NEWS – The Reserve Bank of India (RBI) liberalized regulations under the Foreign Exchange Management Act (FEMA) to encourage the use of the Indian Rupee (INR) for cross-border trade and investments.

HIGHLIGHTS

Key Changes Introduced

• Accounts in Foreign Currency: Indian exporters can now open accounts in any foreign currency overseas for settling trade transactions, including export proceeds.
  • Export proceeds can be utilized for import payments.
• INR Accounts for Non-Residents: Overseas branches of authorized dealer banks can open INR accounts for non-residents to facilitate current and capital account transactions with residents in India.
  • Balances in repatriable INR accounts such as Special Non-Resident Rupee (SNRR) and Special Rupee Vostro Account (SRVA) can now be used for bona fide transactions.
• NRIs and Foreign Investments: Non-Resident Indians (NRIs) can use funds in repatriable INR accounts for foreign investments, including foreign direct investment (FDI) in non-debt instruments.

Impact of the Changes

• Promoting the INR Globally: These reforms aim to increase the global popularity of the Indian Rupee by providing flexibility to exporters and boosting investor confidence.
• Strengthening the Rupee: The liberalized rules are likely to stabilize the rupee, which recently fell below 86.5 against the dollar.
• Boost for SNRR Accounts: Efforts to make SNRR accounts more attractive for overseas entities reflect a focus on increasing investor trust and cross-border financial activity.
• Support for Exporters: Greater flexibility in trade settlements may help exporters manage international transactions more efficiently.

Challenges in the Current Context

• Volatile Export Performance:
  • After initial growth, merchandise exports have shown contraction in recent months.
  • April-December 2024 merchandise exports totaled $321.71 billion, only 1.6% higher than the same period in 2023.
• Geopolitical Risks: Proposed tariff hikes by the Donald Trump administration and other global uncertainties add to the challenges faced by Indian exporters.

ABOUT FEMA

• FEMA was enacted in 1999 to regulate cross-border trade and payments, replacing the Foreign Exchange Regulation Act (FERA).
• Objectives:
  • Facilitate external trade and payments.
  • Develop and maintain an orderly foreign exchange market in India.
  • Govern foreign exchange dealings through authorized persons.
• Scope:
  • Applicable to all parts of India and overseas entities managed by Indian citizens.
  • Covers NRIs, overseas companies with Indian ownership, cross-border transactions, and more.