| The
Reserve Bank takes more steps towards capital account
convertibility |
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Though
a small step towards capital account convertibility,
the Reserve Bank of India (RBI) is slowly but surely
making the dream a reality. The RBI has finally
notified the liberalised remittance scheme, which
allows individuals to send up to US $ 25,000 overseas
a year. A statement issued by the RBI said that
under this facility resident individuals will be
free to acquire and hold immovable property or shares
or any other asset outside India, without prior
RBI approval. |
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All
that is required is that the applicant should
furnish his income tax Permanent Account Number
(PAN) and confirm to the bank that the funds
being remitted are his own.
Individuals
will also be able to open, maintain and hold
foreign currency accounts with a bank outside
India for making remittances under the scheme
without prior approval of RBI. This account
can be used for putting through all transactions
arising from eligible remittances.
This
facility is in addition to those already available
for private and business travel, gift remittances,
donations, studies, medical treatment for
which residents can remit sizeable amounts
in foreign currency. The only pre-condition
is that this facility cannot be used for remittance
for any transaction prohibited or restricted
under the Foreign Exchange Management Act
(FEMA).
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Our Say |
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| With
this new change, an average Indian
citizen can do (albeit up to US
$ 25,000) what, till recently,
only a Foreign Institutional Investor
(FII) or Non-resident Indian (NRI)
was allowed i.e. capital account
convertibility existed only for
NRIs and FIIs. An NRI can open
a foreign currency or a rupee
bank account and freely sell its
properties and securities in India
to take back the money. Similarly,
a portfolio fund manager can enter
the stock and bond market at any
point and pull out whenever he
feels. While all an Indian could
do was park the dollar bills after
a foreign travel in a zero-interest
account.
The
announcement may be driven by
the need to create a demand for
the dollar, which is sliding against
the rupee. Though it is capital
account convertibility in a limited
way, it is a landmark in the exchange
control liberalisation programme.
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While
there is no problem in remitting funds to the developed
world, this facility cannot be used to send funds
to countries identified as non-co-operative, by
the Financial Action Task Force (FATF) - a global
money-laundering watchdog set up by the Organisation
for Economic Co-operation and Development (OECD).
The current list of non-co-operative countries includes
Cook Islands, Egypt, Guatemala, Indonesia, Myanmar,
Nauru, Nigeria, Philippines and Ukraine. Besides
these countries, the RBI has also kept Bhutan, Nepal,
Mauritius and Pakistan outside this facility. |
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| Customs
Departments getting more technology savvy
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Like developed countries, India
is now reducing manual scrutiny and is implementing
a computer-based random cargo (by sea) clearance
system, based on risk management modules (RMMs).
7Customs will henceforth concentrate on shippers
they find suspicious, instead of treating all shippers
at par.
Random
cargo checking, as proposed in the recent mini-budget,
is now being helped by indigenously developed computer
software. The risk management module, currently
on a trial run at Mumbai’s air-cargo complex,
is aimed at tracking down ‘sensitive’
consignments, with the help of existing data and
risk profile of shippers, destinations and type
of cargoes.
According
to senior custom officials, currently up to 50%
of import consignments that are heading to sensitive
areas in the Middle East and Singapore are checked.
But checks are limited to 5-10% on imports to non-sensitive
destinations in the European Union. Generally if
the duty drawback is high, and the consignment is
going to a sensitive destination, then there are
higher chances that customs will scrutinise the
cargo.
The
new system will soon be implemented at all customs
bases with local alterations. Around 95% of customs
documents are now filed online, with the help of
the recently introduced Ice-gate - a net-based documentation
system. The department currently follows a three-tier
system for filing documents. One can do it manually,
or get a floppy to the filing centre, or through
the internet.
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