Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

INDIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of April 30, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: August 20, 1994.
Exchange Measures
Restrictions and/or multiple currency practicesThe staff report for the 2006 Article IV consultation with India states that as of November 29, 2006, India maintained the following restrictions on the making of payments and transfers for current international transactions, which are subject to Fund approval under Article VIII, Section 2(a): restrictions related to the nontransferability of balances under the India-Russia debt agreement, restrictions arising from unsettled balances under inoperative bilateral payments arrangements with two Eastern European countries, and a restriction on the transfer of amortization payments on loans by nonresident relatives. (Country Report No. 07/63)
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Yes.
Other security restrictionsYes.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of India is the Indian rupee.
Exchange rate structureUnitary.
Classification
Managed floating with no predetermined path for the exchange rateThe exchange rate of the rupee is determined in the interbank market. The Reserve Bank of India (RBI), which intervenes periodically in the interbank market, purchases and sells spot and forward U.S. dollars to and from ADs in the interbank market at the market exchange rate.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketADs are allowed to deal forward in any permitted currency. The RBI may enter into swap transactions with ADs, under which it buys or sells spot U.S. dollars and sells or buys forward dollars for maturities available in the market.
A resident may enter into forward contracts with ADs to hedge against exchange risks. Outstanding forward contracts of importers and exporters booked on the basis of past performance must not exceed at any point in time 100% of the eligible limit, provided any amount in excess of 50%, effective December 13, 2006, (previously, 25%) of the eligible limit must be deliverable. The eligible limit is defined as the past three years’ average of import or export turnover or the previous year’s turnover, whichever is higher. A resident with an underlying contract may enter into a forward contract with an AD in India to hedge exposure to exchange risk to the full extent of such a contract.
ADs may provide forward exchange cover to foreign institutional investors (FIIs) up to the full extent of their investments in debt instruments and equities. FIIs may hedge the entire market value of their investments in equities. ADs may enter into forward contracts with residents outside India to hedge their investments made in India after January 1, 1993, subject to verification of exposure in India. ADs may also provide forward cover not exceeding six months to foreign direct investors to hedge their currency risk arising from proposed direct investments in India after ensuring that the foreign entity involved has completed all formalities and obtained the necessary approvals (where applicable) for the investment in India.
Nonresident Indians (NRIs) may enter into forward contracts with ADs to hedge the amount of dividends due to them or the balances held in their foreign currency nonresident (FCNR) accounts or nonresident external (NRE) accounts. They are also eligible to have forward cover with respect to their investments in portfolio investment schemes.
ADs may offer plain vanilla European forward options to customers who have genuine foreign currency exposures. All conditions applicable for booking, rolling over, and canceling forward contracts are applicable to options contracts. Only one hedge transaction can be booked against a particular exposure or part thereof for a given time period. Options contracts may not be used to hedge contingent or derived exposures, with the exception of exposures arising from the submission of tender bids in foreign exchange.
Residents with overseas direct investments in equities and loans may hedge against exchange risks arising from such investments. Effective December 13, 2006, ADs are allowed to provide forward cover to hedge the economic exposure of importers in the customs duty payable on imports. Effective February 8, 2007, ADs may allow FIIs to cancel and rebook forward contracts up to 2% of the market value of their entire investment in equity and/or debt in India. The limit for calculating the eligibility for rebookings is based on market value of the portfolio at the beginning of the financial year. Outstanding contracts must be supported by underlying exposure at all times. ADs have to ensure that (1) total forward contracts outstanding do not exceed the market value of portfolio and (2) forward contracts permitted to be rebooked do not exceed 2% of the market value as determined at the beginning of the financial year.
Official cover of forward operationsThe Export Credit Guarantee Corporation of India, Ltd. (ECGCI) provides protection against exchange fluctuation for deferred receivables from the date of a bid up to 15 years after the award of a contract. Exchange cover is offered in Australian dollars, euros, yen, pounds sterling, Swiss francs, U.A.E. dirhams, and U.S. dollars. For payments specified in other convertible currencies, cover is provided at the discretion of the ECGCI.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirementsFor prescription of currency purposes, countries are divided into two groups: (1) member countries of the ACU (except Bhutan and Nepal) and (2) the external group (all other countries). For the first group, all payments for eligible current international transactions, except payments relating to travel, must be settled through the ACU arrangement. In other cases, payments may be settled in any permitted currency. Export-import transactions financed with loans from international financial institutions are settled outside the ACU mechanism. Trade settlements are made through ACU dollar accounts, which are replenished through the RBI. Payments to countries in the second group may be made in rupees to the account of a resident of any of these countries or in any permitted currency, and receipts from these countries may be obtained in rupees from accounts of a bank situated in any of these countries or in any permitted currency. However, special rules may apply to exports under lines of credit extended by the government of India to the governments of certain foreign countries.
Controls on the use of domestic currencyn.a.
Use of foreign exchange among residentsYes.
Payments arrangements
Regional arrangementsIndia is a member of the ACU.
Clearing agreementsAlthough Bhutan and Nepal are members of the ACU, trade with Bhutan and Nepal is settled outside the ACU mechanism. Subject to permission from the Nepal Rastra Bank, Nepalese residents may import from India against payment in freely convertible currency, in addition to the existing system of payment in Indian rupees; such payments must be effected through the ACU mechanism. Transactions with all other ACU member countries are settled through ACU dollar accounts.
Administration of controlExchange management is administered by the RBI in accordance with the Foreign Exchange Management Act (FEMA) of 1999 and the general policy established by the government, in consultation with the RBI. Much of the routine work of exchange control is delegated to ADs. Import and export licenses, where necessary, are issued by the director general of foreign trade.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
On domestic ownership and/or tradeThere are no restrictions on internal trade in gold. However, gold mines continue to sell gold to industrial users through the distribution network of the State Bank of India, as well as through market sales. In addition to four agencies authorized by the government, 18 banks are authorized by the RBI to import gold for sale in the domestic market.
On external tradeThere are no restrictions on the export of gold from India. A few designated agencies, banks approved by the RBI, 100% export-oriented units, and units in special economic zones that are in the gem and jewelry business are permitted to directly import gold. NRIs entering India are also permitted to bring in gold bars and coins in accordance with applicable rules. Other guidelines regarding the export and import of gold are governed by the Foreign Trade Policy of the government of India.
Controls on exports and imports of banknotes
On exports
Domestic currencyIn general, the export of rupee notes and coins, except to Bhutan and Nepal, is prohibited. Exports of rupee notes to Bhutan or Nepal in denominations higher than Rs 100 are also prohibited. However, residents going abroad on a temporary visit may take with them Indian currency notes not exceeding Rs 5,000 a person to countries other than Bhutan and Nepal.
