Forex management norms liberalised

MONETARY POLICY MID-TERM REVIEW 2006-07/ CONVERTIBILITY ROADMAP

In order to boost trade and commerce, the RBI has liberalised foreign exchange management norms for importers and exporters.

In its mid term review of monetary policy, the RBI has allowed the importers to book forward contract for their custom duty component of imports.

Forward contract is a hedging tool where the importers can book dollars or any other foreign currency for a future date at a fixed rate today so as to avoid risks arising out of foreign exchange fluctuations.

Moreover foreign institutional investors (FIIs) are allowed to cancel and rebook part of their forward contracts ( 25 per cent ) provided such contracts are supported by underlying foreign exchange exposures. This has been allowed to help FIIs cover their currency risk while investing in Indian capital markets.

Earlier foreign institutional investors could not rebook cancelled contracts, albeit they could roll over the contracts on or before maturity.

In a similar move , the limit for booking forward contracts by importers and exporters, not on delivery basis but on the basis of past performance, has been hiked from 25 per cent to 50 per cent.

The cap of 50 per cent is to be determined either on the basis of declaration of the total exposure of imports and exports or past performance up to the average of previous three financial years' actual turnover, whichever is higher.