Tighter Liquidity Requirements May Impose Restrictions on International Investments and Remittances
India's Liberalised Remittance Scheme Under Scrutiny Amid Rupee Weakness
The Indian government is considering tighter rules under the Liberalised Remittance Scheme (LRS) to combat the country's external account deficit, which has been exacerbated by the weakening rupee against the dollar. The rupee hit a record low of 95.74 against the dollar on May 12, with Chief Economic Adviser V Anantha Nageswaran stating that managing the current account deficit and preventing further rupee weakening would be among the government's top priorities this fiscal.
Prime Minister Narendra Modi has also called for economic austerity, urging citizens to postpone non-essential foreign travel for a year. The rupee's weakness has been attributed to rising oil prices and uncertainty linked to the West Asia conflict.
A breakdown of outward remittances under the LRS reveals that overseas travel accounted for $15.34 billion, or 58% of the total, in FY26 (up to February). The next-largest categories were maintenance of close relatives ($3.15 billion), gifts ($2.30 billion), and investments in overseas equity and debt ($2.21 billion).
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| Category | FY26 (up to February) | % of Total |
|---|---|---|
| Overseas Travel | $15.34 billion | 58% |
| Maintenance of Close Relatives | $3.15 billion | 12% |
| Gifts | $2.30 billion | 9% |
| Investments in Overseas Equity and Debt | $2.21 billion | 8% |
The investment category, which includes purchases of foreign stocks and bonds, rose 59% in FY26, highlighting growing interest among Indian investors in global assets. Remittances for the purchase of immovable property abroad surged 76.4%, rising to $490 million in FY26 from $278 million in FY25.
| Category | FY26 | FY25 | % Change |
|---|---|---|---|
| Immovable Property | $490 million | $278 million | 76.4% |
Education remittances, however, have already come under pressure, with transfers for overseas studies falling to $2.16 billion in FY26, down 21.8% from $2.76 billion in FY25. This decline reflects a combination of rupee depreciation, rising tuition costs, and tighter immigration rules in major study destinations.
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The composition of outward remittances has changed significantly over time, with travel, international investing, and overseas property purchases accounting for a much larger share in FY26 compared to FY12.
Investor Takeaway
Investors may face restrictions on international investments and remittances if the government tightens rules under the Liberalised Remittance Scheme.
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