India Forex - Forex Trading in India

Foreign Exchange Market in India
Indian Rupee has been convertible on the trade account since August 1994. Capital inflows on one side and the Reserve Bank of India on the other have kept it sandwiched at 31.37 INR to the US dollar since around August 1992. The spot market is incredibly liquid, but this is largely a consequence of there being a last resort buyer (the Reserve Bank of India) and supply generally exceeding demand. However, even on exceptional days, it is fairly easy to buy USD 100 million or so during the day. Selling is not a problem at all, as the Reserve Bank has been the last resort buyer.

There is an active forward market which is fairly liquid in the first month and quotes are easily available upto six months. Since July 1993, a lot of one-year deals have also been taking place. The Reserve Bank permits banks to deal in the USD depo market within India, but access to the international market is very restricted. This, and the fact that there is really no properly developed term market in INR depos, means that the connection between FX swaps and interest rates is tenuous at best. However, this is also steadily improving, and most dealers foresee a very active market upto one year soon.

Both these markets exist only within India. The Reserve Bank prohibits any international speculative access to the Rupee. However, there is practically complete freedom to hedge any existing exposure arising out of commercial activity.

Foreign Exchange Transactions.
The foreign exchange market in India is growing in both volume and depth. Various kinds of transactions are facilitated by the banks both on a spot and on a forward basis. These include hedging transactions such as currency swaps and interest rate swaps.

Foreign and Indian banks also assist in offshore loan syndication. Other services provided include, financing of foreign trade, arranging the most economical source of supplier credit, etc. Banks also assist in foreign exchange management such as currency management strategies and designing, assessing of liability structures vis-a-vis swaps, interest rates, income, etc.

MUMBAI (Reuters) - India’s foreign exchange reserves rose to $263.652 billion as on June 19, from $263.644 billion a week earlier, the Reserve Bank said in its weekly statistical supplement on Friday.

Changes in foreign currency assets, expressed in dollar terms, include the effect of appreciation or depreciation of other currencies held in its reserves such as the euro, pound sterling and yen, the central bank said.

Foreign exchange reserves include India’s Reserve Tranche position in the International Monetary Fund, the Reserve Bank said.

FAQs on India Forex
Under the Foreign Exchange Management Act, Indian residents have the freedom to buy and sell foreign exchange for a wide range of transactions. The permissible capital account transactions include investing in foreign securities and transfer of immovable property outside India.

On the other hand, the current account transactions, which do not alter a person’s assets or liabilities outside India, do not require permission from RBI. However, there are some ceilings that have to be adhered to.

How much foreign exchange can be purchased?
The amount of forex that can be purchased is governed by the nature of foreign travel. For business trips: Up to $25,000, but foreign exchange release is not admissible for Nepal and Bhutan. For leisure tourists: Up to $10,000 in a financial year. For higher studies: Up to $1,00,000 a year or the college fee, whichever is higher.

For medical treatment: Up to $1,00,000. You only need to furnish an estimate from a doctor if you need a higher limit. In addition, $25,000 is earmarked as maintenance expense of the patient or his/her attendant. For employees working abroad/emigrants: Up to $1,00,000.

One can buy forex for these purposes by submitting a request-cumdeclaration form and Form A2. The purchased foreign currency has to be used within 180 days. If it isn’t used, it has be surrendered to the authorised dealers.

Is there a limit to the foreign currency that can be carried as notes and coins?
Travellers can purchase foreign currency notes/coins only up to $2,000 or its equivalent amount. The balance can be bought in the form of traveller’s cheques or banker’s drafts. However, the limit for those visiting Iraq and Libya is $5,000, while travellers to Iran and the Russian Federation can draw the entire eligible amount as notes.

Can one retain foreign exchange after returning from a trip abroad?
Travellers are allowed to retain unused foreign exchange up to $2,000 in the form of notes or traveller’s cheques (there is no limit to the amount of foreign coins you can hold) for future use. You have to surrender the remaining amount within 180 days of returning from a foreign visit. Alternatively, you can open a resident foreign currency (domestic) bank account and credit the unspent amount.

