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FOREIGN EXCHANGE MANAGEMENT
IN INDIA.
 Group Members..

Name
Aditya Bhujbal M-3005
Sushant Gawali M-3010
Pritam Jadhav M-3013
Nikhil Kurle M-3025
Kaustubh Patil M-3038
INTRODUCTIO
Pritam Jadhav.
N M – 3013.
INTRODUCTION
Controls on foreign exchange dealings involving
foreign receipts and payments are an adjunct to the
controls on foreign trade.

Although current account controls are not permitted

by the fund.

Now India is under article VIII of IMF Article of

agreement.
 RBI as the Exchange Control
Authority.

One of the important central banking functions of

the RBI is maintenance of external value of the
rupee.
The types of transactions which are controlled by
the RBI and the Government are in general, those
having international financial implications.
Authorized Dealers (A.Ds)
Authorized dealers are the scheduled
commercial and co-operative banks who
are authorized by the RBI to deal in foreign
exchange which include all scheduled
commercial and co-operative banks at
present.
Cont…

The ADs have an associated called Foreign

Exchange Dealers Association which fixes the
rates for dealing in sterling with rupee on the
basis on RBI’s declared rates for buying and
selling and the middle rates.
 Money Changers

Money changers are authorised by the RBI to

deal in foreign currencies and coins.
Aditya Bhujbal
M-3005
 Permitted Method
External Group Countries
a) Export receipts should be in the currency of
importing country.

b) Import payment from India should be in rupees

Bilateral Group Countries

All receipts and payments should be in non-
convertible rupees.
 Receipts

All receipts whether current or capital are to be

channelized through ADs.

The foreign exchange earned should be repatriated

home at the earliest possible time through ADs.

Purpose of remittance and beneficiaries of

remittance and other details are to be recorded and
reported to the RBI by the ADs.
 Payments

Payment for Imports

For engineering and capital goods

Other Payments
For travel, education, medical treatment
 Delegation to ADs
ADs have been delegated some powers to approve and
to make remittance for dividends, profits, subscription,
etc.

Remittance out of income for family maintenance

abroad for non-nationals are permitted up to some
limits.

Payments for samples for trade and laboratory testing

up to some limits of value are permitted by ADs.
 Forward Covers

ADs are permitted to inter into forward sale and

purchase.

ADs can in turn cover them in an inter-bank

market in India or abroad or with RBI.

Banks can inter into sell contracts up to six

months but in case of deferred payment RBI’s
permission is necessary.
Cont…
Where an export is made on consignment basis
the forward sale is given only after shipment.

Contract should be based on value expected to

be received minus agency commission.

Extension or cancellation of contract require

permission of RBI.
Nikhil Kurle
M-3025
 Securities

• There are no restrictions on import of

securities.
• Export of securities is prohibited except the
prior approval of RBI.
• Securities to Non-Resident also requires
permission of RBI.
• Also required permission to hold foreign
securities.
Foreign Currency A/c

The RBI granted permission to persons

resident but not in India to maintain and
operate.
It was started in year 1947.
Indian Resident are not permitted to open such
accounts except the joint collaboration
agreements.
 Non-Resident A/c

A non-resident is one who stays outside Indian

for the whole or a substantial part of the year.
Two Types:-
1) private non-resident account
2) non-resident bank account
Private Non-Resident A/c

It was has 3 categories:-

1) ordinary non-resident account
2) national defense remittance scheme
special account
3) non-resident account
Non-Resident Bank A/c

All accounts kept in India by foreign banking

companies including foreign branches of
Indian banks, have non-resident account.
AD’s can open account in Indian Rupees for
their aents,branches with the advice of RBI.
It has to be reported to RBI.
Loans and Overdrafts

ADs can grant temporary loans and overdrafts

to their agent.
The facilities received in by Indians will also
receive in abroad.
Such facilities has to be reported to RBI.
Blocked A/c

An account is blocked if operations on it are not

permitted without the prior approval of RBI.
Any account of a person, firms, company may
be declared as blocked by the RBI under the
exchange control rules.
Growth in Indian

Annual turnover is $400 billion ( does not

include inter-bank transactions).
Monthly turnover of merchant segment was
$40.5 billion in 2003-04.
Inter-bank transaction was $134.2 for the same
period.
The average monthly turnover was $174.7.
 LIBERALISATION OF
EXCHANGE CONTROL.
Kaustubh Patil
M – 3038
LIBERALISATION OF EXCHANGE CONTROL

Liberalisation and deregulation – since 1992.

