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India relaxes limits on rupee remittance abroad
June 4, 2014, 8:27 am

Emboldened by the recent strength of Indian rupee the Reserve Bank of India on Tuesday relaxed some of the foreign exchange regulations it had introduced last year following a sharp decline of Indian currency.

Under the revised rules the RBI has raised the annual investment ceiling for individuals to $125,000 from $75,000.

In last August the RBI had reduced the ceiling from $200,000 to $75,000 per person in a financial year under the liberalised remittance scheme (LRS) in view of the worsening current account deficit and a volatile rupee.

“In view of the recent stability in the foreign exchange market, it has been decided to enhance the eligible limit to $125,000 without end use restrictions except for prohibited foreign exchange transactions such as margin trading, lottery and the like,” RBI said in its bi-monthly policy statement on Tuesday.

The central bank has allowed foreigners and Non-Resident Indians to take currency worth Rs25,000 out of the country to facilitate their travel requirements. Earlier, the limit was at Rs10,000 and was available only for Indian residents.

Money changers said that Indian currency is already being exchanged in several foreign cities and the liberalized scheme will increase wider acceptance of the rupee and more Indians investing in foreign assets.

“The RBI’s measures of further enhancing the Liberalised Remittance Scheme limit will encourage more resident Indians to invest in foreign currency denominated assets. This new development can be positive for individuals to diversify their assets and bring down risk in their portfolio of investments,” said Y. Sudhir Kumar Shetty, COO – Global Operations, UAE Exchange.

Analysts said the relaxation of forex rules in India could increase Indian investment flows to the UAE. “We expect this move will boost bullion trade in Dubai. Even with a 10 per cent import duty, gold import is lucrative and there is a clear arbitrage opportunity. We also expect to see an impact on investment flows into the UAE’s real estate sector,” said Pradeep Unni, Head of Trading & Research at Dubai-based Richcomm Global Services DMCC.

Most Indians generally remit abroad for the purpose of funding stock and mutual fund investments, purchasing gifts, donations or medical expenses. “The new policy change is a welcome development as it will allow Indian businessmen to enhance their investments in foreign countries across the world. Specifically in the case of the UAE, the new policy will help increase investment flows into growth segments of the local economy like real estate, hospitality, retail sectors,” said Sudhesh Giriyan, Vice President and Business Head of Xpress Money.

Following the introduction of import and foreign exchange restrictions imposed last year, India’s current account deficit narrowed to 1.7 per cent of GDP in 2013-14 from a record $88.2 billion, or 4.8 per cent of GDP, in 2012-13.

The monetary policy review document said that robust inflows of portfolio investment, supported by foreign direct investment and external commercial borrowings, kept external financing conditions.

Improved conditions in the forex market has prompted the central bank to allow foreign institutional investors to hedge upto 110 per cent of their investments using exchange traded currency derivatives.

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