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
    Cyber fraudsters invent 'boss' scam to target companies; Ahmedabad cops bust international network
    Personal Loan Prepayment Charges: What RBI Rules Say in 2026
    Zeeba Revamps Packaging and Announces Chef Vikas Khanna as Its Global Brand Ambassador
    Paul Merchants Finance Launches Loan Against Silver, Becomes India’s First NBFC to Set Up Exclusive Silver Loan Branches
    CarePass Launches This Independence Day, Bringing Healthcare Savings Across India's Top and Premium Hospitals
    Keralam CM flags off containers from Vizhinjam, marking start of EXIM operations
    Kerala: Fresh ED raids in CMRL-Exalogic Solutions case
    ED raids KPSC office, ex-chairman in veterinary officers hiring 'scam' case
    Keralam CM reviews operational preparedness at Vizhinjam port
    Union Minister for Finance and Corporate Affairs Smt. Nirmala Sitharaman chairs 3rd Meeting of Apex Monitoring Authority of NICDIT and reviews the pro...
    NBCC moves SC for RERA exemptions to complete 16 stalled Supertech projects
    DFS Hosts PSB Confluence 2026: Day 1 Deliberations focus on Four themes- Deposit Mobilisation, Banking for Youth, Supporting the Investment Cycle and ...
    Govt to soon announce high-level panel on 'Banking for Viksit Bharat': FM
    Rupee falls 19 paise to close at 95.61 against US dollar
    Govt to soon announce high-level panel on 'Banking for Viksit Bharat'
    Union Minister of Finance and Corporate Affairs interacts with interns from PM Internship Scheme in New Delhi
    DRI uncovers large-scale illegal use of SAFTA agreement in areca imports
    Rupee falls 17 paise to 95.59 against US dollar in early trade
    Colombian president asks Trump to suspend tariffs to help earthquake recovery
    Mission Samudra to be launched alongside Vizhinjam’s EXIM operations
❯❯
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 18, 2026
Show AI Summary
Boss scam prevention requires independent verification of payment requests and avoidance of malicious WhatsApp attachments that enable executive impersonation.
Boss scam, or CEO impersonation fraud, uses malicious WhatsApp attachments and impersonation of regulatory officials or company executives to obtain control of WhatsApp sessions and issue fraudulent payment instructions. The alleged network supplied SIM cards, dummy SIMs, WhatsApp accounts and one-time passwords to cyber-fraud operators, illustrating a Cybercrime as a Service model. Preventive measures include avoiding suspicious ZIP, executable, library and APK files and independently verifying all financial-transfer requests.
August 18, 2026
Show AI Summary
Floating-rate personal loan prepayment protections prohibit charges and compulsory lock-ins for qualifying individual non-business borrowers from 2026.
Prepayment charges are prohibited for part or full repayment of qualifying floating-rate loans availed by individual borrowers for non-business purposes and sanctioned or renewed on or after 1 January 2026. Compulsory lock-in periods cannot restrict prepayment of such loans. Fixed-rate personal loans may still attract prepayment or foreclosure charges under lender policy and contractual terms. Borrowers should check the loan's rate type, sanction letter, loan agreement and key fact statement, where applicable, and compare applicable charges with potential interest savings before early repayment.
August 18, 2026
Show AI Summary
Premium Basmati rice positioning drives Zeeba's packaging refresh and ambassador-led campaign focused on quality, authenticity and domestic expansion.
Zeeba has refreshed its packaging and appointed Chef Vikas Khanna as global brand ambassador to support expansion in India. Its "Aisa Basmati Nahi Dekha" campaign positions the brand around export-quality Basmati rice, consistency, authenticity and a superior culinary experience. Promotional activity will extend across digital, retail and consumer touchpoints. The premium Basmati range is described as carefully sourced, naturally aged and processed according to global quality standards, with emphasis on grain quality, authentic taste, purity and consistency.
August 18, 2026
Show AI Summary
Silver-collateral lending creates a formal secured-credit channel for eligible borrowers, subject to regulatory requirements and lender policies.
Loans against silver collateral have been introduced following the Reserve Bank of India's Lending Against Gold and Silver Collateral Directions, 2025, enabling eligible regulated lenders to accept silver as security. The offering provides a formal and transparent credit channel against eligible silver jewellery, ornaments and approved silver coins. It is intended for individuals, proprietors and MSMEs requiring liquidity for personal, business and other legitimate financial needs, subject to lending policies and applicable regulatory requirements.
August 18, 2026
Show AI Summary
Healthcare discount membership provides instant savings on out-of-pocket care at participating premium providers without insurance claims or paperwork.
