FOREIGN_EXCHANGE_MANAGEMENT_IN_INDIA

8/7/2019 FOREIGN_EXCHANGE_MANAGEMENT_IN_INDIA

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We make our own path and World follow us


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NameAditya Bhujbal M-3005

Sushant Gawali M-3010Pritam Jadhav M-3013Nikhil Kurle M-3025

Kaustubh Patil M-3038


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INTRODUCTION


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Co ntr o ls o n f o reign exchange dealingsinvo lving f o reign receipts and payments arean adjunct t o the c o ntr o ls o n f o reign trade.

Alth o ugh current acc o unt c o ntr o ls are n o tpermitted by the fund.

No w India is under article VIII VIIIo f IMF Article o fagreement.


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O ne o f the imp o rtant central bankingfuncti o ns o f the RBI is maintenance o fexternal value o f the rupee.

The types o f transacti o ns which arec o ntr o lled by the RBI and theG o vernment are in general, th o se havinginternati o nal financial implicati o ns.


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Auth o rized dealers are the scheduledc o mmercial and c o -o perative banks wh o

are auth o rized by the RBI t o deal in f o reignexchange which include all scheduledc o mmercial and c o -o perative banks atpresent.


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The ADs have an ass o ciated calledFo reign Exchange Dealers Ass o ciati o nwhich fixes the rates f o r dealing insterling with rupee o n the basis o n RBIsdeclared rates f o r buying and sellingand the middle rates.


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Mo ney changers are auth o rised by the RBIto deal in f o reign currencies and c o ins.


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External Group C ountriesa) Exp o rt receipts sh o uld be in the currency

o f imp o rting c o untry.

b) Imp o rt payment fr o m India sh o uld be inrupees

Bilateral Group C ountriesAll receipts and payments sh o uld be inn o n-c o nvertible rupees.


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All receipts whether current o r capital areto be channelized thr o ugh ADs.

The f o reign exchange earned sh o uld berepatriated h o me at the earliest p o ssibletime thr o ugh ADs.

Purpo

seo

f remittance and beneficiarieso f remittance and o ther details are t o berec o rded and rep o rted t o the RBI by theADs.


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P ayment for ImportsFo r engineering and capital

g oo dsO ther P ayments

Fo r travel, educati o n, medicaltreatment


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ADs have been delegated s o me p o wersto appr o ve and t o make remittance f o r dividends, pr o fits, subscripti o n, etc.

Remittance o ut o f inc o me f o r familymaintenance abr o ad f o r n o n-nati o nalsare permitted up t o so me limits.

Payments f o r samples f o r trade andlab o rat o ry testing up t o so me limits o fvalue are permitted by ADs.


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ADs are permitted t o inter int o fo rwardsale and purchase.

ADs can in turn c o ver them in an inter-bank market in India o r abr o ad o r withRBI.

Banks can inter int o sell c o ntracts up t o sixm o nths but in case o f deferred paymentRBIs permissi o n is necessary.


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W here an exp o rt is made o nc o nsignment basis the f o rward sale isgiven o nly after shipment.

Co ntract sh o uld be based o n valueexpected t o be received minus agencyc o mmissi o n.

Extensi o n o r cancellati o n o f c o ntractrequire permissi o n o f RBI.


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There are n o restricti o ns o n imp o rt o fsecurities.Exp o rt o f securities is pr o hibited exceptthe pri o r appr o val o f RBI.Securities t o No n-Resident als o requirespermissi o n o f RBI.

Also required permissi o n t o h o ldfo reign securities.


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The RBI granted permissi o n t o pers o nsresident but n o t in India t o maintainand o perate.It was started in year 1947.Indian Resident are n o t permitted t o o pen such acc o unts except the j o intc o llab o rati o n agreements.


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A n o n-resident is o ne wh o stays o utsideIndian f o r the wh o le o r a substantialpart o f the year.Two Types:-1) private n o n-resident acc o unt

2) no

n-resident bank acco

unt


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It was has 3 categ o ries:-1) o rdinary n o n-resident acc o unt

2) nati o nal defense remittancescheme

special acc o unt

3) n o n-resident acc o unt


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All acc o unts kept in India by f o reignbanking c o mpanies including f o reignbranches o f Indian banks, have n o n-resident acc o unt.ADs can o pen acc o unt in IndianRupees f o r their aents,branches withthe advice o f RBI.It has t o be rep o rted t o RBI.


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ADs can grant temp o rary l o ans ando verdrafts t o their agent.

The facilities received in by Indians willals o receive in abr o ad.Such facilities has t o be rep o rted t o RBI.


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An acc o unt is bl o cked if o perati o ns o nit are n o t permitted with o ut the pri o r appr o val o f RBI.Any acc o unt o f a pers o n, firms,c o mpany may be declared as bl o ckedby the RBI under the exchange c o ntr o lrules.


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Annual turn o ver is $400 billi o n ( d o esn o t include inter-bank transacti o ns).

Mo

nthly turno

ver o

f merchantsegment was $40.5 billi o n in 2003-04.Inter-bank transacti o n was $134.2 f o r the same peri o d.The average m o nthly turn o ver was$174.7.


