According to the Reserve Bank of India (RBI) data released on 19th August 2024, overseas Indians deposited nearly USD 4 billion (USD 3.95 billion) into Non-Resident India (NRI) deposit schemes in 1st Quarter (Q1: April to June) of Financial Year 2024-25 (FY25), with a significant increase of 79% compared to USD 2.21 billion during the same period of FY24.
- However, this surge in NRI deposits is in contrast with a 24.39% drop in outward remittances under the Liberalised Remittance Scheme (LRS) of RBI, which totaled USD 6.9 billion in Q1 of FY25, from USD 9.1 billion in Q1 of FY24.
Increase across various schemes of NRI Deposits:
i.As per the RBI data, Foreign Currency Non-Resident (FCNR) deposits has increased from USD 1.12 billion (in Q1of FY24) to USD 1.68 billion (in Q1of FY25), taking the total outstanding amount in such accounts to USD 27.41 billion.
Note: An FCNR (B) account enables the customers to maintain a fixed deposit (FD) in India in freely convertible foreign currencies for period of 1 to 5 years.
ii.Non-resident External (NRE) deposits saw a significant increase of inflows from USD 489 million (in Q1of FY24) to USD 1.53 billion (in Q1of FY25), with the total outstanding NRE deposits now stand close to USD 100 billion.
iii.The RBI data shows that Non-Resident Ordinary (NRO) deposits also increased from USD 598 million (in Q1of FY24) to USD 743 million (in Q1of FY25), with the total outstanding NRO deposit stand to USD28.24 billion.
- The total amount deposited into these accounts is about USD 1.68 billion in Q1 of FY25, compared to USD 1.12 billion in Q1 of FY24.
Decrease in Outward Remittances:
i.As per the RBI data, overall remittances decreased around 44% Year-on-Year (Y-o-Y) basis to USD 2.18 billion amid decline across most categories.
ii.The largest segment of outward remittances, International Travel registered a decrease of 6%, to USD 3.8 billion (in Q1of FY25) from USD 4.07 billion (in Q1of FY24).
iii.Similarly, remittances for the maintenance of close relatives decreased to 46% Y-o-Y basis, to USD 983.2 million.
iv.Remittances under the ‘gift’ category declined by approximately 41% Y-o-Y basis, to USD 811.9 million.
- Also, Investments in equity and debt schemes saw a decrease from USD 503.73 million (in Q1of FY24) to USD 318.02 million (in Q1of FY25).
- While, Remittances for deposits witnessed a decrease of 61% Y-o-Y to USD 164.7 million.
v.Spending by Indians on overseas education decreased by nearly 14% to USD 596.08 million from USD 694.41 million in the same period last year.
- But, remittance for medical treatment witnessed a increase of 43.5% Y-o-Y basis to USD 24.46 million, and donations has increased by 3.6% to USD 4.29 million.
Reasons:
i.The decrease in outward remittances is partly due to recent changes in tax collection norms and a transition in spending behavior among Indians abroad.
ii.Also, the introduction of Tax Collection at Source (TCS) on remittances under the LRS scheme by the Government of India (GoI), which was implemented in July, 2023 has impacted the transaction volumes.
About LRS Scheme:
It was introduced in 2024, which allows all Indian resident individuals (including minors) to remit funds outside India up to USD 250,000 per financial year or its equivalent in any freely convertible foreign currency for any permissible capital or current account transaction or a combination of both without any prior approval from the RBI.
Recent Related News:
- The World Bank (WB) released a report titled ‘Migration and Development Brief 40 June 2024: Remittances Slowed in 2023,Expected to Grow Faster in 2024‘. As per it, India received USD 120 billion in remittances in 2023, a 7.5% increase. Remittances to India are forecasted to grow 3.7% to USD 124 billion in 2024 and 4% to USD 129 billion in 2025.