CarePass is a healthcare savings membership card providing instant point-of-billing discounts at participating premium healthcare providers across India. It covers out-of-pocket spending on hospital treatment, diagnostics, dental, vision, dermatology, hair and skin care, and IVF and maternity services, without claim processing, waiting periods or paperwork. Members present a digital CarePass at a participating provider to receive the applicable discount. Four membership tiers offer differing benefits, with higher tiers including tele-consultations and annual health checks. CarePass is a discount membership and not an insurance product.
August 18, 2026
Show AI Summary
EXIM operations at Vizhinjam commence with container movement, supported by investor facilitation, infrastructure backing and port-led logistics development.
EXIM operations at Vizhinjam international seaport commenced with the flagging off of two containers after a successful trial export shipment. The state government proposes investor engagement, regulatory facilitation and infrastructure support to expand global export activities through the port. Mission Samudra is to operate as a port-led industrial and logistics development scheme. The deep-water port was developed under a public-private partnership model and had received commercial commissioning certification.
August 18, 2026
Show AI Summary
Money-laundering investigation under PMLA expands through searches into alleged consultancy payments linked to CMRL and Exalogic Solutions.
Money-laundering investigation under the Prevention of Money Laundering Act involves fresh searches connected with Cochin Minerals and Rutile Ltd and Exalogic Solutions. The inquiry concerns alleged fraudulent payments made under the guise of IT consultancy services and a purported money trail involving persons allegedly connected with those transactions. The action follows earlier searches and questioning in relation to the same matter.
August 18, 2026
Show AI Summary
Recruitment examination irregularities trigger money-laundering investigation into alleged bribery, paper leaks, answer-sheet tampering, and preferential veterinary officer selections.
Money-laundering investigation under the Prevention of Money Laundering Act concerns alleged irregularities in veterinary officers' final selection through a public recruitment examination. Searches covered premises linked to commission officials, alleged intermediaries, the digital evaluation entity, and selected candidates. Allegations include bribery demands, examination-paper leakage, OMR answer-sheet tampering, and facilitation of selection for relatives of commission officials.
August 18, 2026
Show AI Summary
Export-import operations advance through operational preparedness review and planned port-led industrial and logistics development initiatives.
Operational preparedness for full land-based export-import operations at Vizhinjam Seaport was reviewed, including the Vehicle Traffic Management System. EXIM cargo operations follow a trial shipment of the port's first export container to Valencia. Mission Samudra is proposed to support port-led industrial and logistics development alongside these operations. The deep-water port was developed through a public-private partnership model and had obtained commercial commissioning certification before its dedication to the nation.
August 18, 2026
Show AI Summary
Industrial corridor development prioritises empowered SPVs, integrated infrastructure and investor-ready parks to accelerate manufacturing investment and operations.
National Industrial Corridor Development Programme implementation prioritises timely infrastructure completion, land allotment, investment mobilisation and commencement of manufacturing. PM GatiShakti-aligned planning requires integrated connectivity, utilities and social infrastructure, while States should resolve land, clearance and SPV-power bottlenecks. BHAVYA proposes investment-ready, plug-and-play industrial parks appraised for ready land, credible demand, connectivity, utilities, realistic phasing and early investor attraction. NICDIT routes Government participation and equity support for BHAVYA project SPVs, and NICDC coordinates implementation and monitoring.
August 17, 2026
Show AI Summary
RERA compliance exemption for stalled housing projects raises whether statutory obligations may be waived to enable phased project completion.
RERA compliance exemption is sought for completion of 16 stalled residential projects by a public sector construction entity appointed under a project-completion arrangement. The appellate insolvency tribunal declined to direct a waiver, considering itself incompetent to exempt compliance with statutory provisions. The arrangement requires phased completion, award and commencement of construction work, and oversight through an apex committee and project-wise committees. The projects remain incomplete owing to the developer's financial crisis.
August 17, 2026
Show AI Summary
Deposit mobilisation and youth banking guide strategies for stronger public financial institutions, investment financing and Global Capability Centre opportunities.
PSB Confluence 2026 considers strategic priorities for Public Sector Banks and Public Financial Institutions across deposit mobilisation, banking for youth, investment-cycle financing and Global Capability Centres. Discussions seek practical, scalable strategies to strengthen customer engagement, youth-responsive banking propositions, institutional financing capabilities and participation in the expanding Global Capability Centre ecosystem. Youth engagement may use the MY Bharat platform to strengthen links with the formal financial system and awareness of education finance, entrepreneurship, internships and financial-sector careers. Further themes include value-chain infrastructure, priority sector lending and credit card business reform.
