INDIA BUSINESS WORLD - MAY - JUNE 2007
The Month that was ...

RESERVE BANK OF INDIA EXTENDS HOLDING PERIOD TO 6 MONTHS FOR UNUSED FOREX WITH INDIVIDUALS

Indians can now wait up to six months before exchanging foreign exchange received from non residents or lying unused from an overseas trip. Until now, individuals were required to get foreign currency within as early as seven days for some payments.

The RBI move to allow individuals to hold on to foreign currency for a longer period is a small step in the move toward capital account convertibility. To a small extent, individuals holding foreign currency can take a view on the rupee. For instance, if someone believes that the current weakness in the dollar is temporary and the greenback may appreciate, they can hold on to their foreign exchange.

Consequent to the recommendation of the Tarapore committee on fuller capital account convertibility, RBI had set up an internal task force to identify anomalies in the present regulatory framework for current and capital account transactions and propose rectifications. Based on the recommendations of the committee, RBI, in its monetary policy, said that it would implement a uniform period of six months for surrender of received/ unspent/unused foreign exchange.

The relaxation on holding period is a part of a host of foreign exchange liberalisations announced in RBI's annual monetary policy last month. Last month, RBI took a major step towards fuller capital account convertibility by allowing individuals spend or invest up to $1,00,000 overseas. Bankers feel that forex relaxations are being made in context of the strong capital inflows which are pushing up the value of the rupee and adding to the liquidity in the market. Liberalising external remittances for individuals and corporates is expected to balance the inflows.

Earlier if an individual received foreign currency towards remuneration for services rendered, settlement of any lawful obligation, income on assets held outside India, as inheritance, settlement or gift, the money had to be exchanged for rupees within seven days. For any other payment, the exchange had to be done within seven days.

There were also time limits to exchange foreign currency that was purchased for any purpose, but not used. In such cases, the currency had to be exchanged within 60 days of purchase. Foreign exchange acquired or purchased for any purpose but not used it for such purpose or for any other purpose for which purchase or acquisition of foreign exchange is permissible, within a period of sixty days from the date of its acquisition or purchase.

If an Indian traveller returned from an overseas trip with unspent foreign currency, he had to exchange the money within 90 days of arrival. But, if he had bought forex instead of foreign currency he could hold on to the currency for six months.