Mint Road to assess impact of forex liberalisation moves

It's consolidation time for the foreign exchange market, with the Reserve Bank of India (RBI) deciding to review the impact of liberalisation measures.

According to banking industry sources, the RBI is in the process of tightening the forex activity monitoring system in banks and other related entities.

This is a shift in stance. Earlier, Mint Road was for continuous liberalisation of the forex businesses and delegating the function of monitoring to the banks themselves.

From now onwards, data on various forex operations would be called from the banks at periodic intervals to check how the liberalisation norms are being implemented. The RBI will also check whether there is any discrepancy in adopting the norms.

The data sought will also feature major import and export transactions, specifically gold, trade credit and external commercial borrowings syndicated by the banks.

The RBI has been liberalising current account transactions gradually in line with the capital account liberalisation policy. However, before embarking into the relaxations further, it was thought necessary to take a stock of the relaxations given so far, said banking sources.

Moreover, the committee on audit of customer service headed by former deputy governor S S Tarapore made a string of recommendations to simplify foreign exchange transactions "" both in documentation and procedures.

The review will also take into account those recommendations. In fact, there was one proposal to put a sunset clause over all the forthcoming current account and capital account liberalisations to be announced for individuals as part of its foreign exchange policy.

This is in line with the Tarapore Committee recommendation to review the $25,000 investment norm for individuals to spend abroad annually.

The Sunset Clause will require all such liberalisations to be valid up to a year, beyond which it should be treated as a lapse if no further notification comes.

At present, all such liberalisation norms announced by the central bank are open ended with no such clause for annual review.