Indians can hedge abroad

Taking a further step towards liberalising the capital account, the Reserve Bank of India (RBI) said in a circular that Indians who have overseas direct investments may be permitted to hedge the exchange risk by entering into forward/option contracts with authorised dealers.

But this cover will be subject to verification of such exposure and provided that the contracts are completed by delivery or rolled over on the due date.

The government has already allowed Indian residents to invest in shares of companies listed abroad. This is limited to shares of those foreign entities which have subsidiaries in India.

Returning non-resident Indians (NRIs) are also allowed to maintain their global investments provided they pay tax on their world income. Earlier their status of 'resident, but not ordinary resident' was for a period of seven years.

During this period, they were not supposed to disclose their investments or pay tax on it. This time period was been reduced to two years on their return, after this years Union Budget was introduced.

With the rupee strengthening against the greenback, the fluctuation in the exchange rate calls for hedging of overseas investments.

The rupee closed at 45.5575, against 46.00 a couple of months ago.

The RBI circular further pointed out that if a hedge becomes naked in part or full owing to shrinking of the market value of the overseas direct investment, the hedge may continue to the original maturity.