Press Trust of India

NEW DELHI: Nonresident Indians, who return to India for permanent settlement, will be permitted to maintain with banks the entire amount of foreign exchange brought in at the time of return to the country under the new Liberalized Exchange Rate Management Systems (LERMS).

The NRIS coming back for good can maintain with banks in India resident forcing currency accounts (RFC accounts) to which the entire amount of foreign exchange Drought in at the time of return to the country and received subsequently from abroad can be credited, official sources said.

Apart from this, the exporters and recipients of inward remittances are being allowed to maintain 15% of their receipts in a foreign currency account maintained with an authorized dealer.

The RBI is finalizing the rules and regulations relating to operation of this account, the sources said.

Following are the details of the new system provided by the Re~ serve Bank in questions-answer format:

  1. How is the new system different from the old one?

Ans. Under the old system, Reserve Bank was the sole custodian of foreign exchange reserves except for working balances allowed to be held by authorized dealers in their overseas accounts. Under the new system, authorized dealers are allowed to retain 60% of the receipts in the current account transactions with themselves for being sold in compliance with the trade and exchange control regulations. While under the old system, Reserve Bank was under an obligation to buy from and sells to authorize dealer’s pound sterling without any limit, under the new system Reserve Bank is under an obligation to sell, at its option, pound sterling or U.S. dollar at its official rate only for purposes approved by the central government.

  1. How wills the exchange rate of the rupee be determined under the new system?

Ans. Reserve Bank will continue to determine even under the new system the official exchange rate of the rupee on the basis of its valve in terms of a basket of currencies. While under the old system, the exchange rate of the rupee will be expressed in terms of pound sterling Reserve Bank will have the option, under the new system, to express the exchange rate of the rupee in terms of ether pound sterling or U.S. dollar.

  1. What then is the difference between the new system and the old scheme in relation to exchange rate of the rupee?

Ans. Under the new system, there would be dual exchange rates for the rupee one is the official exchange rate of the Reserve Bank with the rates quoted by authorized dealers for transactions in foreign exchange with members of public being based on the official rate and the other rate would be the free market rates determined on the basis of the factors of demand and supply. Accordingly transactions which are required to be put through in the free market would be do neat free market rates.

Q .What is the objective of the introduction of the new system?

Ans. government had declared its commitment to make the rupee convertible in the trade account within a period of 3 t0 5 years. This would have to be followed by convertibility of the rupee in regard to all current account transactions. The objective of the new system accordingly is a gradual movement towards convertibility of the rupee for all external actions in the current account.

  1. Does the introduction of the new system mean that would be no exchange control regulations in relation to current account transactions?

Ans. No Transactions of the official and free market rates will have to be done within the framework of the existing exchange control regulations. To give an example, person wishing to travel abroad would be required to purchase foreign exchange at the free market rate but only to the extent permitted under the exchange control regulations.

  1. Is there any proposal to liberalize the exchange control regulations in regard to current account transactions?

Ans. Yes. The Reserve Bank would be progressively liberalizing its exchange control regulations on current account transactions.

  1. Is there any advantage to recipients in India of foreign currency remittance under the new scheme?

Ans. Yes, while under the old system, the entire amount of the inward remittance would be purchased by the authorized dealer at its exchange rate based on the Reserve Bank official rate, under the new system, he would do so only to the extent be of 40 of the receipt and the balance 60 would be purchased by him at the free market rate. The new system is thus expected to be more favorable to recipients in India of remittances in that they could be expected to more amount in terms of rupees.

  1. Is the recipient in India of a foreign currency remittance, representing a current account transaction, required to convert the entire amount of remittance into rule?

Ans. No Under the new system, the recipient would be premier to retain in a foreign currency account with a bank in India up to 15 of the receipt.

  1. Can the funds in the foreign currency account maintained with an authorized dealer in India be used for any purpose?

Ans. The Reserve Bank is finalizing the rules and regulations relating to operations on this account and it would be permissible for the account holder to utilize the funds generally for all current account transactions, subject to the guidelines issued by the Reserve Bank. In the case of exporters, however, the funds can be utilized for all purposes for which the funds can presently be wilized under a blanket permit.

  1. What is the advantage of the new system to the exporters?

Ans. As receipts representing upon of goods constitute a transaction in the current account, exporters would be authorized to dispose of 60% of the receipts in the free market. Accordingly, the new exchange rate system is expected t0 prove more advantageous than the exam scrip scheme.

  1. Will exporters be allowed to retain certain percentage of their export receipts in a foreign currency account with a bank in India?

Ans. Yes, Exporters would also be allowed to retain up to 15% of, the receipts in a foreign currency account with bank in India and use the funds in such accounts for all purposes for which exchange could be drawn by them under blanket permits and also for certain additional bank.

  1. What is the exchange rate for payments for import of goods?

Ans. Authorized dealers will sell exchange towards payments for import at the free market rate. Q. Are all imports required to be paid for at the free market place?

Ans. No Reserve Bank would provide foreign exchange to authorized dealers at the official rate for essential imports by the government and for such other imports as are approved by the government of India,

  1. What about essential imports required by private parties?

Ans. Foreign exchange for import of life-saving drugs and equipment under import licenses issued for the purpose would be made available by authorized dealers at the official rate. Q. What about payments for imports which are primarily made for export production of items which have significant import content?

