The Reserve Bank of India (RBI) seal is pictured on a gate outside the RBI headquarters in Mumbai.File
| Photo Credit: Reuters

The Reserve Bank of India (RBI) in a notification issued on Wednesday evening allowed resident individuals to open Foreign Currency Account (FCA) in International Financial Services Centres (IFSCs) at GIFT City in Gujarat under the Liberalised Remittance Scheme (LRS).

“On a review, it has been decided that Authorised Persons may facilitate remittances for all permissible purposes under LRS to IFSCs for availing financial services or financial products as per the International Financial Services Centres Authority Act, 2019 within IFSCs; and all current or capital account transactions, in any other foreign jurisdiction (other than IFSCs) through an FCA held in IFSCs,” the RBI said in the notification.

“Authorised Persons shall bring the contents of this circular to the notice of their constituents and customers,” it added.

Authorised persons are those authorised by the RBI to provide forex services such as banks and specific FX dealers as such transactions will be routed through the banking system.

Currently remittances under LRS to IFSCs are permitted only for making investments in IFSCs in securities except those issued by entities/companies resident in India (outside IFSC); and for payment of fees for education to foreign universities or foreign institutions in IFSCs for pursuing courses mentioned in the gazette notification no. SO 2374(E) dated May 23, 2022, issued by the Central Government.

“For these permissible purposes, resident individuals can open Foreign Currency Account (FCA) in IFSCs,” the RBI said.

“The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law,” the banking regulator said.

Tapan Ray, MD and Group CEO, GIFT City said “We at GIFT IFSC welcome the Reserve Bank of India’s recent circular expanding the scope of the Liberalised Remittance Scheme (LRS). This decisive move aligns GIFT IFSC with other global financial centers, allowing resident investors to leverage our platform for a wider range of overseas investments and expenditures. By clarifying the use of LRS for investments and enabling transactions like insurance and education loan payments in foreign currency, the RBI has significantly enhanced the attractiveness and utility of GIFT IFSC.“

Indian twenty rupee currency notes are displayed at a roadside currency exchange stall in New Delhi.
| Photo Credit: REUTERS

The rupee traded in a narrow range and appreciated 2 paise to 83.49 against the U.S. dollar in early trade on July 11, as a positive trend in domestic equities supported the local unit, while elevated crude oil prices weighed on investor sentiments.

At the interbank foreign exchange market, the local unit opened at 83.49, registering a rise of 2 paise from its previous close.

On July 10, the rupee stayed range-bound and settled 2 paise lower at 83.51 against the U.S. dollar.

“Persistent demand for the dollar from local importers has capped the rupee’s potential gains, yet its outlook remains optimistic, buoyed by recent positive economic indicators,” CR Forex Advisors MD-Amit Pabari said.

Mr. Pabari further said the rupee’s outlook is supported by strong foreign inflows, a positive economic forecast, and India’s impressive macroeconomic growth, currently the fastest among large economies.

The Reserve Bank of India (RBI) appears determined to prevent the rupee from depreciating below 83.70, despite pressure from oil companies due to elevated oil prices, he added.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading at 104.93, lower by 0.11 per cent.

Brent crude futures, the global oil benchmark, advanced 0.76 per cent to USD 85.73 per barrel.

On the domestic equity market front, the 30-share BSE Sensex rose 105.32 points, or 0.13 per cent, to 80,030.09 points. The broader NSE Nifty advanced 21.60 points, or 0.09 per cent, to 24,346.05 points.

Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Wednesday, as they purchased shares worth Rs 583.96 crore, according to exchange data.

The Reserve Bank of India. File
| Photo Credit: Reuters

The Reserve Bank’s FI-Index, capturing the extent of financial inclusion across the country, rose to 64.2 in March 2024, showing growth across all parameters. The index captures information on various aspects of financial inclusion in a single value ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion.

“The value of the index for March 2024 stands at 64.2 vis-à-vis 60.1 in March 2023, with growth witnessed across all sub-indices,” the Reserve Bank of India (RBI) said in a statement on July 9. The improvement in FI-Index is mainly contributed by usage dimension, reflecting deepening of financial inclusion, it added.

The FI-Index comprises three broad parameters — access (35%), usage (45%), and quality (20%) — with each of these consisting of various dimensions, which are computed based on a number of indicators.

In August 2021, the central bank said FI-Index has been conceptualised as a comprehensive index, incorporating details of banking, investments, insurance, postal, as well as the pension sector, in consultation with government and respective sectoral regulators. The index is responsive to ease of access, availability and usage of services, and quality of services.

According to RBI, a unique feature of the index is the quality parameter which captures the quality aspect of financial inclusion as reflected by financial literacy, consumer protection and inequalities and deficiencies in services.

