Loading...

Top
Help
×

By creating an account you can:

Logo TaxTMI
Call Us / Help / Feedback

Contact Us At :

E-mail: [email protected]

Call / WhatsApp at: +91 99117 96707

For more information, Check Contact Us

FAQs :

To know Frequently Asked Questions, Check FAQs

Most Asked Video Tutorials :

For more tutorials, Check Video Tutorials

Submit Feedback/Suggestion :

Email :
Please provide your email address so we can follow up on your feedback.
Category :
Description :
Min 15 characters 0/2000
Make Most of Text Search
  1. Checkout this video tutorial: How to search effectively on TaxTMI.
  2. Put words in double quotes for exact word search, eg: "income tax"
  3. Avoid noise words such as : 'and, of, the, a'
  4. Sort by Relevance to get the most relevant document.
  5. Press Enter to add multiple terms/multiple phrases, and then click on Search to Search.
  6. Text Search
  7. The system will try to fetch results that contains ALL your words.
  8. Once you add keywords, you'll see a new 'Search In' filter that makes your results even more precise.
  9. Text Search
Add to...
You have not created any category. Kindly create one to bookmark this item!
Create New Category
Hide
Title :
Description :
❮❮ Hide
Default View
Expand ❯❯
Close ✕
🔎 News - Adv. Search
TEXT SEARCH:

Press 'Enter' to add multiple search terms. Rules for Better Search

Search In:
Main Text + AI Text
  • Main Text
  • Main Text + AI Text
  • AI Text
Category: ?
Categorized by AI
---- All Categories ----
  • ---- All Categories ----
  • Income Tax
  • GST
  • Customs, DGFT & SEZ
  • FEMA & RBI
  • Corp. Laws, SEBI & IBC
  • PMLA, Black Money & ED
  • Budget
  • News and Press Release
  • PTI News
Month:
---- All Months ----
  • ---- All Months ----
  • January
  • February
  • March
  • April
  • May
  • June
  • July
  • August
  • September
  • October
  • November
  • December
Year:
---- All Years ----
  • ---- All Years ----
  • 2026
  • 2025
  • 2024
  • 2023
  • 2022
  • 2021
  • 2020
  • 2019
  • 2018
  • 2017
  • 2016
  • 2015
  • 2014
  • 2013
  • 2012
  • 2011
Sort By: ?
In Sort By 'Default', exact matches for text search are shown at the top, followed by the remaining results in their regular order.
Relevance Default Date
    Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman will embark on official visit to Canada and USA from 25th August to 2nd Septemb...
    UPI Completes 10 Years of Digital Payments Revolution- Globally Recognised as World’s Largest Real‑Time Payment System
    PROVISIONAL ESTIMATES OF SERVICE PRODUCER PRICE INDICES (BASE YEAR 2022-23) FOR Q1 OF FY 2026-27 AND FINAL INDICES FOR Q4 OF FY 2025-26.
    Minister of State for Commerce and Industry and Electronics & Information Technology Shri Jitin Prasada on Official Visit to Morocco.
    Rupee falls 3 paise to close at 95.74 against US dollar
    HSBC INDIA OPENS NEW BRANCH IN NASHIK TO SUPPORT WEALTH EXPANSION
    Commerce and Industry Minister Shri Piyush Goyal Leads A 200-Member Business Delegation to Japan.
    CBN busts inter-state heroin syndicate in ‘Op Black Hawk’; seizes over 18.6 kg crude heroin - Three members of inter-state trafficking network arr...
    Bank unions threaten nationwide strike on Sep 11 to press for 5-day banking, other demands
    Goyal says India negotiating FTAs with 8-9 more blocs, aims to cover 75 pc of global trade
    Rupee rises 7 paise to 95.64 against US dollar in early trade
    Woman passenger from Sharjah held with undeclared gold chain at Ahmedabad airport
    Delhi: Retired railway employee put under 'digital arrest', duped of Rs 30 lakh; one held
    CPI(M) accuses ED of ‘politically targeting’ Pinarayi Vijayan in CMRL case
    ED arrests ex-Andhra minister K Nageswara Rao in liquor transport 'scam'
    Orris Infrastructure MD Amit Gupta arrested in cheating case
    In a knot: Surat weaving units take voluntary two-day holiday as yarn prices shoot up
    Canada will impose retaliatory tariffs on US goods beginning Sept 8 as trade negotiations collapse
    Trade war between Canada, US deepens rupture in what had been close and durable alliance
    Canada will impose retaliatory tariffs on US good beginning Sept 8
❯❯
Maximize Maximize Maximize
0 / 200
Expand Note
Add to Folder

No Folders have been created

+

Are you sure you want to delete "My most important" ?