Ans. Imports under advance license and import of replenishment of raw materials for gem and jewelry exports could be paid for at the official exchange rate to the extent of 405 of the value of imports

  1. Even though exim scripts would not be issued from March 1,1992, what about the exam scripts already issued which are valid and have not been utilized so far?

 Ans Foreign exchange would be made available by authorized dealers at the official rate for imports relating to unutilized exim scripts outstanding as on Feb 29,1992,

  1. Will the Reserve Bank continue to announce its official buying and selling rates on every business day?

Ans. Yes.

  1. What are the currencies in which Reserve Bank would be dealing?

Ans. Reserve Bank would continue to buy, both spot and forward, sterling pound, US dollar, Deutsche Mark and Japanese Yen.

  1. Does the Reserve Bank propose to resume forward sale of US dollar or pound sterling?

Ans. Reserve Bank does not propose to resume, for the time being, forward ale of US dollar or pound sterling.

  1. Will here be any indication of the exchange rate of rupee in the free market on every business day?

Ans. Foreign Exchange Dealers Association of India (FEDAN would announce indicative free market exchange rate on every business day.

  1. How will the exchange rate in the free market be determined?

Ans. Exchange rate of the rupee in the free market will be determined purely on the basis of factors of demand and supply.

  1. Does the Reserve Bank propose to intervene in the free market?

Ans. Reserve Bank will enter the free market at its discretion,

  1. What is the position in regard to transactions which are required to be routed through the ACU mechanism?

Ans. The existing arrangements in relation to rates of exchange for transactions with countries belonging to the ACU (other than the Nepal) would continue for time being.

  1. Will the new exchange rate system apply to transactions with the bilateral group of countries?

Ans. Transactions in non-convertible Indian rupee with countries with whom we have bilateral trade and payment arrangements would continue for the time being.

  1. Are there any changes in the existing regulations governing FCNR and NRE rupee accounts?

Ans. There are no changes in the existing regulations governing FCNR and NRE rupee accounts. However, transactions relating to INRE accounts (being of a capital nature) would be at free market rates.

  1. What is the position in regard to forward contracts already entered into?

Ans. Forward contracts entered into by authorized dealers their customers, inter-bank contracts and forward contracts entered into by authorized dealers with the Reserve Bank will be honored at the contracted rates. However, even in respect of forward purchased already made by authorized dealers, 40% of the receipt will have to be delivered by them to the Reserve Bank at the official rate.

  1. If exporters desire to enter into forward contract in relation to their exports, would it be necessary for them to book two contracts?

Ans. If the entre export receipts are required to be covered, it would then be necessary for exporters to enter into two contracts, one for 40% of the receipts at the rate based on the official rate and another for the balance 60% at the rate based on free market rate.

Exporters would, however, be free to leave beth or one component of the transaction uncovered.

  1. How does a customer with a foreign exchange liability at a future date (for whom foreign exchange will be sold by the Reserve Bank at the official rate) cover his exchange risk?

Ans. As the Reserve Bank does not sell forward, forward cover will not be available to customers, entitled to foreign exchange at the official rate.

  1. What rates are to be quoted to banks and others who maintain Vostro accounts with banks in India?

Ans. In respect of purchases of foreign currency to fund Vostro accounts, the rupee proceeds would be arrived at by converting 40% of the receipt at the official rate and 60% of the receipt at the free market rate.

  1. What rate will money-changers quote to their customers?

Ans. They would have to quote suitable rates under the new arrangement. The existing Reserve Bank guidelines in relation to purchase/sale rate of US dollar, pound sterling currency notes/travellers cheque would cease to apply.

  1. Exporters and recipients of inward remittances are allowed to maintain 15% of their receipts in a foreign currency account?

Ans. Fifteen per cent relates to the total receipt (E G if US 100s received, US 40 has to be surrendered to authorized dealers at the official rate, US 15may be retained in a foreign currency account with a bank in India and the remaining 45% would be converted into rupees at the free market rate.

  1. A part from the foreign currency accounts allowed to be maintained by exporters and recipients of inward remittances (who were never non-resident), is there any other scheme of foreign currency account?

Ans. Non-resident Indians who return to India for permanent settlement are permitted to maintain with banks in India resident foreign currency accounts (REC accounts) to which the entire amount of foreign exchange brought in at the time of return to the country and received subsequently from abroad can be credited.

The External Affairs ministry is Lunder stood to be in favor of grant of dual citizenship to the nonresident Indians (NRIS) on a selective basis

Official sources said the ministry feels that the facility could be extended to the people of Indian origin living in the United States, the United Kingdom and possibly Canada,

However, the ministry was op posed to the grant of dual citizen ship to the NRIS residing in the neighboring countries and places river by ethnic conflict such as Sri Lanka and Fiji.

With the home ministry persisting with its opposition on security, grounds, a final decision is expected to be taken by the Union cabinet The home ministry feels that he grant of dual citizenship could hinder its effort to combat terrorism and secessionism.

One factor-for the delay in the government taking a decision in favor of the NRIS is their Luke. Warm response 30 far to the investment opportunities thrown pent the liberalization of India’s economy.

Article extracted from this publication >> March 20, 1992