Foreign currencyAn authorized person may transfer abroad foreign currency acquired in the normal course of business. Any person may take out foreign exchange obtained from an authorized person and any unspent foreign currency owned or brought in during a previous visit for permissible transactions. Nonresidents may take out unspent foreign exchange up to the aggregate value of foreign exchange declared on the customs declaration form at the time of arrival.
On imports
Domestic currencyThe importation of rupee notes and coins is prohibited. However, a person may bring in rupee notes (other than notes of denominations larger than Rs 100) from Bhutan and Nepal. Individuals returning from a visit from places other than Bhutan and Nepal may bring in up to Rs 5,000 a person if they took out this amount on their departure from India.
Foreign currencyForeign exchange may be brought in without limit, provided the total amount is declared to the customs authorities on arrival if the value of foreign notes, coins, and traveler’s checks exceeds US$10,000 or its equivalent and/or if the aggregate value of foreign currency notes brought in at any one time exceeds US$5,000 or its equivalent.
References to legal instruments and hyperlinksn.a.
Resident Accounts
Foreign exchange accounts permittedApproval of the RBI is required for the opening of foreign currency accounts, held either domestically or abroad, except for those covered by general permission granted by the RBI. Effective November 11, 2006, exchange earners may open exchange earners’ foreign currency (EEFC) accounts and credit these accounts with up to 100% of their foreign exchange earnings. These accounts are to be held only as non-interest-bearing accounts, and no credit facility, be it funded or nonfunded, may be made available against the balances. These accounts may be used for all bona fide transactions. EEFC account balances may be used for trade-related loans to overseas importers. Returning resident individuals may open foreign currency accounts designated as resident foreign currency (RFC) accounts with foreign exchange from pensions or other payments from overseas employers or with other receipts, such as gifts or inheritances, that are permitted under the regulations. Proceeds of life insurance claims may be credited to RFC accounts. The balances held in such accounts may be used freely outside India.
Held domesticallyResident individuals are permitted to maintain resident foreign currency domestic (RFCD) accounts with an AD. These accounts, which are non-interest-bearing, may be credited with foreign exchange from the following sources: (1) exports of goods or services, (2) gifts or honoraria while abroad, (3) legal transactions with nonresidents in India, (4) remaining balances from travel abroad, and (5) proceeds of life insurance claims settled in foreign currency. As long as the foreign exchange is acquired by one of these means, there is no overall limit on the account balance. The balance may be used for any purpose permissible under current foreign exchange regulations applicable to residents.
Approval requiredYes.
Held abroadResident individuals may open and maintain foreign currency accounts abroad, which may be used to remit up to the equivalent of US$50,000 a financial year for any current or capital account transactions or a combination of both. Specific approval is required for remittances in excess of this limit and for other transactions. Effective January 8, 2007, ADs, the Export-Import Bank (EXIM Bank), and the RBI working group may permit exporters to open, maintain, and operate one or more foreign currency accounts in the currency of their choice with interproject transferability of funds in any currency or country. The monitoring of the interproject transfer of funds is done by those issuing the permit. Exporters may deploy their cash surpluses generated outside India in (1) investments in short-term paper abroad, including treasury bills and other monetary instruments with a maturity or remaining maturity of one year or less and with a rating of least A-1/AAA by Standard & Poor’s or P-1/Aaa by Moody’s Investors Service or F1/AAA by Fitch, IBCA, etc.; and (2) deposits with branches/subsidiaries outside India of an AD Category-I bank in India.
Approval requiredYes.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyNo.
References to legal instruments and hyperlinkshttp://rbidocs.rbi.org.in/rdocs/notification/PDFs/74798.pdf.
Nonresident Accounts
Foreign exchange accounts permittedFCNR (B) accounts denominated in U.S. dollars, euros, yen, Canadian dollars (effective July 1, 2006), Australian dollars (effective July 1, 2006), and pounds sterling may be opened and held by persons of Indian nationality or origin. These accounts may be opened only in the form of term deposits with a minimum maturity of one year and a maximum maturity of five years (effective July 1, 2006). Balances may be repatriated at any time without reference to the RBI. Diplomatic missions, diplomatic personnel, and nondiplomatic staff who are the nationals of concerned foreign countries and hold official passports of foreign embassies are permitted to open foreign currency accounts with ADs without the approval of the RBI, subject to certain conditions. Accounts related to all foreign countries other than Bhutan and Nepal are treated as nonresident accounts. NRIs located in Nepal or Bhutan may also open such accounts, provided they are funded with permitted foreign exchange.
Domestic currency accountsYes.
Convertible into foreign currencyDiplomatic missions and their personnel and family members may open rupee accounts with ADs.
NRIs and nonresident persons of Indian origin (PIOs) are permitted to maintain nonresident external rupee (NRER) accounts. Overseas corporate bodies are not allowed to open new NRER accounts. Balances in such accounts are freely convertible into foreign currency. Opening such accounts in the name of Pakistan or Bangladesh nationals, even if they are of Indian origin, requires RBI approval.
Blocked accountsNo.
References to legal instruments and hyperlinkswww.rbi.org.in/scripts/notificationuser.aspx.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Minimum financing requirementsn.a.
Advance payment requirementsEffective March 2, 2007, ADs may allow advance remittance without any limit and without a bank guarantee or standby letter of credit by an importer (other than a public sector company or a department/undertaking of the government of India/state governments), for the import of rough diamonds into India from certain mining companies.
Advance import depositsn.a.
Documentation requirements for release of foreign exchange for importsDocumentary evidence is required for foreign exchange payments for imports exceeding the equivalent of US$100,000. Further, ADs are required to notify the RBI regarding the nonsubmission of evidence for imports valued at US$100,000 or higher. If the amount of the transaction is less than US$1 million, ADs are permitted to accept either (1) the exchange control copy of the bill of entry for home consumption or (2) a certificate from the chief executive officer or an auditor of the importing company stating that the goods for which payments have been made were imported into India, where the importing company is listed on a stock exchange in India and has a net worth of at least Rs 1 billion on the date of the last audited balance sheet, or is an entity of the government of India or a public sector company or entity whose accounts are audited by the comptroller and auditor general of India. Effective February 28, 2007, a credit report on the overseas supplier (where the import documents are received directly) need not be obtained when the invoice value does not exceed US$100,000, provided the ADs are satisfied about the bona fides of the transaction and track record of the importer.
Domiciliation requirementn.a.
Preshipment inspectionn.a.
Letters of creditn.a.
