Date: May 23, 2023
According to recent data released by the Reserve Bank of India (RBI), Indians have witnessed a remarkable surge in foreign currency spends, reaching an all-time high of $27.1 billion in FY23, a staggering increase of $7.5 billion compared to the previous fiscal year. The primary driver behind this surge has been the post-pandemic boom in overseas travel, which accounted for nearly 90% of the additional spend under the RBI’s liberalised remittance scheme.
Prior to the pandemic, foreign currency spends were relatively subdued, with FY22 recording approximately $19.6 billion and FY21 totalling $12.7 billion, largely due to travel restrictions and safety concerns. However, with the gradual easing of pandemic-related measures, overseas travel witnessed a significant resurgence. In FY23 alone, Indians spent a staggering $13.7 billion on international travel, experiencing a remarkable 97% increase from the $6.9 billion spent in FY22.
This surge in foreign travel expenditures highlights a notable shift in Indian spending habits. Until FY18, the average monthly remittance by Indians remained below $1 billion. However, the latest data reveals that the monthly average remittance has now doubled to approximately $2.2 billion, signifying a significant upward trend over the past five years.
While foreign travel played a dominant role in the increased remittance figures, other noteworthy categories included family maintenance and overseas education. It is interesting to note that spending on education experienced a decline, dropping to $3.4 billion in FY23 from $5.2 billion in the previous year. Despite this decline, education expenditures still account for approximately 13% of total remittances, while travel expenditures constitute 50%.
It is crucial to consider that the record-breaking travel spending coincides with the implementation of new tax regulations. The government has imposed a 20% tax collection at source (TCS) on travel expenditure, which may lead to a potential moderation in remittances. However, individuals are strategically advancing their travel plans to the first quarter of FY23 to avoid the newly imposed tax, which suggests that the remittance numbers for April-June 2023 may remain elevated.
The surge in foreign travel also serves as evidence of a ‘K’ shaped recovery in the economy, wherein various sectors showcase divergent performance. Notably, luxury spending has witnessed a significant uptick, evident through increased purchases of high-end cars and bookings at five-star hotels. On the other hand, the fast-moving consumer goods (FMCG) sector has experienced a slowdown. Gifts also hold a substantial market share in total remittances, with Indians sending $3 billion abroad as gifts in FY23, marking a 28% increase from the previous fiscal year.
In addition to travel and gifting, Indians have also shown a growing inclination towards deposits in foreign banks, which amounted to $1 billion in FY23, reflecting a 21% increase compared to the previous year. Moreover, investments in overseas equity and debt markets reached $1.3 billion, displaying an impressive growth rate of 68%.
Additional statistics highlight the shifting spending patterns of Indian traveler:
Average Monthly Remittance: Until FY18, Indians spent less than a billion dollars each month on average. However, the latest data reveals that the monthly average remittance has now doubled to approximately $2.2 billion, showcasing a significant upward trend over the past five years.
Breakdown of Remittance Categories:
Education Expenditure: Spending on overseas education declined to $3.4 billion in FY23 from $5.2 billion in the previous year, accounting for about 13% of total remittances.
Travel Expenditure: Travel-related spending constituted 50% of total remittances in FY23, highlighting its dominant position among various categories.
Impact of Tax Regulations:
Tax Collection at Source (TCS): The government’s imposition of a 20% TCS on travel expenditure poses the possibility of moderation in remittances. However, individuals are strategically advancing their travel plans to the first quarter of FY23 to avoid the newly introduced tax, suggesting that remittance numbers for April-June 2023 may remain elevated.
Economic Recovery and Divergent Sectors:
‘K’ Shaped Recovery: The surge in foreign travel serves as evidence of the ‘K’ shaped recovery in the Indian economy, where different sectors exhibit divergent performance.
Luxury Spending: Luxury spending, including purchases of high-end cars and bookings at five-star hotels, has witnessed a significant jump, contrasting with the slowdown observed in the fast-moving consumer goods (FMCG) sector.
Gifts and Other Remittance Categories:
Gifting: In FY23, Indians sent $3 billion abroad as gifts, marking a substantial 28% increase from the previous fiscal year.
Foreign Bank Deposits: Deposits in foreign banks reached $1 billion in FY23, indicating a notable 21% increase compared to the previous year.
Overseas Equity and Debt Investments: Investments in overseas equity and debt markets amounted to $1.3 billion in FY23, reflecting a remarkable growth rate of 68%.
In conclusion, the record-breaking surge in overseas travel has propelled Indian forex spends to unprecedented levels, reaching $27.1 billion in FY23. This surge underscores the changing spending patterns among Indian traveler, with travel emerging as the primary driver. Although the introduction of the 20% TCS may moderate remittances, the advanced travel planning observed among individuals suggests that remittance numbers for the first quarter of FY23 may remain elevated. The data also highlights the divergent performance of different sectors in the economy, with luxury spending and gifting experiencing significant growth.