‘Compared to the interim Budget, the Centre’s revenue position is expected to improve on account of both higher tax and non-tax revenues’
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The final Budget for 2024-25, to be presented on July 23, would be the first Budget of the new government. It is an opportunity for the government to provide its medium-term growth and employment perspective along with its policy priorities. Given the continued global economic slowdown, India will have to rely largely on domestic growth drivers. The short-term objective could be to ensure a minimum 7% growth, while the medium-term objective may be to sustain the real GDP growth rate in the range of 7%-7.5%. This would be facilitated by bringing down the fiscal deficit relative to GDP from the current levels to the Fiscal Responsibility and Budget Management (FRBM) consistent level of 3% in the next three to four years. The employment objective is not independent of the growth objective except for an additional emphasis on the relatively more labour-intensive sectors in the composition of output.

Investment and savings prospects

To ensure a 7% plus growth on a sustained basis, we require a real investment rate of 35%. As in the latest available data for 2023-24, the real investment rate measured as gross fixed capital formation (GFCF), as percentage of GDP, was 33.3 for 2022-23 and 33.5 for 2023-24. Although gross capital formation (GCF) is marginally higher, we need to ensure a level of GFCF at 35% or so in the medium-term to sustain a growth of 7% plus, assuming an incremental capital output ratio of five. The saving to GDP ratio in nominal and real terms were 30.2% and 32.8%, respectively, in 2022-23. Assuming these trends continue, marginal upward adjustments are required in the savings and investment rates to ensure reaching and sustaining a level of 35% of GDP for the GFCF. One point of concern is the recent fall in household sector financial savings which, as per available information for 2022-23, had fallen to 5.2% of Gross National Disposable Income. Since this provides the investible surplus in addition to inflow of foreign capital, it is critical to increase the household financial savings rate to facilitate access to investible surplus at reasonable rates for the private sector.

On the demand side, the contribution of net exports to GDP growth has remained negative or low in recent years due to subdued export prospects. It was at 0.5% points in 2022-23 and (-)2.0% points in 2023-24. Indian service exports are expected to continue to do better than goods exports, which contracted in 2023-24. Until export demand picks up and private investment gathers momentum, India will have to rely on government investment demand to provide support to growth.

Budgetary options

Compared to the interim Budget, the Centre’s revenue position is expected to improve on account of both higher tax and non-tax revenues. The base number for gross tax revenues (GTR) for 2023-24 at ₹34.65 lakh crore, according to the Controller General of Accounts (CGA) actuals, turned out to be higher than the revised estimates (RE) of the interim Budget by a margin of ₹27,581 crore. We expect a nominal GDP growth for 2024-25 to be at least 11%, made up of 7% real growth and 3.8% implicit price deflator (IPD)-based inflation. The rise in the IPD-based inflation as compared to the 2023-24 level of 1.3% is on account of expected higher Wholesale Price Index (WPI) inflation which was (-)0.7% in 2023-24. With a buoyancy of 1.1 and a GTR growth of 12.1%, we expect a GTR magnitude of ₹38.8 lakh crore. This would translate to a net tax revenue for the Centre at ₹26.4 lakh crore after providing for States’ share in central taxes, a shade higher than ₹26 lakh crore provided in the interim Budget.

Non-tax revenues are also expected to be higher, as compared to the interim Budget estimates, due mainly to the Reserve Bank of India (RBI)’s augmented dividends of ₹2.11 lakh crore. We expect the Centre’s non-tax revenues to exceed ₹5 lakh crore. It may be noted that any transfer from the RBI is going to be expansionary since it will have a liquidity effect. This transfer is similar to an extension of credit by the RBI to the government without being treated as debt. Thus, it has implications for monetary policy. However, the improved revenue situation of the central government would facilitate meeting the government’s fiscal consolidation target.

Assuming that the government adheres to the 5.1% fiscal deficit to GDP ratio, as announced in the interim Budget, total expenditure that can be financed amounts to ₹49 lakh crore after taking into account some non-debt capital receipts. This will have to be allocated between revenue and capital expenditures. With the interim Budget expenditure magnitudes, revenue expenditure growth in 2024-25 turns out to be 4.6% over the CGA actuals for 2023-24. This growth may have to be increased to accommodate higher revenue expenditures on account of increased subsidies, increased health expenditures and increased allocations for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) to support and provide relief largely to the rural population.

Some improvement in rural incomes is expected in the current year with the expectation of it being a normal monsoon. Our estimates indicate that even if the revenue expenditure growth is enhanced to 8%, this would provide additional revenue expenditures close to ₹3 lakh crore over 2023-24 actuals. This would still leave fiscal space to provide for capital expenditure growth of 19.2% in 2024-25 which would be required for supporting investment demand resulting in infrastructure expansion that is consistent with the government’s medium-term objectives. Some tax rationalisation measures may be undertaken as long as they do not imply any significant revenue sacrifice. Some expansion of the ongoing Production Linked Incentive (PLI) scheme, particularly if it supports employment generation, may be considered.