Import licenses and other nontariff measuresImports of capital goods have been liberalized. Under the Duty-Free Credit Entitlement Certificate, service providers and hotels may import duty-free 10% and 5%, respectively, of foreign exchange earned. Under the Export Promotion Capital Goods Scheme, (1) imports of secondhand capital goods are permitted without restriction on age, (2) imports of capital goods utilized for the export of agricultural products are permitted at zero duty rates, (3) transfers of capital goods to groups of companies and managed hotels are permitted, and (4) installation certificates are no longer required for movable capital goods in the service sector.
Positive listThe importation of the following is restricted: (1) certain specified precious, semiprecious, and other stones; (2) safety, security, and related items; (3) seeds, plants, and animals; (4) insecticides and pesticides; (5) drugs and pharmaceuticals; (6) chemicals and related items; (7) some consumer goods and miscellaneous items; (8) items relating to the small-scale sector; (9) communication equipment and scientific instruments; (10) metallic waste and scrap; and (11) ammunition.
Negative listThe importation of the following is prohibited: tallow, fat, and/or oils rendered or unrendered of any animal origin; animal rennet; wild animals (including their parts and products); and ivory. Imports of arms and related materials from Iraq are prohibited.
Other nontariff measuresYes.
Import taxes and/or tariffsEffective April 1, 2007, peak import tariff rates for nonagricultural products are 12.5% to 10%. Other changes in import duties include (1) reduction in duty on most chemicals and plastics, from 12.5% to 7.5%; (2) reduction in duty on seconds and defectives of steel, from 20% to 10%; (3) reduction in duty on polyester fibers and yarns, from 10% to 7.5%; (4) reduction in duty on certain raw materials, from 10% to 7.5%; (5) reduction in duty on cut and polished diamonds, from 5% to 3%; (6) on rough synthetic stones, from 12.5% to 5%; (7) reduction in duty on unworked corals, from 30% to 10%; (8) reduction in duty on drip irrigation systems, agricultural sprinklers, and food processing machinery, from 7.5% to 5%; (9) reduction in duty on medical equipment to 7.5%; (10) exemption from additional CV duty of 4% for crude and refined edible oil; and (11) reduction in duty from 7.5% to 5% on 15 specified machines for the pharmaceutical and biotechnology sector. Effective March 1, 2006, import duties were reduced as follows: (1) to 7.5% from 10% on primary and semifinished forms of (a) ferro-alloys and other alloy steel, (b) aluminum, (c) copper, (d) zinc, (e) tin, (f) base metals, (g) calcined alumina, and (f) ashes and residues of copper and zinc; (2) to 7.5% from 10% on refractories and specified raw material for refractions; (3) to 2% from 5% on ores and concentrates, styrene, ethylene dichloride, vinyl chloride monomer, and para xylene; (4) to 5% from 10% on naphtha and petroleum coke; (5) to 10% from 15% on basic inorganic chemicals, such as halogen, sulphur, carbon, and hydrogen; (6) to 5% from 10% on specified organic chemicals; (7) to 5% from 10% on polymers of ethylene, propylene, styrene, and vinyl chloride; and (8) to 10% from 15% on manmade fibers, filament yarns, PTA, MEG, DMT, caprolactum, vinyl acetate monomer, butyl rubber, two-vinyl pyredine, metallurgical-grade silicon, borax and boric acid, and potassium chloride.
State import monopolyThe importation of certain items such as wheat and meslin, soybeans, nitrogenous fertilizers, industrial monocarbonylic fatty acids, acid oils from refining, and industrial fatty alcohols is channeled through agencies such as the Minerals and Metals Trading Corporation of India, Ltd., State Trading Corporation of India, Ltd., the Food Corporation of India, and the Hindustan Vegetable Oil Corporation.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsProceeds must be repatriated within six months of shipment unless otherwise specified by the RBI. Indian-owned warehouses abroad established with the permission of the RBI are allowed for a period of up to 15 months to realize export proceeds. Exporters are required to obtain permission from an AD if the export proceeds are not realized within the prescribed period. The RBI also administers a scheme under which engineering goods (capital goods and consumer durables) may be exported under deferred credit arrangements, so that the full export value is paid in installments over more than six months. Status-holder exporters, 100% export-oriented units, and units in electronic hardware technology parks, software technology parks, and biotechnology parks may realize export proceeds within 12 months from the date of shipment. Effective January 8, 2007, exporters executing turnkey/construction contracts are not required to recover the market value of equipment/machinery if it is used for another overseas project. Effective February 28, 2007, software companies or firms do not have to repatriate 30% of the contract value of on-site contracts.
Surrender requirements
Surrender to authorized dealersEffective November 30, 2006, exporters are permitted to retain up to 100% (previously, 50%) of foreign exchange receipts in foreign currency accounts with banks in India. Effective February 28, 2007, ADs may extend the period of realization of export proceeds beyond six months from the date of export, up to a period of six months at a time, irrespective of the invoice value of the export, subject to conditions. Effective February 28, 2007, exporters may write off outstanding export dues up to (1) 5% of their average annual realization during the preceding three financial years or (2) 10% of the export proceeds due during the financial year, whichever is higher. Effective February 28, 2007, ADs may allow reduction in the export invoice value up to 25% of the invoice (previously, 10%), subject to conditions.
Financing requirementsn.a.
Documentation requirements
Letters of creditn.a.
Guaranteesn.a.
Domiciliationn.a.
Preshipment inspectionn.a.
OtherExports of goods and software in amounts exceeding the equivalent of US$25,000 must be declared.
Export licensesExport licenses are required for restricted items, which include (1) dress materials and ready-made garments, and fabrics and textile items with imprints of excerpts or verses of the Koran; (2) live animals and animal parts; (3) seeds and silkworms, silkworm seeds, and silkworm cocoons; (4) residues and waste from the food industry, and prepared animal fodder; (5) sand and soil; (6) certain ores and fertilizers; (7) certain pharmaceutical products derived from human blood; (8) waste paper; (9) vintage motor cars and motorcycles and their parts and components; and (10) special chemicals, organisms, materials, equipment, and technologies.
Without quotasn.a.
With quotasn.a.
Export taxes
Other export taxesExport duties apply as follows: (1) snakeskin, raw fur, lambskin, 10%; (2) tanned leather, cycle saddle leathers, hydraulic/packing and belting/washer leathers, picking band leathers, and strap/combing leathers, 15%; (3) leather for luggage, cases, and handbags, 25%; and (4) other hides, skins, and leathers, tanned and untanned, excluding manufactures, 60%. A duty of Rs 300 a metric ton is levied on exports of iron ores and concentrates and Rs 2,000 a metric ton on exports of chromes and concentrates.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersResidents may obtain foreign exchange for bona fide permissible current account transactions.