Government of India and RBI.
Rupee was freed on - Trade account
- Current account.
Dilusion of many provision in FERA.
Delegation of authority.
Maintenance of Tier I capital funds- 5%
Cont…
Exporters were permitted to keep exchange
earner foreign currency account.

Freedom for ADs to fix their own aggregate

limit.

ADs are allowed to offer interest rate swap,

currency swap and forward rate agreement to
corporates without prior permission of RBI or
government.
Cont…

Interbank's deals account for about 80-85% of

total transaction in forex market.

Market intelligence study.

 Capital account liberalization
a) Fiscal consideration.

b) Mandatory rate of inflation.

c) Best practice for forex risk management.

d) International norms.

e) Debt services ratio- 20 %.

f) Capital prescription to be stipulated to market risk.

Recent liberalisation measures.
Indian residents and companies and the mutual funds
are permitted to invest in certain listed companies
abroad.

Resident are allowed to open resident foreign

currency account without limits.

Employees stock option scheme.

Foreign investment in India are allowed to hedge the

market value.
 Exchange rate management

Rupee declared convertible in 1994.

FERA was replaced by FEMA.

Rupee value per us dollar –

1. 1992- 97 – 36 ( depreciated by 15%)
2. 1999 – 44
3. 2003 - 48
Exchange rate of Indian rupee
Euro     61.8928 
 American Dollar   45.5775
Australian Dollar    45.0825
 British Pound       72.9011
Pakistan Rupee     0.530707
RBI on exchange control norm.
ADs allowed to remit casual gift up to $ 1000 per colander
year.

ADs allowed to make remittances up to $ 250.

ADs allowed to remit commission on export on limit of 12.5 %

of invoice value.

ADs can renew general permission to overseas corporate

bodies.

Domestic companies given general permission to issue share

up to 100% of paid up capital.
FERA AND FEMA
Sushant Gawali
M – 3010
 FOREIGN EXCHANGE
REGULATION ACT, 1973
Foreign Exchange Regulation Act ( FERA) , 1973 is an Act to consolidate and
amend the law regulating certain payments, dealings in foreign exchange and
securities, transactions indirectly affecting foreign exchange and the import
and export of currency, for enhancing the economic development of the
country.
 Purposes of FERA

To help RBI in maintaining exchange rate stability

To conserve precious foreign exchange

To prevent/regulate Foreign business in India

 Need for fema
Introduced at a time when foreign exchange (forex) reserves
of the country were low

It regulated not only transactions in forex, but also all financial

transactions with non-residents
 To facilitate external trade
and payments
fema
 To promote orderly
maintenance of the foreign
exchange market in India

 To relax controls on joint

ventures, collaborations,
subsidiary establishments
and like both in India by
foreigners and abroad by
Indians
 Extent of fema
• FEMA extends to the whole of India

• Applies to all branches, offices and agencies outside India

owned or controlled by a person who is a resident of India

• Applies to any contravention there under committed outside

India by any person to whom this Act applies

• Any person may sell or draw foreign exchange to or from an

authorized person for a capital account transaction
 Transactions under fema
Current Account Transactions

Payments due in connection with foreign trade, other account

current business, services and short term banking and credit
facilities in an ordinary course of business
Payments due as interest on loans and as net income from the
investments
Remittances for living expenses of parents, spouse and
children residing abroad
Expenses in connection with foreign travel, education and
medical care of parents, spouse and children
Prohibited transactions in CA

Travel to Nepal or Bhutan

Remittance out of lottery winnings

Payment of commission on exports made towards equity

investment in Joint Ventures/Wholly Owned Subsidiaries
abroad of Indian companies

Remittance of dividend by any company to which the

requirement of dividend balancing is applicable
FERA V/S FEMA
Capital Account Capital Account
Transaction, These49presumptions
sections
Transaction, current
89 sectionsofcurrent
Presumption negative Provisions
Account were excluded
Account
intentionTransaction,
and joining
Person,
hands Service existed
in offence etc. Features Transaction, Person,
were not defined Service etc. were
Terms included defined

Definition of authorized person

Meaning of "Resident" as compared with Income Tax Act

Punishment
Civil offence
Criminal offence Quantum of Penalty
Three times
Five times
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