Indians’ fascination for everything foreign seems to be growing by leaps and bounds. In the nine months of CY21, local citizens have drained out close to $13 billion from the domestic banking system under the liberalised remittance scheme (LRS). In doing so —between CY17 and September 2021 — Indians wired out $67.65 billion overseas. Under existing rules, a resident Indian can transfer $250,000 lakh annually, making it easy for a family of four-five to easily transfer $1.25 million every year.

“We are dealing with four-five calls on a daily basis from clients eager to use the LRS route,” a leading wealth manager told Fortune India. Assuming the average monthly run rate of $1.43 billion seen during the year, LRS outflow is likely to touch $17.16 billion in CY21, close to the record $17.77 billion seen in CY19. While the pandemic in CY20 restricted outflows to $13.58 billion, the buoyancy is clearly visible this year. The surging outflow comes amid India’s growing forex reserves which have hit $635.90 billion, as on December 3.

The central bank allows local citizens to transfer money under 10 LRS categories — deposit, donation, gift, investment in equity & debt, maintenance of close relatives, medical treatment, purchase of immovable property, overseas studies, travel and others. While travel, studies and gifts constitute a chunk of the annual outflow, what is interesting to note is the way deposits have been swelling in foreign accounts. In the nine months of CY21, Indians have parked $605 million in deposits and, assuming a monthly run rate of $67.26 million, the number could hit $809 million for the year. If that happens, it could be a record high, surpassing the $667-million mark seen for the whole of CY20.

Incidentally, over the five-year period, the rupee has also depreciated by over 11% against the greenback — from 68.05 (RBI reference rate) as of January 2, 2017 to 75.64 as of December 15. However, wealth managers say the erosion of the rupee is not the primary reason why Indians are looking at greener foreign pastures. According to Ashish Gumastha, managing director and CEO, Julius Baer Wealth Advisors India, the attraction for LRS is driven by familial needs. “A lot of HNIs are increasingly becoming global as almost every family now has a member living or studying overseas. The shift is for the right reason… they all want to be global citizens.”

While RBI data shows money under the head of deposits under LRS, there is no clarity on the end use. “These deposits are not merely lying in accounts but are used either to invest in businesses or speculate in assets such as cryptos,” says a leading Mumbai-based chartered accountant (CA) who advises businessmen on overseas investments. These investments could be outside of the standard LRS category of equity and debt, where the outflow has increased from $412 million in 2018 to $507 million in the nine months of CY21. “What is also being reported under LRS heads may not necessarily be a true picture as these are mere category heads under a declaration form,” adds the CA.

While investment under the head of "purchase of immovable property" has been largely constant from $90 million in CY17 to $70 million in the nine months of CY21, there is a growing appetite to invest in properties abroad.

“Clearly, people want to move out of the country for the right reasons more than the wrong reasons. Properties in London are very hot. Also, clients understand the need for diversification in dollar terms as one has to factor in 3-4% depreciation, at the minimum, in the rupee,” says Atinkumar Saha, head-wealth management, Deutsche Bank.

Unlike 2013, when the central bank had introduced strict measures to arrest the fall in the rupee by reducing the LRS limit from $2 lakh to $75,000 a year, which was later restored and hiked to $2.5 lakh, wealth managers believe the central bank needs to double the limit to half a million. But it’s unlikely that the RBI would oblige.

Follow us on Facebook, X, YouTube, Instagram and WhatsApp to never miss an update from Fortune India. To buy a copy, visit Amazon.