Investment-related paymentsRemittances are allowed, subject to certain conditions, provided all current taxes and other liabilities have been cleared. Branches of foreign companies operating in India may remit profits to their head offices without the prior approval of the RBI, subject to payment of applicable tax and other liabilities.
Indicative limits/bona fide testYes.
Payments for travel
Quantitative limitsThe limits are the equivalent of US$10,000 a financial year and US$25,000 a trip for personal and business travel, respectively, regardless of the length of stay. No such limits apply on payments made with an international credit card (ICC). Foreign exchange is not made available for travel to Bhutan or Nepal or for transactions with residents of these countries.
Indicative limits/bona fide testADs may release foreign exchange beyond indicative limits, where applicable, with the prior approval of the RBI, on verification of purpose.
Personal payments
Quantitative limitsThirteen types of personal expenses are subject to limits, and amounts exceeding these limits require RBI approval.
ADs are authorized to release foreign exchange for medical costs on the basis of declarations, without supporting documents. ADs may remit abroad up to the equivalent of US$100,000 a year for various purposes, such as employment abroad, emigration, maintenance of close relatives abroad, or education abroad. Higher amounts may be permitted by ADs on the basis of documented estimates with the prior approval of the RBI. Students, like other NRIs, may transfer up to US$1 million from personal accounts maintained with an AD.
ADs may allow nonresidents to remit up to the equivalent of US$1 million a financial year for any purpose, subject to payment of appropriate taxes. ADs may effect remittances of up to US$1 million a project toward consultancy services procured abroad, subject to documentary requirements.
Foreign workers’ wages
Quantitative limitsForeign workers are permitted to remit their entire net salaries to their own countries to pay insurance premiums, to support their families, and for other expenses, subject to the payment of applicable taxes.
Indicative limits/bona fide testYes.
Credit card use abroadPersons going abroad may use ICCs for all purposes, including for the purchase of articles for personal use, subject to the limits established by the card provider. The basic travel quota may also be obtained through the use of credit cards. The use of ICCs is allowed for imports of books, computer software, and other items through the Internet, with the exception of prohibited items, such as lottery tickets, sweepstakes participation, banned or proscribed subscriptions, and payments for call-back services. Debit and automated teller machine cards may be used for any purpose for which foreign exchange may be purchased from an AD.
Indicative limits/bona fide testYes.
Other paymentsResidents are allowed to remit without prior RBI approval health insurance premiums, commissions on sales of property, proceeds of short-term credit to overseas offices of Indian banks, foreign television advertising fees, royalties, and franchise fees.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsProceeds must be repatriated.
Surrender requirements
Surrender to authorized dealersEffective November 11, 2006, a person resident in India is permitted to open and maintain with an AD a foreign currency account, known as an exchange earner’s foreign currency (EEFC) account, to credit up to 100% (previously, 50%) of their foreign exchange earnings.
Restrictions on use of fundsn.a.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsEffective December 20, 2006, resident individuals may remit up to the equivalent of US$50,000 (previously, US$25,000) a financial year for any permissible current or capital transactions, or a combination of the two.
Repatriation requirementsn.a.
Surrender requirementsn.a.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsFIIs are permitted to make investments in all securities traded on the primary and secondary markets, including equities and other securities, and in instruments of companies listed or to be listed on the stock exchanges in India other than print media companies. FIIs are also allowed to invest in dated government securities, either on behalf of clients or by using proprietary funds. FIIs are required to register with the Securities and Exchange Board of India (SEBI). FIIs are required to restrict their investments in equity and debt instruments to a ratio of 70% to 30%. However, FIIs may also set up 100% debt funds that may invest solely in debt instruments within the overall approved debt ceiling. Portfolio investments in the primary or secondary markets are subject to a ceiling of 10% of the issued share capital for individual FIIs/subaccounts holdings and 24% (this ceiling may be raised to sectoral ceilings as applicable, provided the board of directors of the company concerned passes a resolution and the general body of the company passes a special resolution) of issued share capital for the total holdings of all registered FIIs/subaccounts in any one company, with the exception of investments through offshore single and regional funds, global depository receipts (GDRs), and convertibles in the euro market.
Under the portfolio investment scheme, the individual ceiling for NRIs and PIOs is 5% of the paid-up capital, and their aggregate investment ceilings are 10% of the paid-up share capital of a company. The ceiling may be raised to 24% of paid-up capital by the passage of a special resolution at the general meeting of the company.
Sale or issue locally by nonresidentsSecurities of Indian companies held by nonresidents may be sold on the stock exchange. Transfers to a resident under a private arrangement also do not require RBI permission and may be allowed by the authorized banks, provided there is compliance with the requirements for concluding such transactions. Transfers of sale proceeds are permitted, subject to tax, provided no controls were imposed on the repatriation of sale proceeds in the approval of the original investment. Transfers between two nonresidents do not require permission from the RBI, except where the recipient has a financial or technical collaboration in the same field as the company whose shares are being transferred. Transfers from NRIs and PIOs to nonresidents other than NRIs and PIOs may not be carried out under the general permission.
Purchase abroad by residentsGeneral permission has been granted by the RBI to residents to hold, own, transfer, or invest in foreign currency or foreign securities outside India, if the currency or security was acquired or held by the person while residing outside India, was received through an inheritance or as a gift from a person who was residing outside India, or was acquired during the pre-zero period (i.e., prior to July 8, 1947). ADs are authorized to approve remittances by resident employees of foreign companies and their joint ventures or wholly owned subsidiaries, in which the foreign company holds not less than 51% equity either directly or indirectly for acquisitions of shares of the foreign company under an employee stock option scheme, subject to certain conditions.
Resident individuals may make equity investments in companies listed abroad in recognized stock exchanges up to the overall limit of US$50,000 a financial year under the Liberalized Remittance Scheme (LRS). Resident corporations may invest up to 25% of their net worth in portfolio investments in shares of listed companies that have at least a 10% stake in a listed Indian company.
Sale or issue abroad by residentsThe regulations governing purchases abroad by residents apply.
Bonds or other debt securities
Purchase locally by nonresidentsEffective March 31, 2007, the cumulative debt investment limit for the FIIs/subaccounts is US$3.2 billion (previously US$2 billion). This ceiling applies only to government securities and treasury bills and excludes corporate debt, which is subject to a ceiling of US$1.5 billion. This limit excludes investment by FIIs in IPDI and Upper Tier II Instruments raised in Indian rupees, which are subject to a separate ceiling of US$500 million.
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsUnder the LRS, resident individuals are allowed to remit up to the equivalent of US$50,000 a financial year for any current and/or capital transaction.
Sale or issue abroad by residentsConvertible bonds in foreign currency may be issued up to the equivalent of US$500 million a financial year through the automatic route without RBI approval.