August 17, 2026
Show AI Summary
Banking-sector reform will guide lender capacity, financial stability, inclusion, consumer protection, deposit growth and responsible credit-card expansion.
Banking-sector reform is proposed through a high-level committee on Banking for Viksit Bharat to review the sector and align it with growth needs while safeguarding financial stability, financial inclusion and consumer protection. Key themes include deposit mobilisation, youth banking, investment support, global capability centres, value-chain infrastructure, credit cards and priority-sector lending. Public-sector banks are expected to improve competitiveness through technology, sectoral expertise, product adaptation and customer-focused deposit growth. Credit-card development must maintain responsible underwriting, customer protection and appropriate risk controls.
August 17, 2026
Show AI Summary
FCNR(B) concessional swap facility availability narrows to timely mobilised deposits amid rupee depreciation and foreign currency inflow concerns.
Foreign-exchange conditions reflected rupee depreciation amid weak domestic equity markets and higher crude oil prices. FCNR(B) concessional swap facility availability is confined to foreign currency deposits mobilised by banks within the revised cut-off period, replacing the previously longer mobilisation window. The facility is intended to encourage foreign currency inflows, while banks use the FCNR(B) scheme to mobilise foreign currency deposits through attractive interest rates.
August 17, 2026
Show AI Summary
Banking sector review panel will align future growth with financial stability, inclusion and consumer protection through government recommendations.
High Level Committee on Banking for Viksit Bharat is proposed to comprehensively review the banking sector and align it with India's next phase of growth. It is intended to safeguard financial stability, financial inclusion and consumer protection, while providing views and recommendations to the Government on banking-sector development and reform.
August 17, 2026
Show AI Summary
Prime Minister Internship Scheme enhances youth employability through paid industry exposure, cross-field learning, workplace readiness and potential full-time employment.
The Prime Minister Internship Scheme provides paid internships with leading companies across India to improve youth employability through practical workplace exposure, industry experience and skills development. It addresses the gap between classroom learning and employers' expectations of workplace readiness. Participation is not confined to academic qualifications, allowing youth to pursue fields of interest and gain hands-on professional learning. Strong internship performance may lead to full-time roles, while the scheme stresses responsible work where errors may affect quality, consumer safety and organisational reputation.
August 17, 2026
Show AI Summary
SAFTA origin fraud in areca imports allegedly enabled improper duty exemption through false Bangladeshi-origin declarations.
SAFTA preferential duty treatment for areca-nut imports was allegedly misused by falsely declaring goods originating in South-East Asian countries as Bangladeshi origin. Since areca nuts normally attract 100% basic customs duty, the scheme sought to obtain the full SAFTA exemption reserved for qualifying Bangladeshi goods meeting Rules of Origin requirements. The alleged mechanism included routing goods through Bangladesh, changing containers and bags, using improperly obtained Certificates of Origin, and facilitating clearance through importers, Customs Brokers and IEC holders. Investigative findings also indicated cash proceeds, hawala channels and dummy entities.
August 17, 2026
Show AI Summary
FCNR(B) concessional swap facility closure may reduce temporary foreign-currency inflow support and heighten rupee weakness concerns.
The Reserve Bank of India restricted its concessional swap facility for FCNR(B) deposits to deposits mobilised by August 31, advancing the earlier cut-off date. The facility was intended to encourage foreign-currency inflows, while banks mobilise such deposits through attractive interest rates. Market commentary indicated that existing inflows may support the rupee in the near term, but the curtailed availability of the facility could reduce this temporary cushion and increase depreciation risk.
August 16, 2026
Show AI Summary
Temporary tariff suspension for earthquake recovery is sought to ease pressure on affected Colombian businesses.
Temporary suspension of high tariffs on Colombian products has been sought to support business recovery following a severe earthquake declared a natural disaster. The request links tariff relief to economic disruption affecting businesses amid extensive destruction, injuries and missing persons. United States emergency assistance has been provided through food, shelter and health supplies, while no response to the tariff-suspension request had been reported.
August 16, 2026
Show AI Summary
Port-led industrial development and direct export operations aim to expand logistics infrastructure, market access and trade connectivity.
Mission Samudra is proposed as a port-led industrial and logistics development programme linked to the commencement of export-import operations at Vizhinjam seaport. It covers industrial clusters, new cities, port connectivity, logistics, development initiatives, programme management and capacity building. Direct export shipments are intended to improve overseas-market access and reduce transit time and logistics costs, particularly for small and medium enterprises. The framework also anticipates growth in warehousing, cold storage, container freight stations and logistics parks, supported by private participation and road and rail connectivity.

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