to a total of $200,000 in a financial year including gifts to relatives abroad, purchase of property, investment in fixed deposits (FDs), equities and bonds and donations. Though there are separate limits for certain transactions such as travel, studies and medical treatment, the $200,000 facility, under LRS, is in addition to the already existing limits. A big chunk of the gift component of the money remitted overseas is believed to be the returns on investments made from the money their relatives had sent earlier. 

Corroborating this view is the data on inward remittances by the Indian Diaspora. These have been growing sharply since the nineties, which witnessed a boom in the information technology industry and a large-scale migration of Indian software professionals to North America and Europe. Inward remittances touched $50 billion in 2010. 

According to an RBI study, only 61% of the money sent by relatives overseas is used for family maintenance. The balance is used for investments in bank FDs, stocks and real estate, among others. 

The returns too are much higher for an overseas Indian through this route than if s/he had invested in the NRI deposits directly. Going by the current trend in returns on domestic and NRI deposits, the differential between the post-tax return is positive. 

Besides, in times of a rising interest rate scenario, there is a perceptible positive difference in the returns. Both the stock market and the real estate market in India have earned the best of returns in the global markets last year. 
Though bankers acknowledge such a possibility, they are not willing to comment officially. “It is difficult to track the trail of the money that a depositor comes to us for sending abroad,” said a senior official with a large public sector bank. Besides, the money that is going out it just a trickle of what is coming in as remittances. 

In FY10, the country received remittances of over $50 billion. Though the amount remitted overseas is still very little, what perhaps has escaped attention is the galloping pace at which such outflows are taking place every year.

source: www.economictimes.com