On money market instruments
Purchase locally by nonresidentsNRIs are allowed to invest in money market mutual funds floated by commercial banks and public or private sector financial institutions with authorization from the SEBI on a repatriation basis.
Sale or issue locally by nonresidentsThese transactions require RBI approval.
Purchase abroad by residentsResidents are not allowed to purchase these instruments abroad without RBI approval.
Sale or issue abroad by residentsThese transactions are not permitted.
On collective investment securitiesResident companies require general or specific permission from the RBI to issue securities to NRIs.
Purchase locally by nonresidentsThese transactions by FIIs do not require prior approval by the RBI.
Sale or issue locally by nonresidentsThe issuing of collective investment securities by nonresidents on local markets in India is permitted subject to certain conditions.
Purchase abroad by residentsMutual funds in India with at least 10 years of operation may invest in overseas securities such as global depository receipts by Indian companies, equity of overseas companies, and foreign debt securities in countries with fully convertible currencies, within an overall limit of US$3 billion.
Sale or issue abroad by residentsYes.
Controls on derivatives and other instruments
Purchase locally by nonresidentsADs may offer forward or option contracts to nonresidents outside India to hedge their direct investments that were made in India after January 1, 1993, subject to verification of exposure in India. FIIs may hedge the market value of their entire investment in equity or debt. NRIs may hedge the dividends due to them, balances held in FCNR and NRE accounts, and portfolio investments.
FIIs and NRIs may trade in all exchange-traded derivative contracts that have been approved by the SEBI, subject to prescribed limits. FIIs and NRIs may also invest in these contracts using rupee funds held in India on a nonrepatriable basis, subject to the limits prescribed by the SEBI.
Sale or issue locally by nonresidentsThese transactions are not allowed.
Purchase abroad by residentsADs are allowed to purchase hedge instruments for corporate clients that have borrowed foreign exchange and for their own asset and liability management. Exporters and importers are also allowed to hedge price exposures on commodities for this purpose. Residents may remit US$50,000 in a financial year for any current or capital transactions or a combination of the two.
Controls on credit operationsAll corporations registered under the Companies Act, except financial intermediaries such as banks, nonbank financial companies, housing finance companies, and other financial institutions, are eligible to raise funds through commercial borrowing from overseas lenders, subject to certain RBI guidelines.
Commercial credits
By residents to nonresidentsA commercial credit of up to six months is allowed for exports on documents-against-acceptance terms. Contracts for exports involving payments to be realized beyond the normal period of six months, or one year as the case may be, are treated as deferred payment exports. Such exports are permitted, depending on the credit terms offered, the commodity to be exported, and other related considerations. This applies for turnkey, construction, and service contracts undertaken by Indian exporters on credit terms. Under the Buyer’s Credit Scheme, the EXIM Bank offers credits to foreign buyers in connection with the export of capital goods and turnkey projects in India in participation with commercial banks in India. An Indian exporter may lend without restriction from the funds held in an EEFC account for trade-related purposes to an overseas importing customer against a bank guarantee. Other transactions require prior permission from the RBI.
To residents from nonresidentsTrade credits up to one year for noncapital goods and less than three years for capital goods are available up to US$20 million for an import transaction; ADs are permitted to guarantee such trade credits. Trade credits (buyer credits, supplier credits) exceeding US$20 million for financing imports of goods and services for a period less than three years are considered by the RBI, subject to certain conditions.
Financial credits
By residents to nonresidentsAn Indian entity may lend in foreign exchange to its wholly owned subsidiary or joint venture abroad. Indian companies are permitted to extend foreign currency loans for personal purposes to employees of their branches outside India. Effective January 31, 2007, banks may not grant loans to depositors in India and abroad against the security of NRE of FCNR accounts.
To residents from nonresidentsThe maximum amount of ECB credit that a corporation can engage in under the automatic route is the equivalent of US$500 million in a financial year. All corporations registered under the Companies Act (except banks, financial institutions, housing finance companies, and nonbank financial companies) may borrow abroad up to the equivalent of US$20 million for loans of a minimum three years’ average maturity and up to US$500 million for loans of more than five years’ average maturity under the automatic route without RBI approval. Borrowing with an average maturity of three to five years is subject to a maximum spread of 200 basis points over the six-month LIBOR of the currency in which the loans are raised or the applicable benchmark(s), and borrowing with more than five years’ average maturity is subject to a maximum spread of 350 basis points.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsADs are allowed to give performance bonds or guarantees in favor of overseas buyers for bona fide exports from India, as well as guarantees in the ordinary course of business for missing documents or authenticity of signatures and for other similar purposes. The RBI has granted general permission to agents of foreign shipping and airline companies to give guarantees on behalf of their companies for any debt or other obligation—such as income tax, customs, or postage—to any central or state government agency in India.
Banks are not permitted to issue a guarantee, standby LC, or letter of comfort of undertaking on behalf of their constituents in favor of an overseas lender to access external commercial borrowings or financial credit. However, banks are permitted to issue the same instruments in favor of an overseas lender on behalf of their importer constituents for trade credits (i.e., buyer or supplier credit for import of noncapital goods) for up to a year and capital goods for a period of less than three years and up to the equivalent of US$20 million an import transaction, without prior RBI approval.
To residents from nonresidentsThe RBI has permitted ADs to grant loans to residents against guarantees from nonresidents, subject to, among other things, the condition that no direct or indirect payment is made abroad by way of guarantee, commission, or otherwise.
Controls on direct investment
Outward direct investmentIndian companies and registered partnerships acquiring foreign companies or investing directly abroad in joint ventures or wholly owned subsidiaries may invest up to 200% of their net worth through the automatic route. Indian corporations may fund overseas direct investments in joint ventures or wholly owned subsidiaries with external commercial borrowing. Financial entities investing abroad in any activity must also obtain approval from the regulatory authorities concerned in India and abroad. For the purpose of investing abroad, Indian companies may purchase foreign exchange up to 200% of their net worth as of the date of their last audited balance sheet. Indian corporations are also permitted to utilize proceeds of ECB credits for investments in joint ventures or wholly owned subsidiaries abroad. Companies may invest 200% of the proceeds of their ADR and GDR issues for acquisition of foreign companies and direct investment in joint ventures and wholly owned subsidiaries. Companies may also invest by way of share swap transactions, subject to prior approval by the Foreign Investment Promotion Board (FIPB). This route is not available for investments in Pakistan. The annual limit for rupee investments in Bhutan and Nepal under the automatic route is 200% of net worth. Investment in Bhutan is also permitted in freely convertible currencies.
