India sent $29 billion abroad, but LRS isn't the forex problem, says Capitalmind's Deepak Shenoy

Indians remitted nearly $29 billion overseas under the Reserve Bank of India's Liberalised Remittance Scheme (LRS) in FY26, but concerns that these transfers are putting excessive pressure on India's foreign exchange reserves may be misplaced, according to Deepak Shenoy, founder and CEO of Capitalmind.

Citing RBI data, Shenoy argued that outward remittances have actually declined over the past two years, while a growing portion of the money sent abroad represents investments rather than consumption.

"We shouldn’t worry about losing foreign currency because Indians are spending their money abroad," Shenoy wrote on X.

LRS outflows are declining

India's total LRS remittances peaked at $31.74 billion in FY24 before declining to $29.56 billion in FY25 and $28.98 billion in FY26.

The latest annual figure represents a 2% year-on-year decline and is approximately 8.7% below the FY24 peak.

"LRS outflows are falling, not rising," Shenoy said, questioning concerns about excessive foreign currency leaving India.

He pointed out that annual LRS transfers of around $30 billion are relatively small compared with India's foreign exchange reserves of approximately $700 billion.

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However, LRS remittances are gross outward transfers, while foreign exchange reserves are a stock of assets held by the RBI. The comparison provides perspective on scale but does not directly measure the impact on the rupee.

Where are Indians sending their money?

Travel remains the largest category, accounting for $16.4 billion, or 56.7% of total LRS remittances in FY26. However, travel-related spending declined 3.1% year-on-year.

Shenoy highlighted that the travel category includes education-related expenses, not just holidays.

RBI's newer monthly classification shows that education-related travel payments reached $856 million in August 2026, compared with $714 million for other travel.

Separately, remittances classified under studies abroad declined 20.9% to $2.3 billion in FY26.

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This distinction matters because the headline travel figure does not exclusively represent discretionary tourism spending.

Overseas investments are rising

While spending on travel, education and gifts declined, investments abroad recorded strong growth.

Remittances for equity and debt investments increased 56.1% to $2.7 billion in FY26. Overseas property purchases jumped 63.8% to $529 million.

Shenoy argued that these investments reflect Indian households diversifying their wealth internationally.

"You can’t expect us to own foreign-made phones, but to not participate in the profits those companies make by selling us those phones," he wrote.

He also noted that maintenance-of-relatives remittances stood at $3.5 billion, considerably below the inward remittances India receives from overseas Indians.

Should RBI restrict LRS?

Under LRS, resident individuals can remit up to $250,000 per financial year for permitted transactions, including education, travel, investments and property purchases.

Shenoy questioned suggestions that the limit should be reduced to contain foreign currency outflows.

"Our woes in forex are not really about the LRS," he wrote.

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He argued that frequent changes to remittance limits could undermine confidence and discourage international diversification.

For FY27, outward remittances reached $12.56 billion during April–August 2026, up 4.5% year-on-year, suggesting a modest recovery.

The broader question is whether restricting relatively small household remittances would materially strengthen India's external position. While overseas investments create foreign assets for Indian residents, they still involve immediate foreign currency outflows.

Shenoy's argument is that policymakers should distinguish between consumption, investment and genuine macroeconomic risks before considering tighter restrictions on overseas transfers.

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