Charting India’s Global Spending Surge: Travel and Investments Reach New Heights
With a rising middle class and improving disposable income, what Indians spent on international travel in any fiscal year has shot up to USD 17 billion in the latest FY. The total expenditure was registered as foreign exchange outgo to reach a peak of USD 31.7 billion in FY24.
Indians spent a record USD 31.7 billion on foreign exchange under the Liberalised Remittance Scheme in FY24, as shown by data from the Reserve Bank of India. The RBI’s document reveals a substantial surge in outlays on foreign exchange, primarily attributed to international travel. This expenditure, amounting to USD 31.7 billion, indicates a rise of nearly 17% when compared to the previous year’s figure of USD 27.1 billion.
The current and capital account transactions up to USD 250,000 per financial year are permitted to any country without the need to obtain prior approval from the Reserve Bank of India, under the Liberalised Remittance Scheme. Though a few sensitive countries, the list of which gets periodically amended by the Reserve Bank of India are an exception to this scheme. Much of this has been attributed to a rise in disposable income and increased aspirations among the emerging middle-class sections of the country.
The spending on close relatives has shown complete consistency, having remained at a steady share of 15-18% in the total monetary transactions within the last decade. More importantly, the trends highlighted by RBI show that outward foreign exchange remittances have remained substantially high, against the backdrop of the onset of TCS. However, the average monthly value of these transactions has been constantly declining since the implementation of TCS in October 2023. The monthly average in remittances in foreign exchange was almost $1.42 billion, or about INR 125 billion in the fiscal year 2023-24, up from a five-year average of $400 million, or about INR 33 billion in 2018-19.
Travel has turned out to be the single largest cause of outward remittance from the country accounting for 53.6% of the outflows in 2024 fiscal year. What has to be even more surprising is the fact that the above percentage for the fiscal year of 2014 was much different than that of 2013- 14. Polar opposite, it was 1.5 % to a whopping 35% in 2018-2019. The Reserve Bank of India earlier announced that funds sent by Indians for their respective annual international travel through the Liberalised Remittance Scheme rose in 2023-24 to $17 billion by 24% from $13.66 billion in the previous fiscal year.
Resident Indians are now investing abroad more actively, and, according to the Reserve Bank of India, average monthly investments in foreign equity and debt have surged to a level of USD 100 million for fiscal years 2023-24. This figure stands in contrast to the full year data of 2022-23, which recorded an average of USD 1.25 billion. Additionally, the RBI highlighted that in 2023-24, remittances for the upkeep of immediate family members living abroad amounted to USD 4.61 billion, and those for educational purposes abroad totaled USD 3.47 billion.
According to the Bank of Baroda, ‘gifts’ have been the most significant contributor to outward remittances, their share being a high 46% in FY14, followed by ‘others.’ Although the former group’s share has declined over the years, the latter group has remained more or less constant. Moreover, the impact of TCS rates on LRS payments, introduced from October 1, has now shown a limited effect on their volumes. TCS has no additional tax liability because a refund is claimable when filing income tax returns.
The Budget 2023-24 raises the proposed TCS rates to 20% for foreign tour packages from 5%, effective October 1. However, the usage of credit cards abroad has been kept outside the purview of TCS.
