Strong foreign exchange reserves position and lower current account deficit (CAD) prompted the Reserve Bank on Tuesday to double the eligibility limit for foreign exchange remittances under the Liberalised Remittance Scheme (LRS) to $250,000 per person a year.

Further, to ensure ease of transactions, the RBI said all the facilities for release of exchange/remittances for current account transactions available to resident individuals under the Foreign Exchange Management (Current Account Transactions) Rules will also be subsumed under this limit.

Current account transactions include expenses incurred in connection with foreign travel, education and medical care of parents, spouse and children, and remittances for living expenses of parents, spouse and children residing abroad.

This enhancement in eligibility limit for foreign exchange remittances comes after a review of the external sector outlook and as a further exercise in macro prudential management, the central bank said.

India’s foreign exchange reserves stood at a robust $322 billion as on January 23. Since March-end 2014, the reserves have swelled by $17.81 billion.

The RBI said the estimate of the CAD for 2014-15 is currently placed at 1.3 per cent of GDP, significantly lower than earlier projections.

The CAD, which arises when a country’s total imports of goods, services and transfers are greater than exports, has been comfortably financed by net capital inflows, mainly in the form of buoyant portfolio flows but also supported by foreign direct investment inflows and external commercial borrowings.

The RBI had reduced the eligibility limit for foreign exchange remittances under the LRS to $75,000 in 2013 as a macro-prudential measure. With stability in the foreign exchange market, this limit was enhanced to $125,000 in June 2014 without end-use restrictions, except for prohibited foreign exchange transactions, such as margin trading, lotteries and the like.

Related Topics