How much Indian currency, in cash, can one take out of the country per visit?
One ought to carry emergency cash while travelling abroad, but RBI doesn’t allow you to carry currency notes over Rs 5,000 per person while on a foreign trip. If you are visiting Nepal and Bhutan, currency notes of denominations only up to Rs 100 are accepted.

FOREIGN EXCHANGE REGULATIONS IN INDIA - India Forex.
India has liberalized its foreign exchange controls. Rupee is freely convertible on current account. Rupee is also almost fully convertible on capital account for non-residents. Profits earned, dividends and proceeds out of the sale of investments are fully repatriable for FDI. There are restrictions on capital account for resident Indians for incomes earned in India.

The Reserve Bank of India’s Foreign Exchange Department administers Foreign Exchange Management Act 1999(FEMA). Foreign Exchange Management (transfer of securities to any person resident outside India) Regulation as amended from time to time regulates transfer for issue of any security by a person resident outside India.

Repatriation of investment capital and profits earned in India
(i) All foreign investments are freely repatriable, subject to sectoral policies and except for cases where Non Resident Indians choose to invest specifically under non-repatriable schemes. Dividends declared on foreign investments can be remitted freely through an Authorized Dealer.

(ii) Non-residents can sell shares on stock exchange without prior approval of RBI and repatriate through a bank the sale proceeds if they hold the shares on repatriation basis and if they have necessary NOC/ tax clearance certificate issued by Income Tax authorities.

(iii) For sale of shares through private arrangements, Regional offices of RBI grant permission for recognized units of foreign equity in Indian company in terms of guidelines indicated in Regulation 10.B of Notification No. FEMA.20/2000 RB dated May ‘2000. The sale price of shares on recognized units is to be determined in accordance with the guidelines prescribed under Regulation 10B(2) of the above Notification.

(iv) Profits, dividends, etc. (which are remittances classified as current account transactions) can be freely repatriated.

Acquisition of Immovable Property by Non-resident
A person resident outside India, who has been permitted by Reserve Bank of India to establish a branch, or office, or place of business in India (excluding a Liaison Office), has general permission of Reserve Bank of India to acquire immovable property in India, which is necessary for, or incidental to, the activity. However, in such cases a declaration, in prescribed form (IPI), is required to be filed with the Reserve Bank, within 90 days of the acquisition of immovable property.

Foreign nationals of non-Indian origin who have acquired immovable property in India with the specific approval of the Reserve Bank of India cannot transfer such property without prior permission from the Reserve Bank of India. Please refer to the Foreign Exchange Management (Acquisition and transfer of Immovable Property in India) Regulations’ 2000 (Notification No. FEMA.21/ 2000-RB dated May 3, 2000).

Acquisition of Immovable Property by NRI
An Indian citizen resident outside India (NRI) can acquire by way of purchase any immovable property in India other than agricultural/ plantation /farm house. He may transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a Person of Indian Origin resident outside India or a person resident in India.

Other Useful Posts:
India Forex Exchange
Forex Analysis : Analysis in Forex

Foreign exchange system in India - The central government in India has wide powers to control transactions in foreign exchange. Until 1992 all foreign investments in India and the repatriation of foreign capital required prior approval of the government. The Foreign-Exchange Regulation Act, which governs foreign investment, rarely allowed foreign majority holdings. However, a new foreign investment policy announced in July 1991 prescribed automatic approval for foreign investments in thirty-four industries designated high priority, up to an equity limit of 51 percent. Initially the government required that a company’s automatic approval must rely on matching exports and dividend repatriation, but in May 1992 this requirement was lifted, except for low-priority sectors. In 1994 foreign and nonresident Indian investors were allowed to repatriate not only their profits but also their capital. Indian exporters are also free to use their export earnings as they see fit. However, transfer of capital abroad by Indian nationals is only permitted in special circumstances, such as emigration. Foreign exchange in India is automatically made available for imports for which import licenses are issued.

Because foreign-exchange transactions in India are so tightly controlled, Indian authorities are able to manage the exchange rate, and from 1975 to 1992 the rupee was tied to a trade-weighted basket of currencies. In February 1992, the government began moves to make the rupee convertible, and in March 1993 a single floating exchange rate was implemented. In July 1995, Rs31.81 were worth US$1, compared with Rs7.86 in 1980, Rs12.37 in 1985, and Rs17.50 in 1990.