NOTE:

News
Showing Results for :
Reset Filters
Results Found:
Show All Summaries Hide All Summaries
August 24, 2026
Show AI Summary
Bilateral economic and financial cooperation will advance through investment dialogues, business engagement, financial-sector partnerships, and global economic discussions.
Official visits to Canada and the United States are scheduled to strengthen bilateral economic and financial partnerships, deepen investment linkages, and advance cooperation on global economic priorities. Engagements include an Economic and Financial Dialogue, investment and business roundtables, corporate meetings, and discussions on financial-sector cooperation, technology, innovation, critical minerals, resilient supply chains, and a Comprehensive Economic Partnership Agreement. Participation in the G20 Finance Ministers and Central Bank Governors Meeting will address global economic growth, stability, and international financial cooperation.
August 24, 2026
Show AI Summary
Interoperable real-time payments enable inclusive retail transactions, bank participation, and cross-border digital payment expansion through UPI.
Unified Payments Interface (UPI) operates as an interoperable, real-time digital payments platform for peer-to-peer and person-to-merchant transactions. Its network includes varied banking institutions acting as remitter and beneficiary payment service providers, with performance monitoring across participants. Person-to-merchant payments drive transaction volume through routine small-ticket retail use, while person-to-person payments represent a larger share of transaction value. UPI also supports cross-border digital payments, with future growth linked to technological advancement, broader adoption, policy support, and financial inclusion.
August 24, 2026
Show AI Summary
Service Producer Price Indices track quarterly price movements across financial, transport, telecom and insurance services using sub-service weights.
Service Producer Price Indices based on 2022-23 set out provisional first-quarter estimates for FY 2026-27 and final fourth-quarter estimates for FY 2025-26 across financial, insurance, telecom, railway and air-passenger services. Latest quarterly data show negative year-on-year inflation for securities transaction and banking services, while banking service contribution, pension-fund management, insurance, telecom and railway services record positive inflation. Aggregate weights are not assigned because the covered services do not represent the entire service sector; sub-service weights are used to derive service-level PPIs.
August 24, 2026
Show AI Summary
Food safety cooperation supports imported-food quality information exchange and technical collaboration within broader bilateral economic and trade engagement.
India-Morocco economic cooperation is being advanced through discussions on trade diversification, market access, investment, industrial cooperation, customs, agriculture, food safety, energy, digital transformation and logistics. A proposed food safety Memorandum of Understanding would support exchanges on imported-food safety and quality, testing laboratories, analytical methods, import procedures, quality control, sampling, testing, packaging and labelling. Proposed cultural cooperation would promote professional exchanges, heritage conservation and institutional linkages.
August 24, 2026
Show AI Summary
Foreign-exchange market conditions pressured the rupee as dollar strength, crude concerns and geopolitical uncertainty shaped narrow USD/INR trading.
Foreign-exchange market conditions led the rupee to close marginally lower against the US dollar after reversing initial gains. The USD/INR pair traded within a narrow range amid a stronger dollar index, weak domestic equity markets, importer demand, crude-oil concerns and geopolitical uncertainty. Market commentary indicated a slight negative bias for the rupee, although possible US-dollar weakness could provide support at lower levels. India's foreign-exchange reserves increased during the referenced reporting week.
August 24, 2026
Show AI Summary
Branch expansion for wealth and cross-border banking services targets emerging commercial centres and affluent customer segments across India.
HSBC India's branch expansion is directed at extending wealth, international banking, and corporate banking services to affluent, high-net-worth, ultra-high-net-worth, and non-resident Indian customers in emerging commercial centres. The Nashik opening forms part of a broader branch-expansion programme undertaken after Reserve Bank of India approval to establish additional branches in key cities. The programme is intended to expand delivery of banking and financial services, including support for cross-border wealth management, overseas investment by Indian companies, and foreign investment into India.
August 24, 2026
Show AI Summary
Bilateral trade and investment cooperation advances through business engagement in high-technology manufacturing, clean energy, innovation and industrial collaboration.