Any Indian company that has issued ADRs or GDRs may acquire shares of foreign companies engaged in the same area of core activity up to 10 times their annual exports. Indian corporations and partnership firms may invest in agricultural activity abroad (including purchase of land directly, rather than through a joint venture or wholly owned subsidiary) within the limit for investment under the automatic route.
Resident employees of a foreign company’s office, branch, or subsidiary in India in which the foreign company holds not less than 51% equity, either directly or indirectly, may invest under an employee stock option plan without limit, subject to certain conditions.
Inward direct investmentForeign direct investment (FDI) up to 100% is allowed under the automatic route in most sectors. In some sectors, less than 100% is allowed (private sector banks; insurance, telecommunications, single-brand product retailing (effective February 10, 2006, 5% with prior government approval); stock exchanges; print media; asset reconstruction companies; broadcasting; defense production; investing companies in infrastructure/services sector (except the telecom sector); satellites; and air transport services). There are other exclusions, such as industrial licensing and locational policies. FDI is not permitted in retail trade (except single-brand retailing), lotteries, gambling, atomic energy, housing and real estate, and agriculture (excluding floriculture, horticulture, development of seeds, animal husbandry, pisciculture, and the cultivation of vegetables, mushrooms, etc., under controlled conditions and services related to agriculture and allied sectors), and plantations, except tea plantations. Foreign companies are allowed to establish branch offices or units in special economic zones to undertake manufacturing and service activities.
FDI in nonretail trading companies requires registration with the Ministry of Commerce and Industry and acquisition of a certificate on a trading company’s status as an export trading, star trading, or superstar trading house. The automatic route permits foreign investment of up to 51% of the paid-up capital of such Indian companies.
Foreign investment in print media requires registration with the Ministry of Information and Broadcasting and is subject to the following restrictions: (1) foreign investment in companies engaged in the publication of news or current affairs may not exceed 26%; and (2) foreign investment in other print media may not exceed 74% of the paid-up capital of the company, including all foreign direct and indirect investment; NRI, PIO, or FII investment; and investment on a repatriation or nonrepatriation basis.
FDI in the insurance sector requires a license from the Insurance Regulatory and Development Authority.
Applications for investment in areas that do not fall within the automatic route but that are covered by the foreign investment policy, require FIFB approval. Such investments may be approved in accordance with sector-specific guidelines and sectoral equity ceilings. The Department of Economic Affairs of the North Block is the relevant agency for all FDI proposals, other than by NRIs and proposals in single-product retailing. The latter are granted approval by the Department of Industrial Policy and Promotion of the Ministry of Commerce and Industry. General permission has also been granted to foreign venture capital investors who have obtained permission under FEMA from the RBI and are registered with the SEBI to invest in an Indian venture capital undertaking or a venture capital fund. Effective December 22, 2006, foreign investment up to 49% is allowed in stock exchanges, depositories, and clearing corporations, with the prior approval of the FIFB. Effective February 10, 2006, FDI is allowed up to 100% in (1) distillation and brewing of potable alcohol; (2) manufacture of industrial explosives; (3) manufacture of hazardous chemicals; (4) manufacturing activities located within 25 kilometers of the standard urban area limits that require an industrial license under the Industries Development and Regulation Act, 1951; (5) setting up greenfield airport projects; (6) laying natural gas/liquid natural gas (LNG) pipelines, market study and formulation, and investment financing in the petroleum and natural gas sector; (7) cash and carry wholesale trading and export trading; (8) coal and lignite mining for captive consumption; (9) setting up infrastructure relating to marketing in the petroleum and natural gas sector; (10) exploration and mining of diamonds and precious stones; and (11) the petroleum and national gas retail industry. Also effective that date, the requirement that 26% of foreign equity be diverted to business-to-business e-commerce has been eliminated. Effective April 19, 2007, FDI in certain telecom services was raised to 74% from 49%.
NRIs may use funds derived from fresh remittances or held in their NRE or FCNR accounts to (1) make portfolio investments with repatriation benefits of up to 5% of the capital, provided their total holdings of shares and convertible debentures held under the Package Scheme of Incentives do not exceed 10% (extendable to 24% if the general meeting of the investing company passes a special resolution) of the paid-up capital of the company or of the total paid-in value of each series of convertible debentures issued by the company; (2) invest freely in national savings certificates with full repatriation benefits. Existing joint-venture companies may raise the ratio of foreign equity shares to prescribed percentages of their capital through expansion of their capital base or through preferential allocation of shares to the foreign investor; and (3) invest on a nonrepatriable basis in money market mutual funds (only NRIs), subject to RBI approval. Outstanding external commercial borrowing and lump-sum fees and royalties may be converted into equity without RBI prior approval.
Controls on liquidation of direct investmentShares may be sold freely on the stock exchange and the sale proceeds repatriated. However, other sales of shares, securities, or immovable property may be allowed by authorized banks after complying with preconditions prescribed by the RBI. Prior approval of the RBI is required only in the case of sales of shares in financial sector companies or in cases where preconditions and norms have not been fulfilled. Repatriation of after-tax sales proceeds is generally permitted, provided no condition of nonrepatriation was imposed when the original investment was approved.
Controls on real estate transactionsThese transactions require the permission of the RBI.
Purchase abroad by residentsResidents may hold, own, or transfer immovable property outside India, provided such property was acquired while the person resided outside India or was obtained through an inheritance or as a gift. That person is also free to dispose of such property or acquire new property from the sale proceeds of such property. Residents may buy immovable property abroad using RFC accounts.
Effective December 20, 2006, residents may acquire property abroad using a personal remittance up to the equivalent of US$50,000 (previously, US$25,000) a financial year. General permission has been granted to Indian companies that have established offices abroad to acquire immovable property abroad for their business use and for staff residences.
Purchase locally by nonresidentsNRIs may invest in companies engaged in real estate development (e.g., construction of houses). ADs and housing companies may extend loans to NRIs and PIOs for acquiring residences in India.
Sale locally by nonresidentsRepatriation of after-tax sales proceeds is permitted up to the amount brought in to purchase the property subject to certain conditions. ADs may allow remittances of up to the equivalent of US$1 million a year—subject to the payment of applicable taxes—for sales of immovable property. Effective November 16, 2006, proceeds from the sale of immovable property may be remitted without a limitation on how long the property was owned (previously, the property had to be owned at least 10 years).
Controls on personal capital transactions
Loans
By residents to nonresidentsADs may lend to NRIs in rupees to purchase immovable property, shares for personal business, or mortgages.
