Forex policy of india

Reserve Bank of India Act and the Foreign Exchange Management Act, set the legal provisions for governing the foreign exchange reserves. Reserve Bank​.
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According to the same report December 8, , it further increased to From the above one can infer that current level of reserves is more than adequate as per the import cover criterion. In other words, the level of reserves is in the high comfort zone. The question is how to use the excessive surplus, i.

One option can be to invest excessive surplus in low liquidity but safe and high-yield instruments so that RBI earns more for the country. Attaching more weight to returns on foreign exchange assets than on liquidity will reduce net cost of holding reserves.

It can be argued that RBI is not a commercial entity and hence it is not supposed to earn profits. Its main task is to ensure that the reserves are invested in safe and liquid assets. Therefore, the deployment of reserves is done in sovereign bonds of financially strong countries and institutions.

Though not a commercial entity, one cannot overlook the fact that RBI has become a significant part of the finances of Central Government in the sense that its surpluses are annually transferred to the Centre which supplement the non-tax revenue of the Central Government budget. It was meant to help the government in reducing financial stress on the economy and contain fiscal deficit as well. RBI decided to transfer this record high surplus after approving all the recommendations of the Bimal Jalan-led expert committee, constituted to decide the size of capital reserves to be held by RBI.

However, it obtained Rs 86, crore more than the budgeted amount.

Foreign Exchange Management Policy in India | Capital Account | Reserve Bank Of India

It is noteworthy that RBI earns regular income by deploying its reserves in interest-bearing securities of financially sound foreign governments and institutions. It also earns income from intervention in the domestic foreign exchange market buying and selling dollars. To enhance its earnings, RBI can invest a part of its reserves in high-yield securities outside the existing system of sovereign bonds.

Further, it is well-known that domestic companies in India borrow funds from foreign markets, i.

4 easy step to get Foreign Currency

ECBs are loans in foreign currency raised by Indian borrowers from non-resident lenders. ECBs are widely used by Indian companies to facilitate access to foreign money. Most of these loans are provided by foreign commercial banks. As already noted, investments by RBI in sovereign bonds of foreign countries earn around 1 per cent interest. It is evidently illogical to borrow from abroad at commercial rates of interest when funds are available at home.

Thus, RBI can consider lending a part of its reserves to government-owned commercial banks in India which, in turn, can lend foreign currency to domestic companies which are currently borrowing from foreign markets.


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In such an arrangement, RBI will not be dealing with companies directly and any risk in this regard would be that of the banks. Times Now. Follow us on :. Sury Retired Associate Professor of Economics. Updated Jan 19, IST. RBI April monetary policy: Expect status quo on rates; Focus on contours of policy normalisation path. JP Nadda says that 'Didi' is certainly losing Nandigram; bjp boss on polls. The Newshour Agenda. These banks are offering the best rates on education loans.

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Foreign Exchange Management Policy in India

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