Commit to FRBM targets

In conclusion, the Budget needs to aim at combining growth with stability. Stability includes both price stability and fiscal stability. It is important to signal commitment to the FRBM targets in the short to medium term. If the fiscal deficit to GDP ratio is brought down to 5.1% in 2024-25, it may take another three to four years to bring it down to 3% of GDP. As the fiscal deficit to GDP ratio is reduced and nominal GDP growth is kept in the range of 11%-11.5%, the debt GDP ratio and the interest payment to revenue receipts ratio would also come down, facilitating the reduction in fiscal deficit, thereby creating a virtuous cycle.

C. Rangarajan is former Chairman, Prime Minister’s Economic Advisory Council, and former Governor, Reserve Bank of India. D.K. Srivastava is former Director, Madras School of Economics, and former Member, Twelfth Finance Commission. The views expressed are personal

Photo used for representation purpose only.
| Photo Credit: Reuters

The RBI on July 2 proposed rationalising regulations that cover export and import transactions with an aim to promote ease of doing business and empower banks to provide more efficient service to their foreign exchange customers.

The central bank has issued ‘Regulation of Foreign Trade under Foreign Exchange Management Act (FEMA), 1999 – Draft Regulations and Directions’ in this regard.

As per the draft, every exporter should furnish to the specified authority a declaration specifying the amount representing the full export value of the goods or services.

“The amount representing the full export value of goods and services shall be realised and repatriated to India within nine months from the date of shipment for goods and date of invoice for services,” it said.

The draft also proposes that an exporter who has not realised the full value of export within the time specified may be caution listed by the authorised dealer.

An exporter who has been caution listed can undertake export only against receipt of advance payment in full or against an irrecoverable letter of credit, to the satisfaction of the authorised dealer.

According to the draft, no advance remittance for the import of gold and silver should be permitted unless specifically approved by the Reserve Bank of India.

The RBI said the proposed regulations are intended to promote ease of doing business, especially for small exporters and importers.

They are also intended to empower Authorised Dealer banks to provide quicker and more efficient service to their foreign exchange customers, the central bank said.

The RBI has sought comments on the draft regulations under FEMA and directions to authorised dealer banks by September 1.

The Reserve Bank of India. File
| Photo Credit: REUTERS

The Reserve Bank of India (RBI) on July 1 announced the appointment of Arnab Kumar Chowdhury and Charulatha S. Kar as executive directors. Mr. Chowdhury and Ms. Kar will look after three departments each.

Ms. Kar has been appointed as Executive Director (ED) with effect from July 1 while Mr. Chowdhury has been appointed ED with effect from June 3, 2024, according to the RBI.

Prior to being promoted as executive director, Mr. Chowdhury was the Chief General Manager-in-Charge in the Department of Supervision. As executive director, he will look after Deposit Insurance and Credit Guarantee Corporation (DICGC), foreign exchange department, and international department, the RBI said in a statement.

Mr. Chowdhury is a chartered accountant and holds a master’s degree in economics. He is also a certified associate of IIBF. He has experience of over three decades in the Reserve Bank of India. He has worked extensively in the area of supervision of financial entities.

Prior to being promoted as executive director, Ms. Kar was serving as Chief General Manager-in-Charge in the Human Resource Management Department, the RBI said in a separate statement. She will look after the Department of Communication, Human Resource Management Department, and Right to Information (First Appellate Authority). Ms. Kar is a post-graduate in commerce from the University of Mumbai and Diploma in Treasury and Forex management. She is also a Certified Associate of IIBF.

Mr. Chowdhury has worked in the area of corporate strategy, budgeting, accounting and issue department. He has also served as a member of several committees and working groups and has been contributing to policy formulation.

Ms. Kar has experience of over three decades in the Reserve Bank having worked in areas of payment and settlement systems, information technology, government banking, internal accounts and human resource management. She has represented the Reserve Bank in several Working Groups of BIS and has served as a member of other internal and external Committees.

Reserve Bank of India Governor Shaktikanta Das. File
| Photo Credit: PTI

RBI Governor Shaktikanta Das on Friday emphasised on the need to eliminate biases in algorithms as the use of artificial intelligence (AI) and machine learning (ML) is on the rise.

Delivering the inaugural address at the 18th Statistics Day Conference organised by the RBI, he said the use of statistics had been ever growing as a preferred tool for drawing inferences in diverse fields and the discipline had moved beyond collection of facts to focusing more on interpretation and drawing inferences, taking into account the level of uncertainty.