India's commerce and industry engagement with Japan is structured around a business delegation visit to deepen bilateral trade, investment, technology and industrial collaboration. Sector-focused discussions cover semiconductors, artificial intelligence, start-ups, automotive manufacturing, steel, electronics, industrial and consumer markets. Business roadshows and investor interactions are directed at presenting opportunities in India's manufacturing, clean-energy and consumer sectors, while advancing cooperation in high-technology manufacturing and next-generation industries.
August 24, 2026
Show AI Summary
Inter-state heroin trafficking enforcement uncovered concealed narcotics in transport vehicles, triggering arrests, confiscation, and continuing supply-chain investigations.
Operation Black Hawk targeted an alleged inter-state heroin trafficking network moving crude heroin from the North-East region towards Uttar Pradesh. Intelligence-led vehicle tracking and highway interceptions resulted in the seizure of over 18.6 kg of crude heroin and the arrest of three suspected network members under the Narcotic Drugs and Psychotropic Substances Act, 1985. The narcotics were detected in specially fabricated concealed compartments within a passenger vehicle fuel tank and a heavy commercial vehicle body frame. Both vehicles and the contraband were confiscated, while financial and logistical investigations continue into suppliers and distribution channels.
August 24, 2026
Show AI Summary
Five-day banking and uniform performance incentives drive proposed bank union action over unresolved pension and employment demands.
Banking labour relations are affected by proposed nationwide industrial action over five-day banking, performance-linked incentives, and pension-related demands. Five-day banking remains pending despite a bipartite arrangement for extended weekday hours. Unions dispute an incentive scheme that differentiates awards by seniority and individual performance, contending that it departs from bank-level performance linkage and uniformity across cadres. They also allege that implementation during pending conciliation breaches a status quo obligation, while pension revision, uniform dearness allowance, and a pension-scheme switch option remain unresolved.
August 24, 2026
Show AI Summary
Free trade agreement strategy expands preferential market access and supports India's integration into global value chains and investment partnerships.
India's free trade agreement strategy seeks to expand preferential market access and integrate the country into global value chains as a trusted trading partner. Negotiations with additional country groups and individual nations are intended to extend agreement coverage to a substantial share of global trade. Investment opportunities are identified in data centres, manufacturing and artificial intelligence, alongside an objective of developing more balanced trade relations between India and Japan.
August 24, 2026
Show AI Summary
Foreign exchange market conditions supported rupee appreciation, but crude prices, importer demand and geopolitical sanctions concerns limited gains.
Foreign exchange market conditions supported a modest early appreciation of the rupee against the US dollar due to relative dollar softness. The gain was limited by elevated crude oil prices, importer demand for dollars, and caution over anticipated sanctions affecting Iranian oil trade, banking networks and shipping routes. Currency markets remained sensitive to geopolitical uncertainty and possible wider trade effects.
August 23, 2026
Show AI Summary
Undeclared gold importation led to customs interception, seizure, arrest and continuing investigation after concealment inside passenger clothing.
Customs enforcement against undeclared gold importation involved interception of a passenger arriving from Sharjah at Ahmedabad airport following passenger profiling. A gold chain concealed inside clothing was recovered after it was not declared for customs purposes. The chain was seized and the passenger was arrested under the Customs Act, 1962, before being released on bail, with further investigation continuing.
August 23, 2026
Show AI Summary
Digital arrest cyber fraud used impersonation, forged notices and coercive video calls to obtain transfers through mule accounts.
Digital arrest cyber fraud allegedly used impersonation of law-enforcement and central banking officials, fabricated notices, threats of arrest and continuous video communications to coerce a retired railway employee into disclosing financial details and transferring funds for purported verification. The alleged proceeds were routed through mule and shell accounts. Banking records, KYC details, digital evidence and transaction trails allegedly connected a recipient account with suspicious transactions and multiple cyber-fraud cases; part of the cheated amount was recovered or refunded.
August 23, 2026
Show AI Summary
Political targeting allegations challenge money-laundering enforcement actions, searches, questioning, and public disclosures in the CMRL investigation.
