CAP
ON REMITTANCE RAISED FROM $ 10,000 TO $ 25,000
Indians will finally get
a flavour of capital account convertibility. The government
has raised the annual cap on free outward remittance from
$10,000 of $25,000.
The market, however, is
keeping its fingers crossed. "This is a major move and
reflects a change in mindset, but we can't say to what extent
it will create a dollar demand. The real demand will come
if dollar starts appreciating... the question is will the
government then stop the facility. It will definitely create
a demand for strong international currencies like euro,"
said a senior dealer at a large government bank. Besides,
bankers think that authorities will have to ensure the facility
is not misused to launder money.
However, the announcement
is a landmark in the exchange liberalisation journey. After
the depleted forex reserves position of May 1991 followed
by a devaluation in July the same year, the country today
has a $100bn forex kitty, allowing the government to go in
for a free remittance facility.
Foreign exchange liberalisation
truly began with the `liberalised exchange rate management
system' in 1992 and the entry of FIIs in 1993. Over the past
two years, RBI has relaxed various foreign exchange norms
to simplify transactions for individuals. This includes raising
the basic travel quota to $10,000 and allowing remittances
for purposes like education and medical treatment. But this
did not prove sufficient to push up dollar demand.
