If the rupee’s slide persists, is it going to be a throwback to 2013, with a fresh set of controls on individual foreign spending under the RBI’s liberalised remittance scheme?
What is the most apparent fallout of a weak rupee and a dearer dollar? Among others, it makes overseas travel costlier. There’s less bang for the buck, as for every dollar you need to pay more in rupees.
When the rupee weakens, Indians would like to curtail overseas expenses, including foreign trips. But here’s a puzzling piece of statistic. Between April to August, the rupee’s value has fallen sharply — from about Rs 64 to Rs 71 a dollar, or by about 11 percent.
Indians’ overseas spending in travel and studies, however, has also risen sharply during this period raising questions on why the wealthiest are moving millions abroad at a time of rising dollar costs.
In August, when the rupee fell to 71 to a dollar Indians spent $1.42 billion overseas (the latest for which data is available), nearly 30 percent higher than $1.02 billion spent in August last year.
The money spent on overseas travel has seen one of the sharpest increases, vaulting by 24 percent — $2.02 billion in April-August from $1.63 billion in the same period last year.
Why are Indians splurging so much more on foreign tours and buying more dollars when the greenback has become worryingly costlier?
Likewise, a pricey dollar doesn’t seem to have deterred Indians from buying more of it to spend on courses in overseas universities and institutes.
Indians spent $1.3 billion in April-August to fund studies abroad, an increase of 66 percent compared to the same period last year. There’s, however, a missing variable. What has prompted more spending on overseas courses, when the fees, in dollar terms, would have remained largely unchanged?
During the five months from April to August, individual remittances from India totalled $5.6 billion, which is 25 percent greater than the amount sent during the same period last year.
Indians had sent $4.49 billion during April to August 2017 using the so-called Liberalised Remittance Scheme (LRS) that allows people to spend up to $250,000 overseas in a year through legitimate financial instruments.
The Reserve Bank of India (RBI) data collated by Moneycontrol shows that despite a persistent rise in the dollar’s value, affluent Indians have not preferred to raise their investment levels in overseas-listed company shares and debentures.
This is contrary to common sense expectation. It should have been par for the course for India’s financially savvy class to shuffle their savings portfolio and move funds to overseas equities, drawn by the attractiveness of returns when they cash in on the gains on the growing dollar-rupee differential.
During April to August, the period that recorded the sharpest fall in the rupee’s value, Indians’ investments in overseas equity and debt actually fell 9 percent year-on-year to $160.6 million during the first five months of FY19.
August, the month in which the rupee hurtled below the 70 to a dollar mark, however, was an outlier. Indian investment in foreign equity and debt instruments soared 56.3 percent YoY to $47.2 million.
With the rupee sliding further and bears running amok in Indian capital markets, it would be interesting to see whether the well-off are reordering their savings deck towards overseas equities. Outward remittances data of September and October, due in the next two months, will tell us whether Indians are flocking to foreign bourses to seek better returns.
There’s, however, demonstrable evidence that over the last few months the financially well-acquainted and high net worth Indians (HNIs) appear to have firmly placed their bets on foreign banks to park disposable funds.
Deposits by Indians in overseas banks during April to August stood at $172.2 million — up 11 percent from previous year's $155.2 million. Such deposits grew at an average 13.2 percent a month during this period, suggesting a steady outflow to global banks to exploit the gains of a firming dollar.
Under the LRS, individuals are allowed to send a certain amount of money to another country. The amount can be invested in shares, debt instruments, and used to buy property or spent on travelling, medical treatment or on education.
Individuals can also open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the scheme.
The limit under the LRS was reduced to $75,000 from $200,000 in 2013 as part of a broad strategy to stem dollar outflow and arrest the slide in rupee, which had hit a record 68.85 to a dollar in August 2013.
It was raised to $125,000 a year in June 2014 and later doubled to $250,000 a year in February 2015.
The rupee is now far worse than five years ago and has plumbed to new depths. Indian individuals are now spending close to $1.5 billion a month to fund their overseas expenses. If the rupee’s slide persists, is it going to be a throwback of 2013, with a fresh set of controls on individual foreign spending?For more Opinion pieces, click here.