CPI(M) alleges that enforcement action under the Prevention of Money Laundering Act in the CMRL matter is politically motivated targeting of Pinarayi Vijayan, family members and party associates. It contends that searches, questioning and public communications during the investigation were used to create suspicion without incriminating evidence, and characterises references to hawala as a new investigative narrative. The party also alleges selective anti-money-laundering enforcement against opposition leaders and states that the company will address the CMRL-related matter.
August 23, 2026
Show AI Summary
Money-laundering investigation into alleged liquor transport irregularities results in arrests connected with claimed loss to the government exchequer.
Money-laundering proceedings concerning alleged financial irregularities in liquor transport led to the arrest of former Andhra Pradesh minister Karumuri Nageswara Rao under the Prevention of Money Laundering Act. The inquiry concerns alleged wrongful loss to the government exchequer arising from liquor-transport operations. Investigative measures included raids and the arrest of Rao's son, along with arrests of a former state beverages corporation managing director and the person described as the principal accused.
August 23, 2026
Show AI Summary
Alleged LLP record forgery raises cheating, breach of trust and conspiracy concerns over unauthorised partnership interest changes.
Alleged forgery, cheating, criminal breach of trust and conspiracy concern purported unauthorised changes to LLP statutory records filed with the Registrar of Companies. The allegations include use of false documents to remove a nominated partner, substitute another person as partner and transfer a partner's interest in the LLP. The matter also draws attention to separate land-collaboration allegations and delayed possession claims by homebuyers in a halted housing project.
August 23, 2026
Show AI Summary
Voluntary production curtailment addresses polyester yarn cost volatility as weaving units seek customs-duty relief on inputs.
Voluntary production curtailment by weaving units is being adopted in response to increased polyester yarn and related input costs. Units may reduce shifts or observe periodic holidays according to individual commercial feasibility to limit yarn consumption until prices and fabric-market conditions stabilise. Industry representatives allege that yarn-price increases exceed corresponding input-cost movements and seek examination of possible artificial pricing, along with customs-duty relief on yarn and relevant inputs.
August 22, 2026
Show AI Summary
Retaliatory tariffs escalate trade restrictions as historic tariff authority enables duties without prior investigation or a prescribed duration.
Retaliatory tariffs are set to escalate bilateral trade restrictions after the United States imposed tariffs of up to 50 per cent on specified Canadian imports. Canada proposes dollar-for-dollar countermeasures covering sectors including steel, dairy, appliances, agricultural equipment, pulp and paper and electronics. Section 338 of the Tariff Act of 1930 is invoked as the legal basis for the United States measures, permitting presidential import duties up to 50 per cent without a prior investigation or prescribed maximum duration. Escalation creates uncertainty for supply chains and renewal of the United States-Mexico-Canada Agreement.
August 22, 2026
Show AI Summary
Reciprocal tariffs reshape Canada-United States trade relations, increasing supply-chain risks and accelerating Canadian trade diversification beyond its primary export market.
Canada-United States trade relations are described as entering a confrontational phase after tariff negotiations collapsed. The United States imposed tariffs on specified Canadian goods, while Canada committed to reciprocal import taxes and suspended negotiations. The dispute marks a retreat from preferential market access and continental integration. Canada's export dependence on the United States may limit retaliation and increase risks to output, employment, investment and integrated supply chains. Trade diversification, non-United States investment and expanded Pacific export infrastructure are identified as responses to a potentially enduring protectionist bilateral relationship.
August 22, 2026
Show AI Summary
Retaliatory tariffs on United States goods will target key sectors after trade negotiations failed and reciprocal tariff relief was unavailable.
Retaliatory tariffs on United States goods will take effect from 8 September in response to United States tariffs on Canadian products and unsuccessful negotiations. The dollar-for-dollar measures will cover steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics, with product-specific details to follow. Canada had been willing to remove certain retaliatory tariffs if corresponding United States tariffs were substantially reduced, but considered the final demands unacceptable.