To residents from nonresidentsBorrowing not exceeding US$250,000 or its equivalent by residents from NRIs who are close relatives of the borrower is permitted by the RBI, provided the loan is interest free and is repayable in one year or less.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsEffective December 20, 2006, ADs are allowed to permit remittances of gifts and donations by resident individuals with a limit subsumed under the limit of US$50,000 (previously, the limit was US$5,000) a financial year under the LRS. The limit of US$5,000 a remitter a donor continues to apply to corporations. The RBI considers requests for higher amounts.
To residents from nonresidentsn.a.
Settlements of debts abroad by immigrantsn.a.
Transfer of assets
Transfer abroad by emigrantsADs may allow remittances of up to US$100,000 or its equivalent at the time of emigration, and thereafter US$1 million a year out of balances held in an NRO account, subject to certain conditions.
Transfer into the country by immigrantsYes.
Transfer of gambling and prize earningsRemittances of earnings from sweepstakes, gambling, and lotteries are not permitted.
References to legal instruments and hyperlinkshttp://rbidocs.rbi.org.in/rdocs/notification/PDFs/71613.pdf; http://rbidocs.rbi.org.in/rdocs/notification/PDFs/74798.pdf; http://dipp.nic.in/publications/fdi_policy_2006.pdf
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Borrowing abroadExternal commercial borrowing is subject to the policy framed by the RBI in consultation with the MOF. ADs may avail themselves of foreign currency borrowing not exceeding 25% of their unimpaired Tier I capital or the equivalent of US$10 million, whichever is higher.
Banks are allowed to raise capital using two foreign exchange instruments. First, banks may augment their capital funds through the issue of IPDI in foreign currency up to 49% of the eligible amount (i.e., 15% of Tier I capital) without seeking the prior approval of the RBI, subject to compliance with certain specified conditions. Second, banks may augment their capital funds through the issue of Upper Tier II Instruments in foreign currency up to 25% of their unimpaired Tier I capital without seeking the prior approval of the RBI, subject to compliance with certain specified conditions. Capital funds raised through the issue of these two instruments in foreign currency are in addition to the existing limit for foreign currency borrowing by ADs.
Maintenance of accounts abroadThere are no restrictions on ADs maintaining accounts abroad.
Lending to nonresidents (financial or commercial credits)ADs are free to manage surplus balances in their exchange accounts through overnight placement and investments with their branches or correspondent banks, subject to limits imposed by their respective boards.
Lending locally in foreign exchangeBanks may lend to residents to meet foreign exchange requirements toward preshipment credit in foreign currency for financing domestic inputs. Banks may also use their foreign currency deposit resources to grant loans to residents.
Purchase of locally issued securities denominated in foreign exchangen.a.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsEffective January 1, 2006, the cash reserve ratio (CRR) was increased by 25 basis points. The CRR was increased further by 25 basis points on February 2, 2007, and again by another 25 basis points on March 3, 2007. Effective March 3, 2007, all rupee and foreign currency deposits are subject to a CRR of 6% (previously, 5%) of net demand and time liabilities; ACU funds in U.S. dollars, however, are subject to a minimum ratio of 3% of net demand and time liabilities maintained by commercial banks.
Liquid asset requirementsAll rupee and foreign currency deposits are subject to a statutory liquidity ratio of 25% of net demand and time liabilities.
Interest rate controlsEffective January 31, 2007, interest rates on FCNR (bank) deposits are subject to a ceiling of LIBOR or the swap rate for the corresponding maturity/currency minus 25 basis points (previously, plus 100 basis points). For floating-rate deposits, the interest rate period is six months. The LIBOR/swap rates prevailing on the last working day of the preceding month form the base for fixing the interest rates offered effective the following month. The Foreign Exchange Dealers Association of India publishes/announces the LIBOR/swap rates that all banks should use for the purpose of setting interest rates. Effective January 31, 2007, the interest rates on NRE rupee term deposits of one to three years’ maturity should not exceed the LIBOR/SWAP rates, as of the last working day of the previous month, for U.S. dollar deposits of corresponding maturities, plus 50 basis points (previously, LIBOR/SWAP rates plus 100 basis points effective from close of business on April 18, 2006). The interest rates as determined above for three-year deposits are also applicable in case the maturity period exceeds three years. The changes in interest rates also apply to NRE deposits renewed after their present maturity period.
Credit controlsn.a.
Differential treatment of deposit accounts held by nonresidents
Reserve requirementsAll nonresident deposits, in both local and foreign currency, are subject to the same cash reserve requirements of 6% of net demand and time liabilities.
Liquid asset requirementsAll nonresident deposits in both domestic and foreign currency are subject to the same statutory liquidity ratio of 25% of net demand and time liabilities.
Interest rate controlsInterest rates on deposits of residents, except savings deposits, are deregulated. However, there is an interest rate ceiling linked to international rates on FCNR (bank) deposits and NRE deposits.
Investment regulations
Abroad by banksBanks may invest in money market instruments and/or debt instruments held abroad up to the limits approved by their respective boards of directors.
Open foreign exchange position limitsBanks are required to maintain on an ongoing basis Tier I and Tier II capital at 9% of the open position limit approved by the RBI.
Provisions specific to institutional investors
Insurance companies
Limits (max.) on securities issued by nonresidentsn.a.
Limits (max.) on investment portfolio held abroadYes.
Limits (min.) on investment portfolio held locallyn.a.
Currency-matching regulations on assets/liabilities compositionn.a.
Pension fundsn.a.
Investment firms and collective investment fundsn.a.
References to legal instruments and hyperlinksAnnual Monetary Policy (page 43): http://rbidocs.rbi.org.in/rdocs/notification/PDFs/69845.pdf.
Changes during 2006
Exchange arrangementDecember 13. Forward contracts of importers and exporters could not exceed 100% of the limit, out of which 50% (previously, 25%) is required to be deliverable.
December 13. ADs were allowed to provide forward cover to hedge the economic exposure of importers in the customs duty payable on imports.
Resident accountsNovember 11. Exchange earners were allowed to open EEFC accounts and credit these accounts with up to 100% of their foreign exchange earnings.
Nonresident accountsJuly 1. Persons of Indian nationality or origin were allowed to open FCNR (B) accounts in Australian and Canadian dollars. The maximum maturity of the deposit was increased to five years.
Imports and import paymentsMarch 1. Import duties were reduced as follows: (1) to 7.5% from 10% on primary and semi-finished forms of (a) ferro-alloys and other alloy steel, (b) aluminum, (c) copper, (d) zinc, (e) tin, (f) base metals, (g) calcined alumina, and (f) ashes and residues of copper and zinc; (2) to 7.5% from 10% on refractories and specified raw material for refractions; (3) to 2% from 5% on ores and concentrates, styrene, ethylene dichloride, vinyl chloride monomer, and para xylene; (4) to 5% from 10% on naphtha and petroleum coke; (5) to 10% from 15% on basic inorganic chemicals such as halogens, sulphur, carbon, and hydrogen; (6) to 5% from 10% on specified organic chemicals; (7) to 5% from 10% on polymers of ethylene, propylene, styrene, and vinyl chloride; and (8) to 10% from 15% on man-made fibers, filament yarns, PTA, MEG, DMT, caprolactum, vinyl acetate monomer, butyl rubber, two-vinyl pyredine, metallurgical-grade silicon, borax and boric acid, and potassium chloride.
