These measures are an indirect attempt by the government to discourage outbound remittances. International travel from India has seen a surge after pandemic restrictions on air travel were lifted. This is an area of concern for India that saw big reversals in international capital flows and a deteriorating current account in 2022. Portfolio investments have since resumed, and a downturn in commodity prices has brought the manufacturing trade deficit within comfortable levels. Pressure on the rupee has eased with foreign exchange reserves climbing after a sharp selloff. Consumer convenience gains traction as exchange rate management becomes less onerous for the Reserve Bank of India (RBI).
The decision to include credit card expenditure in the limit allowed for remittances follows steps to repatriate idling funds in foreign bank accounts and raising the TCS on overseas spending. The central bank could have chosen to reduce the remittance threshold, but the situation does not require it. RBI has in place measures to raise inward remittances, and a similar tightening of rules for outflow should suffice. Caution over conserving foreign exchange is also guided by India’s outperformance among emerging economies that has driven its equity markets to new highs.
