Saturday, August 17

Temprory changes in FEMA to control forex outflow by RBI

The Reserve Bank of India (RBI) on Wednesday unleashed a slew of measures aimed at constraining foreign exchange outflows on a day the rupee fell to yet another record low. Now, Indian residents cannot send more than $75,000 abroad per financial year. Earlier, the outward remittance limit was $200,000 per person, per year, covering purposes like gifting, donations, travel, medical and educational expenses, maintenance of close relatives, buying, depositing and investing abroad. In 2012-13, private remittances abroad were around $3.3 billion.

RBI also completely barred the usage of foreign exchange to buy any immovable property abroad.

Further, the central bank laid capital controls on Indian companies, saying they can invest abroad only to the extent of their networth under the automatic route, as against 400% allowed earlier. State-owned ONGC Videsh and Oil India, though, are exempt from this. The RBI said the measures were aimed at moderating outflows. “However, any genuine requirement beyond these limits will continue to be considered by RBI under the approval route,” it said. Economic affairs secretary Arvind Mayaram, too, said the measures would not come in the way of genuine needs of companies willing to invest abroad. “These measures are not permanent in nature,” he said, assuring that the RBI and the government will revisit the restrictions once the rupee stabilises.

According to RBI data, total outward direct investments in 2012-13 stood at $12.6 billion. “While the authorities aim to reduce forex volatility, we fear they may end up sending a panic signal,” Sonal Varma, chief economist at Nomura, said, adding that the measures may have minor impact on individual remittances, but could deal a blow to Indian companies investing abroad. On Wednesday, the rupee fell to a record low of 61.44 to the dollar, 24 paise lower than the previous close. It touched 61.60 against the greenback in intraday trade.
In order to attract foreign funds, the RBI deregulated interest rates on bank deposits for non-resident Indians. Moreover, banks may exempt deposits having maturity of three years and above under foreign currency non-resident bank (FCNR (B)) and non-resident (external) rupee (NRE) accounts while calculating the requirements of cash reserve ratio and statutory liquidity ratio.

Source: DNA India


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