Context:
The Reserve Bank of India (RBI) is set to tighten overseas remittance rules under the Liberalised Remittance Scheme (LRS) to prevent misuse through foreign fixed deposits and passive capital export, according to a Reuters report.
Key Highlights:
New Restrictions on Use of LRS Funds
- RBI plans to amend LRS guidelines to prohibit funds from being used for:
- Foreign currency fixed deposits
- Other interest-earning accounts abroad
- Aimed at stopping passive wealth shifting outside India, which is inconsistent with India’s current capital control regime.
Regulatory Concerns and Capital Control
- RBI is concerned about the impact of rising remittances on:
- Foreign exchange reserves
- Rupee stability and currency volatility
- Officials flagged this trend as a threat to monetary and macroeconomic stability.
Misuse and Loopholes
- The RBI wants to block:
- Deposits made under proxy names
- Indirect use of fintech platforms or private bank channels for passive remittances
- Described by officials as misuse of LRS for capital export under the guise of investment.
Scope of the LRS
- Under current rules, Indian residents can remit up to $250,000 per financial year for:
- Education, travel, foreign investments (stocks, bonds)
- Property purchase, medical expenses
- Proposed tightening will not affect legitimate investments like buying shares, mutual funds, or property abroad.
