RBI Amends FEMA
The Reserve Bank of India (RBI) has introduced key amendments to the Foreign Exchange Management Act (FEMA), 1999, in consultation with the Central Government. These changes aim to increase cross-border trade in INR and local currencies, making global transactions smoother and strengthening India’s position in international trade settlements.
RBI’s Initiatives for INR-Based Trade
Special Rupee Vostro Account (SRVA) for Cross-Border Trade
- Introduced in July 2022, the SRVA framework allows INR-based settlements.
- Encourages direct trade without relying on foreign currencies like USD.
MoUs with UAE, Indonesia, and Maldives
- The RBI signed MoUs with central banks of the UAE, Indonesia, and Maldives.
- Facilitates cross-border trade using local currencies, reducing forex dependency.
Revised FEMA Regulations (December 2023)
- Allows transactions in all foreign currencies, including local currencies of trading partner countries and INR.
- Expands the scope of INR-based transactions globally.
Key Amendments Under the New FEMA Regulations
Opening INR Accounts for Overseas Residents
Overseas AD Banks Can Now Open INR Accounts
- Overseas branches of Authorized Dealer (AD) Banks can now open INR accounts for persons residing outside India.
- These accounts facilitate permissible Current Account and Capital Account transactions with Indian residents.
Expanded Use of Repatriable INR Accounts for Trade & Investments
Cross-Border Transactions in INR Accounts
- Non-residents can settle bona fide transactions with other non-residents using repatriable INR balances.
- This applies to Special Non-Resident Rupee (SNRR) accounts and Special Rupee Vostro Accounts (SRVA).
Foreign Investments via INR Balances
- Non-residents can use INR balances to make Foreign Direct Investment (FDI) in non-debt instruments.
- Strengthens India’s financial markets and encourages global investors.
Accounts in Foreign Currencies for Indian Exporters
- Indian exporters can now open foreign currency accounts overseas.
- These accounts can be used for:
- Receiving export proceeds
- Paying for imports using export earnings
Expected Impact of FEMA Amendments on Cross-Border Trade
- Enhances INR usage for global trade settlements.
- Increases ease of doing business for Indian exporters & importers.
- Strengthens economic ties with trading partner countries.
These FEMA amendments mark a significant step in reducing forex dependency and promoting INR in international trade. The RBI’s regulatory changes will help simplify cross-border transactions and make India a stronger player in the global financial system.
