Entry

Foreign Currency.

Apr 3rd, 2008 01:44
kumar gaurav, http://www.rajasthantravelsguide.com/

Indian Currency is the Indian Rupee (Re/Rs). Since you are not allowed
to bring in Indian currency, your best option is the airport bank.
Indian Rupee notes are printed in denominations of Rs 1000, 500, 100,
50, 20, and 10. The Rupee is divided into 100 Paise.
Foreign Currency account for residents in India made its debut as a
facility for non-resident Indians who had returned home for good. At
that time, they were entitled to buy from a bank, over a period of ten
years, half the foreign exchange they brought back with them to India
when they came back on permanent return. Later, this facility, called
the Returning Indians Foreign Exchange Entitlement Scheme (RIFEES)
underwent a few changes and morphed into the Resident Foreign Currency
Account (RFC). Instead of being entitled to buy the foreign exchange
they had brought back with them, returnees were allowed to hold it in a
foreign currency account in India. Money in the bank obviously was a
source of greater comfort than a document conferring the entitlement to
buy forex!
A resident can have an RFC account in his name, with an authorised
dealer in India, provided it is funded out of foreign exchange
repatriated from abroad by conversion of foreign assets earned when he
was a non- resident. Pension and other payments received from the
overseas employer as well as proceeds of gifts or overseas assets
received or inherited from a non-resident can also be held in this
account. The funds in RFC accounts can be used for any purpose,
including investment abroad.
The next significant development was a facility for those who earn
foreign exchange for the country, appropriately called the Exchange
Earner's Foreign Currency Account (EEFC) Scheme. Those who earn foreign
exchange are allowed to keep a part, ranging from 50 to 100 per cent, in
foreign currency in these accounts. Capital receipts and remittances
received due to any undertaking given to the Reserve Bank are not
considered eligible for credit to EEFC accounts.
EEFC account holders can freely remit the funds in these accounts to
make current payments to people and companies abroad. Residents can pay
other residents for goods or services in foreign exchange from EEFC
accounts. Exporters can lend forex up to $3 million, from EEFC funds to
importer customers and credit repayments to the accounts. EEFC money can
be used to prepay external commercial borrowing and for investments
abroad subject to some conditions.
New scheme
The latest arrival on the scene is the Resident Foreign Currency
(Domestic) Account, which can be held by residents as current accounts
in foreign currencies. This initially caused some excitement in some
circles as people envisaged themselves opening and funding these
accounts with foreign currencies bought in the market as part of a
hedging or investment strategy. A quick reading of the circular sent
their hopes crashing as it was clear that only foreign exchange notes
and travellers cheques received as honorarium or gift or for services
rendered to non-residents and legally acquired for travel abroad and
brought back unspent can be kept in this account.
Funds in the RFC (Domestic) Account can be used to pay for any
transaction that is permitted under existing foreign exchange
regulations. Like in the case of EEFC accounts, one can draw cheques on
these accounts but the bank cannot pay interest on balances. For some
time now, forex that is eligible to be credited to these accounts could,
be retained with residents as notes and travellers cheques up to a limit
of $2000; the present facility is in addition to the earlier one. Though
there are no ceilings on the balances that can be kept in these
accounts, considering the limited sources of credit, these may not be
too large.
Little advantage
This step toward further liberalisation may not have a significant
impact on everyday life. At a time when one needed a permit from the
Reserve Bank of India for the smallest of foreign exchange needs, the
entitlement for holiday travel was $100 once in three years and getting
caught with a few dollar notes in your pocket could mean a grilling from
the Enforcement Directorate, a foreign currency account would have been
a wonderful thing. Now, in an environment where foreign exchange for
most needs is easily available, there seems to be little advantage in
keeping foreign currency RFCD accounts, except some small saving on
exchange conversion costs.
For one thing, it does not make sense to keep funds in non-interest
bearing foreign currency accounts when they can be converted into rupees
and gainfully deployed. As and when one needs forex for any legitimate
purpose one can just buy it from the bank. Secondly, the rupee has
recently been showing a strength that seems to have considerably reduced
the possibility of making exchange gains by holding foreign currencies.
However, a few people may find the facility useful. For example, someone
who finds that $10,000 per person is not enough for a planned holiday
can economise on one year's holiday, bank the unspent amount and use it
for the next year's vacation.
While welcoming a regulatory relaxation, one wonders why the Reserve
Bank frowns on banks paying interest on funds in these and EEFC
accounts. The prevailing comparatively low rates of interest and the
need for the domestic currency for day-to-day needs will ensure that
balances in these accounts are never too large. The interest on these
balances, if allowed to be paid, will also be correspondingly low. May
be we will soon see a day when foreign currency accounts can be credited
with funds from more sources than those now allowed.
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