Restrictions on foreign spends erode Brand India

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Narayan, a successful Indian businessman and a leader in his industry trade association, recently shed light on India’s soft power, experienced first-hand during his international dealings. His anecdotes shed light on how India is perceived and treated in global forums.

On one occasion, Narayan and his trade association colleagues were attending a major exhibition overseas. On identifying their Indian origin through their name tags, the global marketing head of the event’s main sponsor excused himself from the other delegates he was attending to. He came over to greet them and answer their queries, depicting India’s growing international clout. Such experiences are not confined to businesspersons; India’s soft power is palpable in various spheres.

India’s Liberalised Remittance Scheme (LRS) is another testament to its soft power. It enables ordinary Indian citizens to venture overseas, where they are welcomed with open arms. Even as these high-spending tourists stimulate foreign economies, they fortify India’s reputation, built over the years by the government, Bollywood, and other cultural ambassadors.

However, Narayan also narrated an episode that illustrates how antiquated procedures are endangering this soft power. His association had invited an international expert for a virtual address. The expert graciously discounted his usual fee from US$10,000 to US$1,000, because he was keen to speak to Indian delegates.

Payment of his fee, however, got delayed due to cumbersome procedures and compliance requirements. Frustrated by the delay and the consequent awkwardness, Narayan made the payment using his personal LRS limit via his bank’s mobile app. A law-abiding citizen was forced to use jugaad to circumvent red tape.

This conversation with Narayan came to my mind as I watched the recent imbroglio surrounding the imposition of a 20 per cent deposit requirement on remittances made under LRS. This requirement places an onerous burden on the salaried and the retired. They can’t offset this deposit against their advance tax liabilities, as self-employed individuals can. Already, the opportunities for Indians to invest in foreign securities through Indian mutual funds have been tightened over the past 15 months, with no sign of relaxation.

These restrictions are being justified as measures against tax evasion carried out via the LRS route. But all such transfers are done by adhering to stringent regulations and thorough KYC (know your customer) protocols. It is a sad commentary on India’s information technology prowess if the Income-Tax Department’s Data Information Network (DIN) struggles to track evaders efficiently. The DIN’s focus on current taxable income, overlooking past income or exempt, deductible, or non-taxable income, is problematic.

Indian citizens have accepted the requirement to provide data at every step, hoping it will help the government nab tax evaders. Instead, many are confronted with tax notices for explanations which the tax department could have found on its own by showing more diligence. The old practice of implementing broad restrictions, affecting all citizens rather than just the tax evaders, has resurfaced.

Truth be told, any nation that restrains its citizens from investing or spending money overseas will face difficulty in becoming a superpower. We can’t expect money to travel one-way from foreign shores to ours, without permitting our citizens to spend and invest abroad. The artificial scarcity of foreign exchange caused by these measures might spur illicit methods of taking money overseas from Non-Resident Indians (NRIs), who wish to remit it to relatives in India. Such blanket restrictions will damage Brand India.

Let us hope that a cost-benefit analysis of these measures might lead to some relaxations. Who knows, the government might in the future even create an LRS for small business payments.

The writer heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor; Twitter: @harshroongta

Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of or the Business Standard newspaper

Mandatory disclosure by SEBI

(A slightly different version of this column first appeared in the Business Standard on June 05, 2023)

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