Exports and export proceedsNovember 30. Exporters were allowed to retain 100% (previously, 50%) of foreign exchange receipts in foreign exchange accounts with banks in India.
Proceeds from invisible transactions and current transfersNovember 11. A person resident in India is permitted to open and maintain with an AD a foreign currency account known as an EEFC account to credit up to 100% (previously, 50%) of their foreign exchange earnings.
Capital transactionsDecember 20. Resident individuals may remit up to the equivalent of US$50,000 (previously, US$25,000) a financial year for any permissible current or capital transactions, or a combination of the two.
Controls on direct investmentFebruary 10. FDI was allowed up to 100% in (1) distillation and brewing of potable alcohol; (2) manufacture of industrial explosives; (3) manufacture of hazardous chemicals; (4) manufacturing activities located within 25 kilometers of the standard urban area limits that require an industrial license under the Industries Development and Regulation Act, 1951; (5) setting up greenfield airport projects; (6) laying natural gas/LNG pipelines, market study and formulation, and investment financing in the petroleum and natural gas sector; (7) cash and carry wholesale trading and export trading; (8) coal and lignite mining for captive consumption; (9) setting up infrastructure relating to marketing in the petroleum and natural gas sector; (10) exploration and mining of diamonds and precious stones; and (11) the petroleum and national gas retail industry. Also effective that date, the requirement that 26% of foreign equity be diverted to business-to-business e-commerce was eliminated.
FDI in single-brand product retail trading is allowed up to 5% with prior government approval.
December 22. Foreign investment up to 49% is allowed in stock exchanges, depositories, and clearing corporations, with the prior approval of the FIFB.
Controls on real estate transactionsNovember 16. Proceeds from the sale of immovable property may be remitted without a limitation on how long the property was owned (previously, the property had to be owned at least 10 years).
December 20. Residents may acquire property abroad using a personal remittance up to the equivalent of US$50,000 (previously, US$25,000) a financial year.
Controls on personal capital transactionsDecember 20. ADs are allowed to permit remittances of gifts and donations by resident individuals with a limit subsumed under the limit of US$50,000 (previously, the limit was US$5,000) a financial year under the LRS.
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsApril 18. The interest rates on NRE rupee term deposits of one to three years’ maturity should not exceed the LIBOR/SWAP rates plus 100 basis points.
Changes during 2007
Exchange arrangementFebruary 8. ADs may allow FIIs to cancel and rebook forward contracts up to 2% of the market value of their entire investment in equity and/or debt in India.
Resident accountsJanuary 8. Exporters may be permitted to open foreign exchange accounts in any currency or country with interproject transferability of funds. They may also deploy their cash surpluses generated outside India in (1) investments in short-term paper abroad, including treasury bills and other monetary instruments with a maturity or remaining maturity of one year or less and with a rating of at least A-1/AAA by Standard & Poor’s or P-1/Aaa by Moody’s Investors Service or F1/AAA by Fitch, IBCA, etc., and (2) deposits with branches/subsidiaries outside India of an AD Category-I bank in India.
Imports and import paymentsFebruary 28. A credit report on the overseas supplier (where the import documents are received directly) need not be obtained when the invoice value does not exceed US$100,000, provided the ADs are satisfied about the bona fides of the transaction and track record of the importer.
March 2. ADs may allow advance remittance without any limit and without a bank guarantee or standby letter of credit by an importer (other than a public sector company or a department/undertaking of the government of India/state governments), for the import of rough diamonds into India from certain mining companies.
April 1. Peak import tariff rates for nonagricultural products are 12.5% to 10%. Other changes in import duties include (1) reduction in duty on most chemicals and plastics, from 12.5% to 7.5%; (2) on seconds and defectives of steel, from 20% to 10%; (3) on polyester fibers and yarns, from 10% to 7.5%; (4) on certain raw materials, from 10% to 7.5%; (5) on cut and polished diamonds, from 5% to 3%; (6) on rough synthetic stones, from 12.5% to 5%; (7) on unworked corals, from 30% to 10%; (8) on drip irrigation systems, agricultural sprinklers, and food processing machinery, from 7.5% to 5%; (9) on the general rate of import duty on medical equipment to 7.5%; (10) exemption from additional CV duty of 4% for crude and refined edible oil; and (11) reduction in duty from 7.5% to 5% on 15 specified machines for pharmaceutical and biotechnology sector.
Exports and export proceedsJanuary 8. Exporters executing turnkey/construction contracts are not required to recover the market value of equipment/machinery if it is used for another overseas project.
February 28. Software companies or firms do not have to repatriate 30% of the contract value of on-site contracts.
February 28. ADs may extend the period of realization of export proceeds beyond six months from the date of export, up to a period of six months at a time, irrespective of the invoice value of the export, subject to conditions.
February 28. Exporters may write off outstanding export dues up to (1) 5% of their average annual realization during the preceding three financial years or (2) 10% of the export proceeds due during the financial year, whichever is higher.
February 28. ADs may allow reduction in the export invoice value up to 25% of the invoice (previously, 10%), subject to conditions.
Capital transactions
Controls on capital and money market instrumentsMarch 31. The cumulative debt investment limit for the FIIs/subaccounts is US$3.2 billion (previously, US$2 billion).
Controls on credit operationsJanuary 31. Banks may not grant loans to depositors in India and abroad against the security of NRE of FCNR accounts.
Controls on direct investmentApril 19. FDI in certain telecom services was raised to 74% from 49%.
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsJanuary 6. The CRR was increased by 25 basis points.
January 31. Interest rates on FCNR (bank) deposits are subject to a ceiling of LIBOR or the swap rate for the corresponding maturity/currency minus 25 basis points (previously, plus 100 basis points).
January 31. The interest rates on NRE rupee term deposits of one to three years’ maturity should not exceed the LIBOR/SWAP rates, as of the last working day of the previous month, for U.S. dollar deposits of corresponding maturities, plus 50 basis points (previously, LIBOR/SWAP rates plus 100 basis points effective from close of business on April 18, 2006).
February 17. The CRR was increased by 25 basis points.
March 3. The cash reserve ratio on rupee and foreign currency deposits was increased to 6% from 5%.
March 3. The CRR was increased by 25 basis points.

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