The world has not yet fully recovered from the financial catastrophe. While everyone is putting in a strong effort to stabilize Indians have stunned other nations. Notwithstanding their financial limitations, Indians are not frugal when it comes to spending money on vacations abroad. In addition to this, Indians are sending a record amount of money abroad for investment and education purposes this fiscal year. It is anticipated that there would be a significant increase in the flow of money abroad in the current quarter and the following quarter as Indians attempt to navigate the new tax system in their nation.
82,200 crore rupees, or around $10 billion, was spent on International travel from India in just 9 months, despite the fact that the rest of the globe is experiencing a recession. India has sent 19,354 million US dollars abroad so far this fiscal year.
Even though global inflation and economic turmoil are on the rise, Indians remain unaffected. The Central Bank of India has stated this. The United States included was astounded to see these Indian air traffic statistics. Indians spent Rs 82,000 crore on International travel in only the past year. India spent this much on International travel in the first nine months of the fiscal year 2022–23. Indians spent $9,200 billion on travel abroad in December 2022 alone, according to figures from the Central Bank of India.
Reserve Bank records also show that in the pre-Covid 2020 financial year, Indians had spent enormous sums of money on similar travels abroad, more than Rs 50,000 crore. roughly $6.5 billion
Moreover, Indians’ foreign exchange results for this fiscal year set a record.
Indians have sent 19,354 million US dollars abroad thus far for Gifts, Investments, Relatives’ costs, and International Education. This is nearly $19,610 million in remittances for FY22.
According to data up to FY2018, Indians now spend around $2 billion per month on foreign exchange, compared to an average monthly remittance of less than $1 billion. Although the country’s capital account is still not fully convertible, most Indians nevertheless profit from convertibility to the fullest extent possible thanks to the liberalised remittance plan, which has an annual cap of $2,50,000 per citizen and a benefit of $1 million for families of four.
Indians spend very little on caring for relatives who live abroad, despite the fact that tourism has increased this year by 51%. This category’s pay-out proportion decreased from 26% in FY18 to 15% in FY2023. Over the previous five years, the amount of money transported abroad for equity investments has stayed constant at $10 billion yearly. Due to greater seasonal education remittances in the prior quarter, the share of remittances for education decreased in FY23.
Increased spending on International travel is viewed by economists as a measure of India’s consumer demand. The Indian Finance Ministry is also attempting to reverse this upward trend in remittances.
Remittances sent abroad are anticipated to be subject to tax going forward because all LRS-covered expenses will be subject to a 20% source-tax rate. However, as Indians attempt to avoid the new tax system, Indian-foreign currency exchanges anticipate a sharp increase in outflows in the current and next quarters with the revised tax on remittances taking effect on July 1.
Hence, while there are no additional taxes imposed on remittances made overseas under the 2019 Union Budget, a 20% upfront deduction will be made from the remitters’ cash balance. Furthermore, those who transfer funds from their savings, particularly retired persons, may be required to pay 20% tax up front and then demand a refund because they might not owe any taxes. Only after a careful analysis will it be possible to determine whether this is a result of Indians’ shifting spending habits or a trend towards financial instability.
