To promote cross-border transactions of INR and local/ national currencies, existing Foreign Exchange Management Act (FEMA), 1999 regulations have been reviewed by the Reserve Bank (RBI) in consultation with the Central Government, according to RBI press statement. Based on that a few changes have been made in the existing FEMA regulations.
The following are the changes.
Overseas branches of banks which are authorised dealers will now be able to open INR accounts for a person residing outside India for settlement of all permissible current and capital account transactions with a person resident in India.
Persons resident outside India will be able to settle bona fide transactions with other persons residing outside India. This can be done by using balances in their repatriable INR accounts such as Special Non-resident Rupee account and SRVA.
A Special Rupee Vostro Account (SRVA) refers to a type of foreign currency account that is issued by foreign banks. The purpose is to facilitate international trade transactions in INR. As opposed to foreign currency accounts, SRVAs are specially designed to facilitate cross-border trade with India. These accounts are maintained by foreign banks on behalf of their Indian counterparts.
Persons residing outside India will also be able to use their balances held in repatriable INR accounts for foreign investments. This will include Foreign Direct Investment (FDI) in non-debt instruments.
Now, Indian exporters will be able to open accounts in any foreign currency overseas to settle trade transactions. This would include receiving export proceeds and using these proceeds to pay for imports.
What It Means
These changes will make cross-border transactions easier. For example, it helps in the easy settlement of transactions between Indians and other non-residents of India. Any non-resident can open INR with the overseas branches of authorized dealer banks and can then facilitate transactions more conveniently.
They can also settle such transactions which they enter into with other non-residents from their INR account. They would also be able to use their INR money for making investments in international markets, such as in FDI (Foreign Direct Investment) in non-debt securities.
This will also benefit Indian exporters allowing them to open accounts in any foreign currency in other countries which makes their trade activities easier. This allows them to receive export proceeds and pay for imports with them thus making the transaction processes and costs simpler.
