RBI Scrutinizes Old Regulation for Overseas Students

The Reserve Bank of India (RBI) is currently examining a two-decade-old foreign exchange regulation designed to assist Indian students studying abroad. This regulation, which grants 'non-resident Indian' (NRI) status to overseas students, has inadvertently become a conduit for substantial international fund transfers by wealthy Indian families.

According to financial experts, the RBI's 2003 regulation was primarily implemented to support students seeking employment abroad to fund their education. However, it has been exploited by affluent families to transfer large sums of money overseas, a practice not available to 'resident' parents under existing regulations.

Expert Opinions on Potential RBI Review

Anup P. Shah, a partner at Pravin P. Shah & Company, suggests that the RBI might consider distinguishing between students enrolled in long-duration courses and those in short-term programs to prevent misuse of the NRI status for financial benefits. Similarly, Moin Ladha of Khaitan & Co emphasizes the importance of the individual's intention to leave India as a key criterion for determining residency status.

This scrutiny comes amidst concerns that the regulation is being used not just for educational purposes but as a strategy for overseas relocation and foreign citizenship by wealthy families, allowing them to keep transferred funds abroad even if the student returns to India.

Looking Ahead

As the RBI contemplates revising the 2003 circular, the focus is on establishing clear guidelines to differentiate between legitimate students working part-time abroad and those seeking NRI status solely for the purpose of facilitating large fund transfers. This move aims to curb the misuse of financial privileges granted to NRIs while ensuring that genuine students are not adversely affected.