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Liberalisati o n and deregulati o n since1992.G o vernment o f India and RBI.Rupee was freed o n - Trade acc o unt

- C urrent acc o unt.Dilusio n o f many pr o visio n in FERA.

Delegati o n o f auth o rity.Maintenance o f Tier I capital funds- 5%


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Exp o rters were permitted t o keepexchange earner f o reign currencyacc o unt.

Freed o m f o r ADs t o fix their o wnaggregate limit.

ADs are all o wed t o o ffer interest rateswap, currency swap and f o rward rateagreement t o c o rp o rates with o ut pri o r permissi o n o f RBIo r g o vernment.


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Interbank's deals acc o unt f o r ab o ut80-85% o f to tal transacti o n i n f o rexmarket.

Market intelligence study.


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a) Fiscal c o nsiderati o n.

b) Mandat o ry rate o f inflati o n.

c) Best practice f o r fo rex risk management.

d) Internati o nal n o rms.

e) Debt services rati o - 20 %.

f) C apital prescripti o n t o be stipulated t o marketrisk.


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Indian residents and c o mpanies and themutual funds are permitted t o invest incertain listed c o mpanies abr o ad.

Resident are all o wed t o o pen residentfo reign currency acc o unt with o ut limits.

Empl o yees st o ck o pti o n scheme.

Fo reign investment in India are all o wedto hedge the market value.


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Rupee declared c o nvertible in 1994.

FERA was replaced by FEMA.

Rupee value per us d o llar 1. 1992- 97 36 ( depreciated by 15%)2. 1999 443. 2003 - 48


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Eur o 61.8928American D o llar 45.5775

Australian D o llar 45.0825British Po und 72.9011

Pakistan Rupee 0.530707


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ADs all o wed t o remit casual gift up t o $ 1000 per c o lander year.

ADs all o wed t o make remittances up t o $ 250.

ADs all o wed t o remit c o mmissi o n o n exp o rt o nlimit o f 12.5 % o f inv o ice value.

ADs can renew general permissi o n t o o verseas

c o rp o rate b o dies.

Do mestic c o mpanies given general permissi o n t oissue share up t o 100% o f paid up capital.


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FOREIGN EXCHANGE REGULATION ACT, 1973


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Foreign Exchange Regulation Act (Foreign Exchange Regulation Act (FERA) , 1973 is an Act toFERA) , 1973 is an Act to

consolidate and amend the lawconsolidate and amend the law

regulating certain payments,regulating certain payments,dealings in foreign exchange anddealings in foreign exchange andsecurities, transactions indirectlysecurities, transactions indirectlyaffecting foreign exchange andaffecting foreign exchange and

the import and export ofthe import and export of currency,currency,

forfor enhancing the economicenhancing the economicdevelopment of the country.development of the country.


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ToTo help RBI in maintaininghelp RBI in maintainingexchange rateexchange rate stabilitystability

ToTo conserve precious foreignconserve precious foreignexchangeexchange

ToTo prevent/regulate Foreignprevent/regulate Foreignbusiness inbusiness in IndiaIndia

P UR P OSES OF FERA


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Intr o duced at a time when f o reign exchange(fo rex) reserves o f the c o untry were l o w

It regulated no

to

nly transactio

ns in fo

rex, but also

all financial transacti o ns with n o n-residents


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To facilitate external tradeand payments

To promote orderlymaintenance of the foreignexchange market in India

To relax controls on jointventures, collaborations,subsidiary establishmentsand like both in India byforeigners and abroad byIndians

FEMAFEMA


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FEMA extends t o the wh o le o f India

Applies t o all branches, o ffices and agencies o utsideIndia o wned o r c o ntr o lled by a pers o n wh o is a residento f India

Applies t o any c o ntraventi o n there under c o mmittedo utside India by any pers o n t o wh o m this Act applies

Any pers o n may sell o r draw f o reign exchange t o o r fr o man auth o rized pers o n f o r a capital acc o unt transacti o n


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Payments due in c o nnecti o n with f o reign trade,o ther acc o unt current business, services and sh o rtterm banking and credit facilities in an o rdinaryc o urse o f business

Payments due as interest o n lo ans and as netinc o me fr o m the investments

Remittances f o r living expenses o f parents, sp o useand children residing abr o ad

Expenses in c o nnecti o n with f o reign travel,educati o n and medical care o f parents, sp o useand children

C urrent Acc o unt Transacti o ns


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Travel t o Nepal o r Bhutan

Remittance o ut o f lo ttery winnings

Payment o f c o mmissi o n o n exp o rts made t o wardsequity investment in J o int Ventures/ W h o lly O wnedSubsidiaries abr o ad o f Indian c o mpanies

Remittance o f dividend by any c o mpany t o which the requirement o f dividend balancing isapplicable


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P rovisions

Features

Terms included

D efinition of authorized person

Meaning of " Resident" as compared with Income Tax Act

P unishment

Quantum of P enalty

FERA FEMA

89 secti o ns 49 secti o nsThese presumptions

were excluded

Capital AccountTransaction, current

Account Transaction,Person, Service etc.

were not defined

Capital AccountTransaction, current

AccountTransaction, Person,

Service etc. weredefined

C riminal o ffenceC ivilo ffence

Five times Three times

Presumption of negativeintention and joining

hands in offence existed

V /S


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