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Foreign Exchange Management Policy in India

Foreign Exchange Management Policy in India

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Published by: api-3712367 on Oct 14, 2008
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03/18/2014

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Vikash Bairoliya (4);Khagesh Chitalangiya (6);Mehul Jain (12);Niket Khatri (17);Subodh M Mallya (18)
 
F
OREIGN
E
XCHANGE
M
ANAGEMENT
P
OLICY IN
I
NDIA
 
Interim Report on Study of Foreign Exchange Management Policyin India.
 
November 16, 2007
FOREIGN EXCHANGE MANAGEMENT POLICY IN INDIA 
1
Table of Contents
Overview of Forex policy over the years ...........................................................................2
 
From Control To Management ..........................................................................................2
 
Capital Account Liberalization Approach ......................................................................... 3
 
Current Scenario ................................................................................................................ 3
 
Group Insights & Suggestions ........................................................................................... 4
 
BIBLIOGRAPHY .................................................................................................................. 5
 
Summary Statistics
Number of Pages: 3Number of Graphs: 1Table of Contents, Cover Page &Bibliography.
 
November 16, 2007
FOREIGN EXCHANGE MANAGEMENT POLICY IN INDIA 
2
OOOO
VERVIEW OFVERVIEW OFVERVIEW OFVERVIEW OF
FFFF
OREX POLICY OVER THEOREX POLICY OVER THEOREX POLICY OVER THEOREX POLICY OVER THE YEARS YEARS YEARS YEARS
 
Independence ushered in a complex web of controls for all external transactions througha legislation i.e., Foreign Exchange Regulation Act (FERA), 1947. There were further amendments made to the FERA in 1973 where the regulation was intensified. The policywas designed around the need to conserve Foreign Exchange Reserves for essentialimports such as Petroleum goods and food grains.The year 1991 was an important milestone for the Economy. There was a paradigm shift inthe Foreign Exchange Policy. It moved from an Import Substitution strategy to ExportPromotion with sufficient Foreign Exchange Reserves. The adequacy of the Reserves wasdetermined by the
Guidotti Rule
1
, though the actual implementation of the rule wasmodified to meet our requirements.As a result of measures initiated to liberalize capital inflows, India’s Foreign ExchangeReserves (mainly foreign currency assets) have increased from US$6 billion at end-March1991 to US$270 billion
2
as on 9
th
November 2007. It would be useful to note that the
Reserves accretion can be attributed to large Foreign Capital Inflow
that could not beabsorbed in the economy. This has been as a result of shift of funds from developedeconomies to emerging markets like India, China and Russia.
FFFF
ROMROMROMROM
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ONTROLONTROLONTROLONTROL
TTTT
OOOO
MMMM
ANAGEMENTANAGEMENTANAGEMENTANAGEMENT
 
In the 1990s, consistent with the general philosophy of economic reforms a sea changerelating to the broad approach to reform in the external sector took place. The Report ofthe High Level Committee on Balance of Payments (Chairman: Dr. C. Rangarajan, 1993)set the broad agenda in this regard. The Committee recommended the following:The introduction of a market-determined exchange rate regime within limitsLiberalization of current account transactions leading to current accountconvertibility;Compositional shift in capital flows away from debt to non debt creating flows;Strict regulation of external commercial borrowings, especially short-term debt;
1111
 
The Guidotti Rule says that Usable foreign exchange reserves should exceed thescheduled amortization of foreign currency debts during the following 12 months.However this was amended to meet the Indian requirement
 
2222
Source: Reserve Bank of India Weekly Statistics Publication (16th Nov 2007)

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