Foreign Exchange Rules In India
Foreign exchange trade in India was opened in the decade of 1970s when the government allowed the banks to trade the foreign currency among themselves. While for some time the things were good, the foreign exchange rules in India were unscientific and bound in the clutches of socialistic past. The conditions went so bad that at a time the country had to consider the mortgage of its gold reserves to the Bank of England.
Realizing the fact that mortgage would be a disaster and the root cause of the entire problem are the out dated foreign exchange rules in India, the government decided to open up the market for foreign investments and made it possible for the investors to take their investment and profit back home. The result was that investments poured in and foreign exchange reserves went up once again. But the problem was not over, there was still, the Foreign Exchange Regulation Act!
The Foreign Exchange Regulation Act was an outdated law and it was against the principles of natural justice as well as the recommendations of the World Trade Organization. In 1999, the Parliament of India passed a new law and enacted the Foreign Exchange management Act. The Act became applicable in 2000. The new foreign exchange rules in India which came as a part of this new Act were a giant leap ahead.
The foreign exchange rules in India have moved their focus from the conservation of foreign exchange reserves of the country. According to the new Act, the focus of foreign exchange rules in India is now to promote the flow of foreign exchange in and out of the country and to increase the share of India in the global trade. The approach has shifted its focus from conservation to management of the foreign exchange assets of the country. According to the new foreign exchange rules in India, the Reserve Bank of India shall exercise control over all foreign exchange related activities through its Foreign Exchange Department. The Reserve Bank shall issue permissions to authorize an individual or an organization to transfer any foreign security or foreign exchange where the said transfer is not being made to an authorized person. Similarly the Reserve Bank has an ability to authorize a person or organization to make payments towards the credit account of a person who is not residing in India. Similarly the new rules also make it possible for the Reserve Bank to issue permission to get incoming payments for any foreign source and not via an authorized dealer. The department can also impose certain restriction on the way foreign exchange is traded in the country. Foreign exchange rules in India may not be considered among the most liberal in the world, but they have come a long way in the last two decades and are still moving in the direction of more and more freedom.
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