News

Back

All News

Showing Results for :
Reset Filters
No Records Found

News

Back

All News

Showing Results for : Reset Filters

India’s Capital Account Management – An assessment (Speech delivered by Shri T Rabi Sankar, Deputy Governor, Reserve Bank of India – October 14, 2021- at the Fifth Foreign Exchange Dealers’ Association of India (FEDAI) Annual Day)

October 16, 2021

Contents
Acts
Summary
Note

Note

-

Bookmark

Print

Print

1. In the previous FEDAI Annual Day address in November 2020, Governor Shri Shaktikanta Das had observed that CAC will continue to be approached “as a process rather than an event”. What I will do in this address is to expand on that theme and bring into focus some of the important issues on which, in my opinion, further public debate is warranted, to continue along this process of capital account convertibility.

What is capital account convertibility?

2. The balance of payments (BOP) of a country records all economic transactions of a country (that is, of its individuals, businesses and governments) with the rest of the world during a defined period, usually one year. These transactions are broadly divided into two heads – current account and capital account. The current account covers exports and imports of goods and services, factor income and unilateral transfers. The capital account records the net change in foreign assets and liabilities held buy a country. Convertibility refers to the ability to convert domestic currency into foreign currencies and vice versa to make payments for balance of payments transactions. Current account convertibility is the ability or freedom to convert domestic currency for current account transactions while capital account convertibility is the ability or freedom to convert domestic currency for capital account transactions. The Tarapore Committee (2006), for instance, defined capital account convertibility as the “freedom to convert local financial assets into foreign financial assets and vice versa.”

3. The degree of BOP convertibility of a country usually depends on the level of its economic development and degree of maturity of its financial markets. Therefore, advanced economies (AEs) are almost fully convertible while emerging market economies (EMEs) are convertible to different degrees.

Why is capital account convertibility important?

4. Free capital mobility, or internationalization of capital markets, is commonly recognized as an engine of global growth. Specifically, benefits of internationalization of capital markets are well accepted, in terms of broadening the investor base for recipient country financial assets, improved liquidity in financial markets and positive pressures for market infrastructure and market practices. International capital markets, by enabling access to a global savings pool and to different currencies, can potentially reduce borrowing costs, facilitate better risk allocation and enhance global liquidity (OECD, 2017)2.

What are the risks of free capital mobility and how are these risks managed?

5. The various currency and banking crises experienced over the last few decades have simultaneously highlighted the costs and risks of internationalization such as exposure to global shocks, credit and asset bubbles, exchange rate volatility associated with sudden exit of capital and higher refinancing risk. Increased globalization has brought to the fore the vulnerability to contagion effects. While it was argued that such risks are the short-term pains needed to reap long term gains (Kaminsky and others, 2008)3, there is now a wider acceptance that benefits of internationalization are not an unmixed blessing and that there is a nuanced trade off between growth and crisis risk. Such awareness has led to policy focus on three fronts.

a. First, that benefits of internationalization presupposes sound macroeconomic fundamentals, a well developed financial system and a sound market infrastructure, including efficient markets for funding and risk transfer.

b. Second, that countries need to develop appropriate tools to deal with the risks of internationalization, in particular, tools to manage the volume and composition of capital inflows and macro prudential tools.

c. And third, that different types of capital flows carry different risks – some are riskier than others. The agreed hierarchy of capital flows is that foreign direct investment is the least risky, followed by equity investment, followed by debt capital. While FDI is seen to contribute to long-run growth, portfolio equity gives a shorter run boost. Debt flows, while necessary, are susceptible to be volatile. Understandably, the focus of capital flow regulations, and macro-prudential regulations, has been debt flows.

6. Capital flow measures are effective insofar as they lead to safer external liability structures, by reducing dependence on foreign borrowing and could be particularly effective during sudden-stop episodes. They work essentially by avoiding risky flows or containing short-term debt or controlling currency exposure of domestic borrowers. Especially for economies where capital flows are relatively large, or the exposure of banking systems is significant, these measures could be more effective than macro prudential tools.

7. Macro prudential measures target systemic stability issues and tend to be capital based or liquidity based or borrower based. Capital based measures like counter cyclical capital buffers or higher-than-standard capital requirements or calibration of capital risk weights intended to change incentives for certain types of funding are commonly used. Liquidity Coverage Ratio or Net Stable Funding Ratio can be used to manage exposure to short term flows. Similarly, credit or asset bubbles can be controlled using Loan-to-Value ratio or Debt Service-to-Income ratios.

8. There is extensive global discussion on the choice and effectiveness of these tools to deal with specific vulnerabilities. There is reasonable consensus that none of these measures is undesirable in itself. There is also broad agreement on the sequencing of these measures. That the first line of defence against risks of capital flows are prudent macroeconomic policies and a strong institutional base. External borrowing should be controlled until corporate governance and supervisory standards are robust.

