As more Indians head overseas, forex outflows double - Economic Times

Foreign exchange outflows due to outbound travel more than doubled from a year earlier to $1.5 billion in August, reflecting pent-up demand and easing of mobility curbs at overseas destinations traditionally favoured by resident Indians.

To be sure, the start to the academic year in the US and the UK may also have contributed to the spurt in demand for foreign currency, with both parents and their wards traveling to Ivy League and Ox-Bridge campuses. Also, several countries lifted restrictions on inbound tourism through the late summer and allowed more frequent flights as the number of Covid cases fell across the world. Expenditures on outbound travel were in excess of $574 million in August last year and at $784 million in August 2019. "This surge may be attributed to pent-up demand following the opening up of tourism across the world," said Madan Sabnavis, chief economist, Bank of Baroda. "In a way, the loss of two years is being made up with Europe and Southeast Asia, besides Maldives and Mauritius, turning out to be our favourite holiday destinations."

Significantly, outflows have surged despite the rupee losing about 10% in value to the US dollar this calendar year. However, the pound and the yen have lost even more than the rupee against the dollar.

"The cost does not matter here. Besides, Europe has become cheaper due to its decline against the dollar. The trend will continue until December," said Sabnavis.

Overall, remittances under the liberalised remittance scheme (LRS), which allows resident individuals to remit up to $250,000 a year, rose 35% to $2.7 billion in August.

Reserve Cover Remains Strong
In the whole of FY22, outflows under LRS were $19.6 billion, up 54% from $12.7 billion in FY21.

In 2013, the individual limit was lowered to $75,000 from $125,000, although the threshold was subsequently raised again in 2015. The Reserve Bank of India (RBI) is unlikely to lower the LRS threshold despite the latest shrinkage in the forex stockpile. India's foreign currency reserves fell by almost $101 billion in January-September 2022, with revaluation accounting for two-thirds of the decline.

India's reserve cover remains strong, at about 9 months of imports, in September. This is higher than during the "taper tantrum" in 2013, when it stood at just more than 6 months, and offers the authorities scope to utilise reserves to smooth periods of external stress, Fitch Ratings said. Even at current levels, India's reserves are the fifth largest in the world.

"Despite the delicate position, we do not think the RBI has run out of ammunition," said Rahul Bajoria, chief India economist, Barclays Capital. "Another flare-up in commodity prices, or much stronger growth, could have a bigger impact on the external balance sheet. While we do not see any weakness in reserve adequacy, to ensure macro stability, we believe it will be imperative to keep a close eye on the external balance sheet."

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2022-10-21 23:28:00Z
CBMifGh0dHBzOi8vZWNvbm9taWN0aW1lcy5pbmRpYXRpbWVzLmNvbS9ucmkvaW52ZXN0L2FzLW1vcmUtaW5kaWFucy1oZWFkLW92ZXJzZWFzLWZvcmV4LW91dGZsb3dzLWRvdWJsZS9hcnRpY2xlc2hvdy85NTAyMTY2MS5jbXPSAXdodHRwczovL20uZWNvbm9taWN0aW1lcy5jb20vbnJpL2ludmVzdC9hcy1tb3JlLWluZGlhbnMtaGVhZC1vdmVyc2Vhcy1mb3JleC1vdXRmbG93cy1kb3VibGUvYW1wX2FydGljbGVzaG93Lzk1MDIxNjYxLmNtcw

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