Vijay Mallya, Nirav Modi and Mehul Choksi are not the only people who have parked their wealth abroad. They have, however, done so after having cheated the Indian financial system. While Mehul Choksi traded his ill-gotten wealth for an Antiguan citizenship, the two others named above have not been reported to have done so. While Mallya is waiting for an order regarding his extradition, the two others are yet to get into the Indian nets.
These three are examples of cheats who bribed their way to build their wealth and are now awaiting retribution. There are, however, others like the film actor Akshay Kumar who milks the Indian film lovers and goes and buys a whole hill in Canada. Many Indians who love his films that are tinged with nationalism perhaps do not know that he is a citizen of Canada and allegedly spreads the lie that he has dual citizenship of India and Canada when India has no provision for dual citizenship. That does not detract from the fact that he is seemingly honest about his money matters and is a very popular actor, so much so that his brand endorsements make around $35 million (around 250 crore) per annum for him apart from the Rs. 30 crore that he reportedly charges per film. Though he invests most of his money abroad yet curiously he is in good books of powers that be, including Prime Minister Modi. Why cannot he spend a few of his millions in India where people seem to be crazy about him? If he does so, the fact is not widely known.
Akshay Kumar’s millions are all presumably legitimate whereas Mallya’s and those of others are not. As it happens there are numerous Indians who are now parking their funds abroad, apparently, preparatory to their own shift in foreign climes. While the government is trying to get as much foreign portfolio investments (FPI) as possible the country witnessed the highest ever monthly remittance abroad of $1.69 billion by resident Indians in July 2019 under the liberalized remittances scheme (LRS). Accounting this with the preceding four months, the outflow of money in foreign exchange has hit $5.8 billion in the first four months of 2019-20. Since 2014 the outflow under LRS amounts to $45 billion (3.5 lakh crore in rupee terms @ Rs 70 to a dollar).
Under the LRS resident Indians are allowed to remit up to $250,000 in a financial year for various specified reasons, such as going overseas on employment, studies overseas, emigration, maintenance of close relatives, medical treatment, etc. The resident Indians can also transfer money under LRS for opening foreign currency account overseas, purchase of property and making investments in mutual and venture capital funds. The RBI data reveals that the outflow of funds under LRS during the last 5 years (from 2014 to 2019) has been far more than FPI in the same period, thus negating the latter’s beneficent effects.
Various reasons, from economic to social and cultural, have been attributed for the rise of this phenomenon. The reasons are somewhat imprecise and analysts have not been able to pin-point the specific reasons for the (mis)use of the LRS. Investment experts and others in the business of fund management say that the sharp rise in outflow of funds under LRS over the last five years indicates flight of capital and of small and mid-sized businessmen from India. Many of these affluent businessmen wish to shift base to developed countries where work culture is better, profits are high, taxes reasonable and life is hassle-free. Others feel that the taxes now are too high and that on payment of such high taxes in an advanced and developed country they could get a much better quality of life. Then, of course, the social factor, that of a persistent unease in society, bugs many who increasingly find their universe suffering from lack of societal harmony and cohesion.
Expressing their anxiety many investment experts feel that even if 50% of the amounts sent abroad stayed back in the country and got invested in it country it could have resulted in a big multiplier effect in terms of job creation and growth of the economy. Hence many experts in the field think the government should arrest this trend. It seems to be valid proposition as many of us in India are unscrupulous and make dishonest use of facilities extended by the government. Foreign exchange is precious and is hard to come by. Misusing the facility, one should think, is criminal. Analysis of the data has shown that the amounts parked abroad during 2014-19 are almost 9 times more than what was sent abroad during 2009-14.
One tends to feel the provisions of LRS are far too liberal than necessary. While the RBI has prescribed the ways to monitor the outward remittances it has also recently redefined the term “relatives”, remittances for the upkeep or medical treatment of whom ballooned in recent years.
If the RBI has to be very generous a mechanism needs to be devised to check whether the amounts sanctioned were used for the purpose(s) they were released. The system in existence should not provide for un-noticed leaks of precious foreign currency. Besides, care has to be taken to ensure that outward remittances do not out-strip or negate the inward investments. The health of the economy has to be the prime consideration when the government extends various facilities and offers concessions to the people. Their abuse should be checked and punished wherever noticed.