9. Not all emerging economies, however, may have this choice, and may be constrained to depend on capital flows, either to meet their investment needs or to develop financial markets. For many of these countries, the required development of policy and markets has to happen simultaneously with dependence on foreign capital. Often, there is only a limited choice on the type of capital that flows in, leading to dependence on risky debt capital. Managing these flows with a not-so-efficient domestic institutional base requires policy flexibility. Usually, managing the spillover risks of global capital involves a combination of these and macro prudential measures. Building up reserves has been an acceptable course, especially after the Asian crisis. Having some control on the amount of debt capital as well as on its nature is another defence. Long-term debt flows could be preferred to short-term flows, stable investors (pension or insurance funds, reserve portfolios) could be preferred to flighty investors such as carry traders, arbitrage traders etc. In a sense capital flow measures may really be used to compensate for lack of strong macro-fundamentals and adjustment mechanisms (Fratzscher, 2012)4.

10. Thus, capital flows are useful, and in case of many EMEs, even necessary. The choice is in how to manage the attendant risks. Effective management of these risks, especially those associated with debt flows, requires a diversified policy tool-kit. Which of these is used is basically a function of the degree of development of the economy and markets of the country.

Capital flow management in India

11. External sector liberalisation started in India with the economic liberalisation process that commenced in the early nineties – moving to a a floating exchange rate regime and freeing up current account transactions. The enactment of the Foreign Exchange Management Act, 1999 codified this arrangement with relatively free current account transactions (except for a negative list) and controlled capital account transactions. Liberalisation in this context basically meant gradually freeing up capital account transactions. Over the last two decades, FDI has become more or less unrestricted except (i) for some sectoral caps and (ii) restrictions in a few socially sensitive (e.g., gambling) or volatile (e.g., real estate) or strategic (e.g., atomic energy) sectors.

12. The policy regime for foreign portfolio investments in India commenced in 1992 when Foreign Institutional Investors (FIIs, or, since January 2014, FPIs) were allowed to invest in domestic financial instruments, basically equity. FPIs were given access to corporate debt markets in 1995 and to G-secs in 1997. Thus, the FPI regime has followed the standard process of liberalising equity flows first and then gradually freeing up debt capital. Apart from sectoral caps to regulate control, portfolio flows into equities in India are virtually unrestricted. Access to debt markets - sovereign and corporate - is subject to macro caps and other macroprudential limits. These are designed to safeguard the domestic economy from excessively speculative hot money flows.

13. There is an effort to liberalize FPI debt flows further with the introduction of the Fully Accessible Route (FAR) which places no limit on non-resident investment in specified benchmark securities. Since over time, virtually all securities will fall under the FAR category, the move is unambiguously towards an eventual unfettered access for non-residents into Government securities. Efforts to get India included under global bond indexes and the complementary move towards placing G-secs under global custodians, once implemented, will encourage debt flows in future.

14. The first comprehensive guidelines on External Commercial Borrowing (ECB) were issued by Government, in July 1999. It has been liberalised over time. Currently, ECB by corporates, while more open than portfolio flows, seeks to enable medium to long term debt (minimum tenor) only healthy corporates to borrow (through cost ceilings) subject to an overall soft limit. A few “end uses” – real estate, capital market, equity - are not permitted.

15. Chart 1 (see Annex for all charts) shows that the actual flows of capital have been broadly in the desirable direction with direct investments (FDI flows) outstripping portfolio investments (FPI flows) and equity flows (FDI plus FPI equity5) outstripping debt flows (FPI Debt plus ECB). The gradual liberalization of capital inflows has been consistent with the realization of the preferred composition of capital inflows.

16. The focus on capital outflows has understandably been far less given that India’s priority is to attract foreign capital to fund its savings gap. There is basically one channel – Overseas Direct Investment (ODI). The Liberalized Remittance Scheme (LRS) for individuals, while it is open for both current and capital account transactions, is largely (more than 90%) in current account transactions like travel, studies etc.

