Foreign Exchange Control In India
India has recently opened up its markets for foreign direct investment and this has led to heavy influx of foreign exchange in the country. Today India is one of the fastest growing economies in the entire world. Foreign exchange control in India has also undergone sea changes in the recent times. However the conditions were not as great around two decades back.
The government of India exercised sweeping powers over the way foreign exchange transactions took place in the country until 1992. Before 1992, if anyone wanted to invest in India,he had to go through a long and complicated procedure. Similarly before 1992, the Foreign Exchange Regulation Act left almost zero chances of a foreign majority stake in the country.
In 1992, the country left behind its old socialistic outlook towards development and started to take a liberal and market friendly approach towards the entire process. Gradually the Act was amended and fine tuned until in 1999, the government passed the Foreign Exchange Management Act which provided much more liberal provisions related to the way foreign exchange is traded in India.
Today the Reserve Bank of India controls the foreign exchange in the country through its Foreign Exchange Department. The department is meant to observe the flow of foreign exchange in and out of the country. It is the duty of the Foreign Exchange Department to ensure that a healthy foreign exchange market is developed in the country. The new regime of foreign exchange control in India allows for all the transactions to take place freely without any restriction provided that they do not fall under certain categories defined by the Central Government of India. The restricted transactions include eight transactions which are declared contraband outright by the government. There are eleven transactions which are contraband unless proper permissions are taken place. Similarly there are sixteen transactions which are considered legit only under a defined volume. Doing high volume transactions of this nature required permission to be obtained from the Foreign Exchange Department. Similarly the department also reviews the various provisions related to foreign exchange control in India and can make appropriate changes to these provisions. The Department has changed its approach and its outlook. It has made the process of foreign exchange control in India much more transparent and much less complicated. The possibility of a foreign stake is much easier to achieve than it was two decades back though some restrictions have been kept in place to ensure economic stability of the country and to ensure investor protection. Foreign exchange control in India has become much more investor friendly in the last two decades, hence it has become one of the major reasons that most of the companies are looking to India as a big market and economical option to outsource their work.
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