Foreign investments Current Affairs

RBI eases FEMA norms to spur investment from overseas

The Reserve Bank of India (RBI) has simplified Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations to make it easier for foreign investors to invest in the country.

It was done by putting all 93 amendments under one notification. The new regulation combines earlier two regulations on foreign investments. They are FEMA 20 (investment in Indian company or partnership or in a limited liability partnership) or FEMA 24 (investment in a partnership firm). It also introduces late submission fee that could allow investor to regularise any contravention due to non-reporting, by paying the fee.

Foreign Exchange Management Act (FEMA)

The Foreign Exchange Management Act (FEMA) was passed by Parliament in 1999 and so far was amended 93 times. It had replaced FERA (Foreign Exchange Regulations Act), 1973 which had become incompatible after economic reforms and pro-liberalization policies of Government.

It aims at facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.  It makes offenses related to foreign exchange civil offenses. It enables new foreign exchange management regime consistent with emerging framework of World Trade Organisation (WTO).

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India’s Forex reserves cross $400 billion for first time

According to Reserve Bank of India (RBI), India’s foreign exchange (Forex) reserves have crossed $400 billion mark for the first time. The increase was due sharp rise in foreign currency assets.

India is now at sixth position in forex reserves ranking behind China (3,053 billion reserves), Japan ($1,188 billion), Switzerland ($743 billion), Saudi Arabia ($489 billion) and Taiwan ($441 billion).

Components

The Foreign exchange reserves act as buffer to be used in challenging times. The components of India’s FOREX Reserves include: Foreign currency assets (FCAs), Gold, Special Drawing Rights (SDRs) and RBI’s Reserve position with International Monetary Fund (IMF). FCAs constitute largest component of the Forex Reserves.

Key Facts

According to RBI, foreign currency assets were $376.20 billion, gold reserves at $20.69 billion, SDRs of $ 1.52 billion and $2.30 billion reserves in IMF.

The main reasons for rise in Forex Reserves are sharp increase in foreign currency assets, mainly huge inflows through foreign direct investments (FDI) in projects and portfolio investments. Foreign investors have pumped in Rs. around $ 6.7 billion in stocks and $20.55 billion in debt instruments in 2017.

It has resulted in strengthening of rupee 6% this year, making it best performer currency among major emerging economies. The rupee had slumped to 68.86 in November 2016 before recovering but now it is 64.09 to the dollar.

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