MUMBAI: With the rupee under intense pressure against the dollar, the Reserve Bank of India (RBI) has further liberalised the FEMA (foreign exchange management) rules to encourage its use to settle cross-border transactions.
The rupee has lost over 3.5% to the greenback this fiscal so far, most of which happened since the new RBI governor took charge last month. It touched an all-time low of 86.70 this Monday and closed 16 paise lower at 86.56 on Thursday.
The revised rules also encourage trade settlement in the respective local currencies as the rupee pain is only against the dollar — it has been appreciating against all other reserve currencies.
Accordingly, the Reserve Bank has signed memoranda of understanding with the central banks of the United Arab Emirates, Indonesia and the Maldives to encourage cross-border transactions in local currencies including the rupee.
To encourage greater use of the rupee for trade transactions, an additional arrangement in the form of special rupee vostro account (SRVA) was introduced in July 2022. Several foreign banks have opened such accounts with domestic banks since then.
“Overseas branches of authorized dealer banks will be able to open rupee accounts for a person resident outside India for settlement of all permissible current account and capital account transactions with a resident Indian,” the RBI said on Thursday while announcing the changes made in the extant FEMA regulations.
Under the liberalised FEMA regulations, persons resident outside the country will be able to settle bona fide transactions with other non-residents using the balances in their repatriable rupee accounts such as special non-resident rupee accounts and SRVAs.
Also, the central bank said persons residing outside the country will be able to use their balances held in repatriable rupee accounts for foreign investment, including FDI, in non-debt instruments.
The monetary authority further said domestic exporters will be able to open accounts in any foreign currency outside for settling trade transactions, including receiving export proceeds and using these proceeds to pay for imports.
The decision on promotions of cross-border transactions in rupee and local/national currencies of other countries follows a review of the Fema regulations of 1999 undertaken by the RBI in consultation with the government.
Source: The New Indian Express