sharp spike in Indians’ overseas travel-related spending between November 2016 and January 2017 has come under the government’s lens. Officials are now ascertaining whether some of these expenses were attempts to duck the clampdown on undisclosed cash following the sudden demonetization of high value currency notes in early November last year.Indians spent USD 246.6 million in overseas travel-related payments in November 2016, up 581 percent compared to USD 36.2 million spent in the same month in 2015.
The trend repeated itself in the following two months. Indians splurged USD 201 million in December 2016 travelling across the world, spending 517 percent more than what they did in the same month of the previous year.
The spending spree continued well into the new year. Foreign travel-related spending vaulted 434 percent in January this year, spending USD 217.8 million abroad compared to USD 40.8 million in January 2016.
Growth in foreign travel related spending in the later months (February to August 2017, the latest for which data is available with the Reserve Bank of India) have tapered off significantly, averaging 45 percent, raising questions whether some wealthy Indians have hurriedly used up millions of undisclosed assets by holidaying abroad to escape the authorities’ scrutiny in wake of demonetization.
Travel-related and other overseas remittances take place through RBI’s Liberalised Remittance Scheme (LRS) that allows people to spend up to USD 250,000 overseas in a year through legitimate financial instruments such as travelers’ cheques without specific approval.
Authorities are now scrutinizing suspicious bank transactions that may have been used to remit money overseas through the LRS route after Prime Minister Narendra Modi outlawed Rs 500 and Rs 1,000 notes in a surprise announcement on November 8, 2016 as part of a broader strategy to crack down on black money.
Officials said that data mined after November 8 has thrown up several tax evasion methods that the government will now crack down on.
In some instances, account holders were found to have deposited large sums and later converted these into foreign country travellers’ cheques. Records during November and December 2016 also show a spike in credit card bill payments in cash exceeding more than Rs 1 lakh in thousands of cases. Officials are now examining overseas spending pattern on these credit cards.
The demonetisation announcement set in motion the world’s largest currency culling exercise. People were given 50-days to deposit old notes in banks and post-offices by December 30, 2016.
Records show that cumulative cash deposits of more than Rs 25 lakh were made in about of 4.62 lakh accounts during November 8 to December 30, 2016. Cash deposits of more than Rs 5 lakh were made in 23.87 lakh accounts during these 50 days.
Banks have also reported large number of accounts that show "unusual forex activity compared with past transactions," sudden transactions in foreign exchange in dormant accounts, and fund movement in accounts that are inconsistent with what would be expected from declared income.
Banks are required to report cash deposits of more than Rs 10 lakh in a financial year in one or more accounts. Banks have also been reporting cash payments above Rs.1 lakh in a financial year in one or more credit card bills of the same person.
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