Spotlight
New Delhi, 26 October 2019
Liberalised Remittance Scheme
LEAKS FOREIGN EXCHANGE?
By Proloy Bagchi
Vijay Mallya, Nirav Modi and Mehul Choksi are
not the only people who have parked their wealth abroad. They have, however,
done so after having cheated the Indian financial system. While Mehul Choksi
traded his ill-gotten wealth for an Antiguan citizenship, the two others named
above have not been reported to have done so. While Mallya is waiting for an
order regarding his extradition, the two others are yet to get into the Indian
nets.
These three are examples of cheats who bribed
their way to build their wealth and are now awaiting retribution. There are,
however, others like the film actor Akshay Kumar who charms the Indian film
lovers and goes and buys a whole hill in Canada. Many Indians who love his
films that are tinged with nationalism perhaps do not know that he is a citizen
of Canada and allegedly spreads the lie that he has dual citizenship of India
and Canada, when India has no provision for dual citizenship.
That does not detract from the fact that he
is seemingly honest about his money matters and is a very popular actor, so
much so that his brand endorsements make around $35 million (around Rs 250
crore) per annum for him apart from the Rs. 30 crore that he reportedly charges
per film. Though he invests most of his money abroad, yet curiously he is in
good books of powers that be, including Prime Minister Modi. At the same time,
he does take pride in saying that he works in India and pay all his taxes.
However, why cannot he spend a few of his millions in India where people seem to
be crazy about him? If he does so, the fact is not widely known.
Akshay Kumar’s millions are all presumably
legitimate, whereas Mallya’s and those of others are not. As it happens there
are numerous Indians who are now parking their funds abroad, apparently,
preparatory to their own shift in foreign climes. While the government is
trying to get as much foreign portfolio investments (FPI) as possible the
country witnessed the highest ever monthly remittance abroad of $1.69 billion
by resident Indians in July 2019 under the liberalised remittance scheme (LRS).
Accounting this with the preceding four months, the outflow of money in foreign
exchange has hit $5.8 billion in the first four months of 2019-20. Since 2014
the outflow under LRS amounts to $45 billion (3.5 lakh crore in rupee terms @
Rs 70 to a dollar).
Under the LRS resident Indians are allowed to
remit up to $250,000 in a financial year for various specified reasons, such as
going overseas on employment, studies overseas, emigration, maintenance of
close relatives, medical treatment, etc. The resident Indians can also transfer
money under LRS for opening foreign currency account overseas, purchase of
property and making investments in mutual and venture capital funds. The RBI
data reveals that the outflow of funds under LRS during the last 5 years (from
2014 to 2019) has been far more than FPI in the same period, thus negating the
latter’s beneficent effects.
Various reasons, from economic to social and
cultural, have been attributed for the rise of this phenomenon. The reasons are
somewhat imprecise and analysts have not been able to pin-point the specific
reasons for the (mis)use of the LRS. Investment experts and others in the
business of fund management say that the sharp rise in outflow of funds under
LRS over the last five years indicates flight of capital and of small and
mid-sized businessmen from India. Many of these affluent businessmen wish to
shift base to developed countries where work culture is better, profits are
high, taxes reasonable and life is hassle-free.
Others feel that the taxes now are too high
and that on payment of such high taxes in an advanced and developed country
they could get a much better quality of life. Then, of course, the social
factor, that of a persistent unease in society, bugs many, who increasingly
find their universe suffering from lack of societal harmony and cohesion.
Expressing their anxiety many investment
experts feel that even if 50 per cent of the amounts sent abroad stayed back in
the country and got invested in the country it could have resulted in a big
multiplier effect in terms of job creation and growth of the economy. Hence
many experts in the field think the government should arrest this trend. It
seems to be valid proposition as many of us in India are unscrupulous and make
dishonest use of facilities extended by the government.
Foreign exchange is precious and is hard to
come by. Misusing the facility, one should think, is criminal. Analysis of the
data has shown that the amounts parked abroad during 2014-19 are almost 9 times
more than what was sent abroad during 2009-14.
One tends to feel the provisions of LRS are
far too liberal than necessary. While the Reserve Bank of India has prescribed
the ways to monitor the outward remittances it has also recently redefined the
term “relatives”, remittances for the upkeep or medical treatment of whom
ballooned in recent years. If the RBI has to be very generous a mechanism needs
to be devised to check whether the amounts sanctioned were used for the purpose(s)
they were released. The system in existence should not provide for un-noticed
leaks of precious foreign currency.
Besides, care has to be taken to ensure that
outward remittances do not out-strip or negate the inward investments. The
health of the economy has to be the prime consideration when the government
extends various facilities and offers concessions to the people. Their abuse
should be checked and punished wherever noticed. ---INFA
(Copyright, India
News & Feature Alliance)
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