The Reserve Bank of India (RBI) has ventured into AI/ML analytics in multiple areas. Under the RBI’s aspirational goals for RBI@100, Mr. Das said the central bank was aiming to develop cutting-edge systems for high frequency and real-time data monitoring and analysis.

The RBI said Special Drawing Facility (SDF) availed by State Governments/ UTs will continue to be linked to the quantum of their investments in marketable securities, issued by the Government, including Auction Treasury Bills (ATBs). 
| Photo Credit: Reuters

The Reserve Bank of India (RBI) on Friday increased the Ways and Means Advances (WMA) limits of State governments and Union territories to ₹60,118 crore from ₹47,010 crore.

“Based on the recommendations made by the Group constituted by the Reserve Bank and consisting of select state Finance Secretaries and taking into account the expenditure data of the states for the recent years, it has been decided to revise the WMA limits of the State Governments/ UTs, effective from July 1, 2024,” the RBI said in a circular. 

State/UT wise breakup of the WMA is available on RBI’s website. The RBI said Special Drawing Facility (SDF) availed by State Governments/ UTs will continue to be linked to the quantum of their investments in marketable securities, issued by the Government, including Auction Treasury Bills (ATBs). 

SDF, WMA and Overdraft (OD) schemes were last reviewed and announced on April 1, 2022.

New Delhi:

The rapid rise in Futures and Options (F&O) trade volumes in recent years could pose several challenges as retail investors not following proper risk management could be impacted by sudden movements in markets, said a Reserve Bank report.

The equity derivatives segment has been witnessing growing participation from retail investors in recent years. It has gone up by 42.8 per cent from 65 lakh during 2022-23 to 95.7 lakh during 2023-24.

While trading volumes in derivatives segment has seen exponential growth over the years in notional terms, the trading volumes when measured by the premium turnover has witnessed a linear growth pattern, said the RBI’s bi-annual Financial Stability Report (FSR).

The ratio of premium turnover to cash market has remained steady over the last three years.

FSR said equity derivatives market can improve price discovery and enhance market liquidity in underlying cash markets. It, however, is also associated with higher risks.

“Since derivatives are more complex than the underlying, investor protection is a key regulatory imperative,” the report said.

A SEBI research published in January 2023 showed that 89 per cent of individual participants in F&O lost money in the segment during fiscal year 2018-19 and fiscal year 2021-22.

“…the rapid rise in F&O volumes in recent years could pose several challenges: retail investors could be impacted by sudden movements in markets without proper risk management and this could have knock-on effects on cash market; rise in popularity of shorter-duration options in indices with few stocks and high volatility could amplify leverage…,” the report said.

The Securities and Exchange Board of India (SEBI) has instituted an expert working group, under the Secondary Markets Advisory Committee, to review F&O markets from the perspective of investor protection as well as overall systemic risk management.

SEBI is also in the process of reviewing the corpus of the Settlement Guarantee Fund (SGF), stress testing methodologies and scenarios for computation of core SGF to build a more resilient settlement system to meet contingencies arising due to failure to honour obligations by any member of a stock exchange.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

A security guard’s reflection is seen next to the logo of the Reserve Bank Of India (RBI) at the RBI headquarters in Mumbai. The RBI released the 29th issue of Financial Stability Report on June 27, 2024.
| Photo Credit: Reuters

The Indian economy and the financial system remain robust and resilient, anchored by macroeconomic and financial stability, the Reserve Bank of India (RBI) said in the 29th issue of the Financial Stability Report (FSR) which was released on June 27.

With improved balance sheets, banks and financial institutions are supporting economic activity through sustained credit expansion, it said.

According to the FSR capital to risk-weighted assets ratio (CRAR) and the common equity tier 1 (CET1) ratio of scheduled commercial banks (SCBs) stood at 16.8% and 13.9%, respectively, at end-March 2024.

SCBs’ gross non-performing assets (GNPA) ratio fell to a multi-year low of 2.8 per cent and the net non-performing assets (NNPA) ratio to 0.6 per cent at end-March 2024.

“Macro stress tests for credit risk reveal that SCBs would be able to comply with minimum capital requirements, with the system-level CRAR in March 2025 projected at 16.1%, 14.4% and 13.0%t, respectively, under baseline, medium and severe stress scenarios,” the RBI said in the FSR.

“These scenarios are stringent conservative assessments under hypothetical shocks and the results should not be interpreted as forecasts,” it added.

Non-banking financial companies (NBFCs) remain healthy, with CRAR at 26.6 per cent, GNPA ratio at 4.0% and return on assets (RoA) at 3.3%, respectively, at end-March 2024, it further said.

As per the FSR the global economy is facing heightened risks from prolonged geopolitical tensions, elevated public debt, and the slow progress in the last mile of disinflation.

Despite these challenges, the global financial system has remained resilient, and financial conditions stable.