India brings down the max limit on forex purchase from $200K to $75K, a year. WHAT IF… India puts restrictions on foreign exchange for overseas study!!!

Today is INDEPENDENCE DAY and one of the few days in a year when all of us feel proud of relatively young nation. However, this morning, newspapers talk of the RBI’s increased restrictions on foreign exchange for resident Indians. It prohibits purchase of properties overseas and also changes the limit of forex use from $200,000 a year to a much reduced $75,000 per year. (See newspaper article here)

This change doesn’t immediately impact the foreign traveling students from India but certainly there can be some further tightening in offing if the situation of weakening of the Indian Rupee doesn’t ebb. The USD is now close to Rs 65 and not all can be blamed to the policies of the coalition government in India.

The self-anointed PM candidate of the opposition recently made some shocking comments when he stated that students going overseas lead not just to brain drain but also wealth drain and gave out a hugely exaggerated figure on the money that has left India. I will not put too much of credence to his speech as it was to an audience that may not be so aware to know that such theories have long been debunked and we all know that overseas education actually amounts to “brain gain” and the inflow into India from students who settle overseas is actually much more than what they may have spent on their education. However, this clearly indicates the thinking in the minds of politicians who believe in “inclusivity” of a different type.

Returning to the more factual situation where RBI is being forced to put some restrictions, I am left thinking on WHAT IF the rupee continues to lose shine and the USD continue to rise further. Will this mean that the RBI may impose some further restrictions and if yes, will that include the forex being used by students for their studies.

Maybe not immediately but it is a scenario that is possible. I am reminded of that period in 1990 when I was to go overseas for my education and in those days, students could only take $500 without a permit and for anything that is more, we would have to seek a permit approved by the RBI. Getting the permit was not really a huge deal but it was a hurdle anyways. Thereafter funds only as per the permit could be converted to forex.

Now the “nightmarish” situation is:

• What if, RBI reduces the limit of forex for overseas education to say $50,000 a year? Very likely and it will have an impact.
• What if, RBI instructs forex to be only used for education at Post Graduate level and if at Undergraduate level, then only at institutions that are in top 500 in the world? Far fetched but well… not impossible considering that Indian Government wants only such institutions to work with Indian institutions.
• What if, RBI refuse to increase the upper limit on education loans for overseas education? The limit has not changed for last 10 years and now with the current rate of forex, it barely covers the first year costs only.
• What if RBI restricts forex for vocational type education that they may believe to be a non-priority?

All this is hypothetical at this stage but well, situation with regards to forex reserves in India is dire and anything is possible especially in the election year when the Government is under pressure to chain the rate of exchange and to reduce the demand for forex. The government is also under pressure from the opposition that seems to believe that overseas education leads to brain drain and wealth drain… An unfortunate scenario!