What is LRS ?
LRS was first allowed by the Reserve Bank of India in 2004, when the country had adequate stock of foreign exchange reserves – the first time the stockpile crossed the $100-billion threshold. Under LRS, a resident Indian was allowed to locally buy and send abroad up to $50,000 a year for certain current account transactions like travel medical expenses and certain capital account transactions like purchase of equity and property without any prior permission from the central bank. Over the years, the central bank has revised the limit from time to time and also the list of permissible transactions
How have the limits been revised?
The only exception to the trend in incremental increases came in 2013, when the rupee came under pressure due to foreign currency outflows, and the limit was temporarily lowered. The limit now stands at $250,000 a year for various permissible transactions.
How has the list of eligible transactions changed?
Among other things, a number of travel -related transactions have been included in LRS since 2014. Now the services that are covered include the following:
private visits to any country (except Nepal and Bhutan), gift or donation, going abroad for employment, emigration, maintenance of close relatives abroad, travel for business, or attending a conference or specialised training or for meeting medical expenses, or a check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment, and expenses in connection with studies abroad.
What has the RBI said now – and its implications?
The Reserve Bank of India has further liberalised rules for opening foreign currency accounts by a resident Indian at International Financial Services Centres (IFSCs) under the LRS. An IFSC is a jurisdiction where business is done in foreign currency and for all regulatory purposes, treated as an international financial hub. In India, the Gujarat International Finance-Tec (GIFT) City is the only IFSC to have been approved by the government.
What are the prohibited transactions ?
Remittance from India for margins or margin calls to overseas exchanges, secondary market trading in FCCBs, for trading in foreign exchange abroad is prohibited under LRS. Besides gifting by a resident to another resident, in foreign currency, for the credit of the latter’s foreign currency account held abroad under LRS is barred. Even transactions like purchase of lottery tickets/sweepstakes, proscribed magazines are prohibited under LRS.
How do individuals and banks stand to gain?
Allowing a foreign currency account in the GIFT saves the individual the time in transacting by making direct transfer of funds possible instead of a correspondent bank. Prior to the latest RBI notification, such accounts were allowed only for investing in foreign securities at IFSCs and for payment of fees for education to foreign universities or foreign institutions in IFSCs The total remittances under these were about $ 6 billion in 2023-24. But by widening the list to all permissible transactions, banks have an opportunity of facilitating overseas transfers of over $30 billion – the size of overall outbound remittances in 2023-24.
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