Issues for wider debate

17. While the progress so far can be considered to have moved broadly along the desirable direction, there are some issues which require a wider debate as there are no standard answers. We will discuss some of these issues below.

a. With the Fully Accessible Route, as discussed above, over time the entire G-sec issuance would be eligible for non-resident investment. While experience of other countries suggest that non-residents are unlikely to hold a major portion of outstanding stock, substantial debt holdings might make India vulnerable to the risk of sudden reversals. Since this channel was permitted in the context of inclusion of India’s G-secs in global bond indices, there is a natural safety mechanism as index investors are unlikely to indulge in sudden reversals. It may need to be considered, from a macroprudential perspective, whether FAR should be linked to index inclusion.

b. As the LRS Scheme has operated for some time, there may be a need to review it keeping in mind the changing requirements such as higher education for the youth, requirement of start-ups etc. There might even be a case for reviewing whether the limit can remain uniform or can be linked to some economic variable for individuals.

c. A key aspect of currency convertibility is integration of financial markets. Over time, it is essential that two markets – onshore and offshore - for domestic currency or interest rates cannot exist with efficiency. With increased convertibility, these markets need to be linked. An effort has already commenced in the interest rate derivative segment. Allowing Indian banks access to NDF markets for the Rupee is also consistent with this objective. As G-secs get held by global custodians and traded abroad more and more non-residents get to hold Rupee assets and take Rupee exposure. These measures are already seeing the desired results - for instance, NDF-onshore spreads have substantially narrowed after allowing Indian banks into the NDF space (Chart 2, see Annex). We need to now consider whether India is ready to allow such non-residents to hold Rupee accounts. This will be an important early step in internationalization of the Rupee and, therefore, needs to be carefully considered. Further, there is a need to consider a proper mechanism for information flow so that exchange and interest rate management can continue to be effective in an environment of larger offshore transactions.

d. As onshore and offshore financial markets get integrated, it should be ensured that price discovery in the domestic markets is efficient lest flows move to the offshore segment. Take the case of the Rupee exchange rate. It is market determined with fairly tight bid-ask spreads in the interbank market. Major corporates also seem to benefit from tight pricing. Yet many entities, especially SMEs, small exporters, individuals, etc., are prone to over-pricing. Do processing charges and market risk for warehousing odd lot positions justify these spreads? An effective way is to shift price discovery for the retail forex users to a platform. While such a platform (FX Retail) has been developed, it appears that banks do not find it in their interest to navigate customers to use that platform. In this age of technology, it may not really be possible to shun superior technology for any length of time. There should be a debate on the use of the platform and banks should make an effort to give it a fair trial.

Conclusion

18. India has come a long way in achieving increasing levels of convertibility on the capital account. It has broadly achieved the desired outcome for the policy choices it has made, in terms of achieving a stable composition of foreign capital inflow. At the same time, India is on the cusp of some fundamental shifts in this space with increased market integration in the offing and freer non-resident access to debt on the table. The rate of change in capital convertibility will only increase with each of these and similar measures. With that comes the responsibility to ensure that such flows are managed effectively with the right combination of capital flow measures, macro-prudential measures and market intervention. All of us need to consider deeply the issues I have highlighted above and arrive at effective solutions. Market participants, particularly banks, will have to prepare themselves to manage the business process changes and the global risks associated with capital convertibility. The regulator’s job is somewhat different. As someone once said, the job of a regulator is like the gas regulator in the kitchen - it cannot ensure the quality of the dish, but it can prevent the kitchen from blowing up. The quality of the dish – that is, the efficiency with which investment needs of the country are met - is up to how well Authorized Dealers and other intermediaries adjust to the increasingly fuller capital account convertibility.

Annex - Charts

Chart 1

Chart 2

----

1 Speech delivered by Deputy Governor Shri T Rabi Sankar on the Fifth Foreign Exchange Dealers’ Association of India (FEDAI) Annual Day on October 14th, 2021. It was delivered via virtual platform.

2 OECD (2017), Open and Orderly Capital Movements: Interventions from the 2016 OECD High-Level Seminar.

3 Kaminsky Graciela Laura and Sergio L. Schmukler: Short-Run Pain, Long-Run Gain: Financial Liberalization and Stock Market Cycles, review of Finance, 2008

4 Fratzscher, Marcel: Capital Controls and Foreign Exchange Policy, Working Paper Series, European Central bank, February 2012.

5 FPI flows into equity over the 15-year period (2006-07 to 2020-21) accounts for 73% of total FPI inflows, while flows into debt account for the remaining 27%.

Topics

Acts Income Tax